BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 596|
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THIRD READING
Bill No: AB 596
Author: Daly (D)
Amended: 6/9/15 in Senate
Vote: 21
SENATE TRANS. & HOUSING COMMITTEE: 11-0, 6/16/15
AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva,
McGuire, Mendoza, Roth, Wieckowski
ASSEMBLY FLOOR: 77-0, 5/18/15 - See last page for vote
SUBJECT: Common interest developments: annual budget report
SOURCE: Orange County Business Council
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: Existing law requires an HOA to distribute an annual
budget report 30 to 90 days before the end of the fiscal year
that includes specified information, unless the governing
documents impose more stringent standards. The annual budget
shall include:
1)A pro forma operating budget showing the estimated revenue and
expense on an accrual basis;
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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
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
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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 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.
Background of CIDs. 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.
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,
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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 assessments.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/17/15)
Orange County Business Council (source)
California Association of Realtors
OPPOSITION: (Verified6/17/15)
Community Associations Institute
Educational Community for Homeowners
ARGUMENTS IN SUPPORT: According to the source, Orange County
Business Council, this bill is one step towards creating an
affordable housing market throughout California, particularly at
entry-level home buying. Generally, a downpayment required for
an FHA-insured or VA-guaranteed loan is lower than a
conventional loan, and these loans offer a more favorable
interest rate. Before a qualified loan buyer can use either FHA
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or VA financing to purchase a home in a condominium project, the
HOA must apply for and receive approval from the government
entity that is being asked to insure or guarantee the loan.
This bill adds to the existing notice requirements an additional
item: whether or not the HOA has been certified by FHA or VA.
ARGUMENTS IN OPPOSITION:According to the opponents, 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. Educational
Community for Homeowners would remove its 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 FLOOR: 77-0, 5/18/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Lackey, Levine, Linder, Lopez,
Low, Maienschein, Mayes, McCarty, Medina, Mullin, Nazarian,
Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Kim, Mathis, Melendez
Prepared by:Alison Dinmore / T. & H. / (916) 651-4121
6/18/15 18:48:42
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