BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 596 Hearing Date: 6/16/2015
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|Author: |Daly |
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|Version: |6/9/2015 |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Alison Dinmore |
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SUBJECT: Common interest developments: annual budget report
DIGEST: This bill requires a homeowners association (HOA) in a
condominium common interest development (CID) to disclose to the
owners if the CID is an approved condominium project pursuant to
Federal Housing Administration (FHA) and Department of Veterans
Affairs (VA) guidelines in their annual budget report.
ANALYSIS:
A CID is a form of real estate in which each homeowner has an
exclusive interest in a unit or lot and a shared or undivided
interest in common area property. Condominiums, planned unit
developments, stock cooperatives, community apartments, and many
resident-owned mobilehome parks all fall under the umbrella of
common interest developments. CIDs are governed by an HOA. The
Davis-Stirling Common Interest Development Act provides the
legal framework under which CIDs are established and operate.
In addition to the requirements of the act, each CID is governed
according to the recorded declarations, bylaws, and operating
rules of the association, collectively referred to as the
governing documents.
Existing law requires an HOA to distribute an annual budget
report 30 to 90 days before the end of the fiscal year that
includes the following information, unless the governing
documents impose more stringent standards. The annual budget
shall include:
AB 596 (Daly) Page 2 of ?
1)A pro forma operating budget showing the estimated revenue and
expense on an accrual basis;
2)A summary of the HOA's reserves;
3)A summary of the reserve funding plan adopted by the HOA's
board of directors (board);
4)A statement as to whether the board, consistent with the
reserve funding plan, has determined or anticipates that the
levy of one or more assessments will be required to repair,
replace, or restore any major component or to provide for
adequate reserves;
5)A general statement describing the procedure used to calculate
and establish reserves;
6)A statement as to how the board plans to fund the reserves to
repair or replace major components;
7)A statement of whether the HOA has any outstanding loans;
8)A summary of the HOA's property, general liability,
earthquake, flood, and fidelity insurance policies; and
9)The Assessment and Reserve Funding Disclosure Summary form
prepared pursuant to Civil Code Section 5570.
This bill requires an HOA of a condominium CID:
1)To disclose in a statement in the annual budget report, on a
separate piece of paper in 10-point font, the status of the
CID as a FHA-approved condominium project.
2)To disclose in a statement in the annual budget report, on a
separate piece of paper in 10-point font, the status of the
CID as a VA-approved condominium project.
COMMENTS:
1) Purpose of the bill. According to the author, an HOA is not
currently required to inform their members if their CID is an
approved project pursuant to the guidelines of the FHA or VA.
The FHA and VA approvals offer potential benefits for current
HOA members, as well as potential buyers. For example, a
prospective buyer can purchase an individual home in an
attached condominium project with a lower downpayment if the
HOA has been approved by the FHA. This is a helpful tool for
first-time homebuyers. An FHA loan may require a downpayment
as low as 3% compared to a conventional loan, which may be as
high as 20%.
A limited number of HOAs in California are not certified by
FHA. For some prospective buyers, FHA approval status serves
AB 596 (Daly) Page 3 of ?
as a type of stamp of approval, enhancing the value of the
properties in the community. This bill adds an additional
requirement that the HOA notify their members of their FHA or
VA status in their annual budget report. By requiring HOAs to
annually notify their members of their FHA and VA status, the
author hopes that this bill will encourage the limited number
of HOAs that are not currently certified to become so.
2) FHA and VA loan approval. FHA insures condominium
single-unit loans for up to 30-year terms to purchase or
refinance a unit in an FHA-approved condominium project. For
a buyer to qualify for an FHA loan for a condominium, the
entire condominium project must be certified by FHA and must
appear on the official FHA-approved list.
The FHA publishes guidelines to help sellers, buyers, and
developers gain approval and be listed on the FHA-approved
list. This means that HOAs must apply and submit the
required documentation and meet minimum FHA requirements.
Certification by the FHA lasts two years, at which point the
HOA must be re-certified. The certification process requires
the HOA to submit a form and various legal documents
(including recorded covenants, conditions and restrictions
[CCRs], recorded plat map, recorded condominium site maps,
bylaws, and articles of incorporation), financial documents,
management agreements, Federal Emergency Management Agency
(FEMA) Flood Map, and evidence of required insurance coverage.
VA similarly publishes guidelines that outline the documents
necessary for the VA-certification and approval process. VA's
goal is to help protect the interests of veterans and the
federal government by ensuring that all properties located in
a common interest community meet VA regulatory requirements.
The VA-certification application process requires the HOA to
meet minimum requirements and provide similar documentation as
required by the FHA-certification process. Unlike FHA
certification, however, HOAs do not need to re-apply once the
CID has been approved by the VA.
There are companies that an HOA can hire who apply for the FHA
or VA certification on the HOA's behalf and often charge
between $600 and $1,500. The cost of certification, like
other expenses of an HOA, would be paid for through
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assessments.
3) Opposition. According to the Educational Community for
Homeowners (ECHO), HOAs are comprised of volunteers, many of
whom find the laws governing CIDs to be complex and
ever-changing. The responsibility of informing owners in the
development whether or not it is FHA- or VA-approved lies with
a Realtor, seller, and buyer. ECHO would remove their
opposition to the bill if it required the annual budget report
to include a statement informing the owners that there are FHA
and VA websites where owners can ascertain whether or not the
CID is FHA- or VA-certified, but not require the listing of
the websites in the report, because they may change.
Assembly votes:
Floor:77-0
H&CD: 7-0
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local:
No
POSITIONS: (Communicated to the committee before noon on
Wednesday,
June 10, 2015.)
SUPPORT:
Orange County Business Council (sponsor)
California Association of Realtors
OPPOSITION:
Community Associations Institute
Educational Community for Homeowners
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