BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1024|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 1024
Author: Torres (D)
Amended: 9/3/13 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 10-0, 6/18/13
AYES: DeSaulnier, Gaines, Beall, Galgiani, Hueso, Lara, Liu,
Pavley, Roth, Wyland
NO VOTE RECORDED: Cannella
SENATE JUDICIARY COMMITTEE : 5-1, 7/2/13
AYES: Walters, Anderson, Jackson, Leno, Monning
NOES: Corbett
NO VOTE RECORDED: Evans
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 73-0, 5/16/13 - See last page for vote
SUBJECT : Cooperative housing
SOURCE : California Center for Cooperative Development
DIGEST : This bill exempts a stock cooperative or community
apartment project from the Subdivided Lands Law (SLL) under
specified conditions and allows a stock cooperative or limited
equity housing cooperative to be sold or leased subject to a
blanket encumbrance under specified conditions.
Senate Floor Amendments of 9/3/13 replace a reference to the
CONTINUED
AB 1024
Page
2
Department of Transportation with a reference to the
Transportation Agency.
ANALYSIS : Cooperative housing members own a share in a
corporation that owns or controls the building(s) and/or
property in which they live. Each shareholder is entitled to
occupy a specific unit and has a vote in the corporation. Every
month, shareholders pay an amount that covers their
proportionate share of the expense of operating the entire
cooperative, which typically includes underlying mortgage
payments, property taxes, management, maintenance, insurance,
utilities, and contributions to reserve funds.
Limited-equity cooperatives limit the resale value of shares.
Generally targeted at low- and moderate-income people (in the
80-120% of median-income range), the purpose of limited-equity
cooperatives is to prevent speculation, encourage long-term
residency, and preserve the affordable character of the
cooperative for a wide variety of future residents.
SLL generally requires a person who proposes to subdivide a
property into five or more parcels for purpose of sale or lease
to obtain a public report from the Bureau of Real Estate (BRE)
before the subdivider may market the lots or units. SLL is
intended to ensure that prospective buyers receive disclosure of
pertinent information about the subdivision and that developers
complete improvements or arrange for their completion. SLL
contains a number of exemptions, including exemptions for
various forms of common ownership. For example, a
limited-equity housing cooperative for which a public agency has
provided the land or financed or subsidized at least 50% of the
total construction or development cost or $100,000, whichever is
less, is exempt from the public reporting requirement if the
regulatory agreements provides assurances for completion of the
common areas and facilities and ensures that every prospective
purchaser receives prior to sale a membership information report
that contains full disclosure of the financial obligations and
responsibilities of cooperative membership, rules regarding the
resale of shares, the financing of the cooperative, occupancy
restrictions, management arrangements, and any other information
pertinent to the benefits, risks, and obligations of cooperative
ownership.
SLL also generally prohibits the sale or lease of lots or
AB 1024
Page
3
parcels within a subdivision if the lots or parcels are subject
to a "blanket encumbrance," which is a mortgage secured by the
entire property or more than one lot or parcel. This
prohibition does not apply if the encumbrance contains a release
clause that unconditionally allows a purchaser to obtain legal
title free and clear of the blanket encumbrance upon compliance
with the terms and conditions of the purchase or lease. The
prohibition also does not apply if all of the following criteria
are met, or if the Commissioner of Real Estate (Commissioner)
provides an alternative requirement which he or she deems
acceptable to protect the interest of the purchaser:
1. The purchaser deposits the purchase price, or an amount that
the Commissioner determines is sufficient to protect a
purchaser, into an escrow account.
2. The title to the subdivision is held in a trust that the
Commissioner determines is acceptable until a release can be
obtained.
3. A bond is issued to the State of California and furnished to
the Commissioner that provides for the return of the moneys
paid or advanced by any purchaser.
4. The purchaser signs a notice making them aware of the
blanket encumbrance and its effect.
Cooperative housing developments also fall under the
Davis-Stirling Common Interest Development Act (Davis-Stirling
Act), which governs all common interest developments (CIDs).
The Act requires that a board of directors govern a CID and,
when elections are held for the board of directors, specifies
various election procedures, including use of secret ballots and
the appointment of an inspector of elections.
This bill:
1. Provides that, notwithstanding prohibitions in the
Subdivided Lands Act, an individual interest in a stock
cooperative or a limited equity housing cooperative may be
sold or leased subject to a blanket encumbrance if all of the
following conditions are met:
The notice required pursuant to Civil Code Section
AB 1024
Page
4
1133 is provided to every prospective purchaser or lessee
of the interest and is included in every purchase or lease
contract;
The property subject to the sale has obtained a public
report from the BRE that accounts for the blanket
encumbrance; and
The governing documents for the association require
the association to create within one year of the sale of
at least 50% of the individual interests in the stock
cooperative or limited-equity housing cooperative, and
maintain during the term of the blanket encumbrance, a
financing reserve amount equal to at least three months of
the amount of the debt service payments due on the blanket
encumbrance or a lesser amount acceptable to the
Commissioner.
1. Provides that a limited-equity housing cooperative or a
workforce housing cooperative trust shall be exempt from the
requirements of the Subdivided Lands Act if, alone or in any
combination with other specified entities, a state or
federally chartered credit union or a state or federally
certified community development financial institution
directly finances or subsidizes at least 50% of the total
construction or development cost or $100,000, whichever is
less, of the housing cooperative.
2. Provides that a director shall not be required to be elected
pursuant to the Davis-Stirling Act if the governing documents
of a CID, including a housing cooperative, provide that one
member from each separate interest is a director.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 9/3/13)
California Center for Cooperative Development (source)
Bay Area Community Land Trust
East Bay Cooperative Housing California
San Francisco Community Land Trust
Sustainable Economies Law Center
Walnut House Cooperative
AB 1024
Page
5
ARGUMENTS IN SUPPORT : The author writes:
Existing law prohibits a recording of a blanket encumbrance on
a cooperative unless specified requirements are met. As a
result it is very hard to finance a cooperative because
lenders are not interested in lending on individual units in
the cooperative. This bill allows [an interest in a stock
cooperative or limited equity housing cooperative to be sold
with] a blanket encumbrance [subject to certain conditions,
including the preparation of] . . . a public report [and the
establishment of] . . . a reserve.
In some cases the bylaws of the governing documents of a
cooperative require the members to all sit on the board of
directors. The state law governing CIDs [Common Interest
Developments] requires the homeowners association [to] hold an
election for the board of director[s]. This is unnecessary if
all members are automatically board members. This bill states
that if the bylaws require all members to be board members in
a CID then you are not required to hold an election.
ASSEMBLY FLOOR : 73-0, 5/16/13
AYES: Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell,
Gray, Hagman, Hall, Harkey, Roger Hernández, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Mitchell, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez,
Quirk, Quirk-Silva, Rendon, Salas, Skinner, Ting, Torres,
Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada,
John A. Pérez
NO VOTE RECORDED: Allen, Grove, Holden, Melendez, Morrell,
Stone, Vacancy
JA:k 9/4/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
AB 1024
Page
6