BILL ANALYSIS                                                                                                                                                                                                    Ó





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular Session


          AB 905 (Beth Gaines)
          Version: February 26, 2015
          Hearing Date: June 9, 2015
          Fiscal: Yes
          Urgency: No
          TH   


                                        SUBJECT
                                           
                Time-shares: Public Report: Real Property Inspection

                                      DESCRIPTION  

          The Vacation Ownership and Time-share Act of 2004 requires a  
          person who creates a time-share plan or who is in the business  
          of selling time-share interests, to prepare, for issuance by the  
          Real Estate Commissioner, a public report that discloses certain  
          facts concerning the time-share.  Existing law requires those  
          who create or sell time-shares to provide a copy of the public  
          report in writing to each purchaser of a time-share interest in  
          a time-share plan at the time of purchase.  The Act also  
          requires those who offer a purchaser the opportunity to  
          subscribe to, or become a member of, an exchange program, which  
          is a method, arrangement, or procedure for the voluntary  
          exchange of time-share interests or other property interests, to  
          provide the purchaser with specified disclosures in writing.

          This bill would modify the Act to provide that required copies  
          of public reports pertaining to time-share interests and  
          required copies of disclosures pertaining to exchange programs  
          may be provided in a digital format at the discretion of the  
          purchaser.  This bill would also exempt licensed real estate  
          brokers or salespersons from the duty to conduct a reasonably  
          competent and diligent visual inspection of a time-share  
          property and to disclose all facts materially affecting the  
          value or desirability of the property to a prospective purchaser  
          when, as a condition of transfer, the prospective purchaser  
          would receive a copy of the public report, provided the property  
          has not been previously occupied.








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                                      BACKGROUND  

          Time-shares, or vacation ownerships, are terms that generally  
          describe a system where owners occupy a property for short  
          periods of time each year while on vacation.  This contrasts  
          with more traditional common interest developments, like  
          condominiums and residential subdivisions, which are usually  
          occupied year-round.  The regulation of timeshares began in  
          earnest in 1981 when the industry was widely perceived as being  
          prone to high-pressure sales tactics and rampant consumer fraud  
          (an era now half-jokingly referred to as the "crime-share"  
          days).  Stringent state regulations for time-shares were built  
          into the Subdivided Lands Law that regulated common interest  
          developments.  Although time-share regulations and references  
          are now found throughout state law, they are now principally  
          found in the Vacation Ownership and Time-share Act of 2004.   
          (Bus. & Prof. Code Sec. 11210 et seq.)

          Under current law, time-shares are regulated by the Bureau of  
          Real Estate (BRE), which has a broad responsibility to ensure  
          that purchasers of regulated time-shares, both in-state and  
          out-of-state, receive everything that they bargained for when  
          purchasing their interest in a time-share plan.  Time-share  
          interests regulated by BRE fall into two basic categories, based  
          on whether participation in the time share results in the  
          conveyance of an interest in real property.  The first category  
          of regulated time-share interests includes those where a right  
          of occupancy in a time-share property is coupled with a  
          conveyance of an estate in real property, which is typically  
          transferred to the purchaser by grant deed.  The second involves  
          time-share interests based on purchase agreements between  
          sellers and buyers that do not involve the conveyance of an  
          interest in real property.  These purchase agreements take many  
          different forms, such as granting membership in a corporation  
          along with a time-limited license for exclusive use of a  
          particular property.

          BRE's oversight of time-share interests is provided primarily  
          through the creation of a "public report," which must be issued  
          to each purchaser before the sale of an interest in a time-share  
          plan.  The purpose of a public report is "to prevent fraud and  
          misrepresentation in the marketing of parcels of land by  
          requiring disclosure of the financial risks and benefits of a  
          transaction to proposed purchasers and lessees."  (California  







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          Coastal Com. v. Quanta Investment Corp. (1980) 113 Cal.App.3d  
          579, 589.)  The Vacation Ownership and Time-share Act of 2004  
          requires the creation of this public report, which encompasses  
          most of the major elements of a time-share purchase (property  
          description, amenities, real estate disclosures, costs and  
          escrow, maintenance fees and assessments, management and local  
          governance, rescission, liability, and a host of other matters).  
           BRE oversees developer compliance with regulations governing  
          the creation of time-shares, as well those related to  
          advertising and sales of time-share interests, but the  
          California Attorney General bears the ultimate responsibility to  
          ensure the law is enforced.

          The Vacation Ownership and Time-share Act of 2004 also governs  
          the creation and sale of interests in "exchange programs," which  
          are contractual arrangements that facilitate voluntary exchange  
          of time-share interests, such as allowing the owner of a  
          time-share interest to trade use of time owned in one time-share  
          plan for use of time at another property.  The act requires  
          those who offer purchasers the opportunity to subscribe to or  
          become a member of an exchange program to provide specified  
          disclosures about the exchange program, including disclosures  
          about the program's membership and governance.

          This bill, sponsored by the American Resort Development  
          Association, would authorize developers and sellers of  
          time-share interests to provide time-share public reports and  
          disclosures pertaining to exchange programs in a digital format  
          at the discretion of the purchaser.  This bill would also  
          relieve licensed real estate brokers and salespersons of the  
          duty to conduct a reasonably competent and diligent visual  
          inspection of a previously unoccupied time-share interest  
          offered for sale, and to disclose to a prospective purchaser all  
          facts materially affecting the value or desirability of the  
          property that an investigation would reveal, when the transfer  
          of the time-share interest would require the seller to provide a  
          public report.

                                CHANGES TO EXISTING LAW
           
           1.Existing law  , the Vacation Ownership and Time-share Act of  
            2004, regulates the creation and sale of time-share interests  
            in a time-share plan, and the creation and operation of  
            exchange programs that facilitate the voluntary exchange of  
            time-share interests.  (Bus. & Prof. Code Sec. 11210 et seq.)







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             Existing law  provides that any person who, to any individual  
            located in the state, sells, offers to sell, or attempts to  
            solicit prospective purchasers to purchase a time-share  
            interest, or any person who creates a time-share plan with an  
            accommodation in the state, shall register the time-share plan  
            with the Commissioner of Real Estate, unless the time-share  
            plan is otherwise exempt.  (Bus. & Prof. Code Sec. 11226 (a).)

             Existing law  provides that, when registering a time-share  
            plan, the developer of a time-share plan shall provide the  
            Commissioner with, among other things, a public report that  
            complies with the requirements of the Vacation Ownership and  
            Time-share Act of 2004.  (Bus. & Prof. Code Sec. 11226 (c).)

             Existing law  provides that a developer shall prepare, for  
            issuance by the Commissioner, a public report that shall fully  
            and accurately disclose those facts concerning the time-share  
            developer and time-share plan that are required by the  
            Vacation Ownership and Time-share Act of 2004 or by  
            regulation.  (Bus. & Prof. Code Sec. 11234.)

             Existing law  provides that the developer shall provide the  
            public report to each purchaser of a time-share interest in a  
            time-share plan at the time of purchase.   Existing law  
            specifies the public report shall be in writing and dated and  
            shall require the purchaser to certify in writing the receipt  
            thereof.  Existing law also specifies the information required  
            to be contained within a public report.  (Bus. & Prof. Code  
            Sec. 11234.)

             Existing law  provides that public reports for a single site  
            and those component sites of a specific time-share interest  
            multisite time-share plan that are offered in this state shall  
            include the following:
                 the name and address of the developer and the type of  
               time-share plan being offered and the name and address of  
               the time-share project;
                 a description of the existing or proposed  
               accommodations, including the type and number of time-share  
               interests in the accommodations, and if the accommodations  
               are proposed or not yet complete or fully functional, an  
               estimated date of completion;
                 the number of accommodations and time-share interests,  
               expressed in periods of seven-day use availability or other  







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               time increments applicable to the time-share plan,  
               committed to the multisite time-share plan, and available  
               for use by purchasers and a representation about the  
               percentage of useable time authorized for sale, and if that  
               percentage is 100 percent, then a statement describing how  
               adequate periods of time for maintenance and repair will be  
               provided;
                 a description of any existing or proposed amenities of  
               the time-share plan and, if the amenities are proposed or  
               not yet complete or fully functional, the estimated date of  
               completion;
                 the extent to which financial arrangements have been  
               made for the completion of any incomplete, promised  
               improvements;
                 a description of the duration, phases, and operation of  
               the time-share plan;
                 the name and principal address of the managing entity  
               and a description of the procedures, if any, for altering  
               the powers and responsibilities of the managing entity and  
               for removing or replacing it;
                 the current annual budget, along with the projected  
               assessments and a description of the method for calculating  
               and apportioning the assessments among purchasers, all of  
               which shall be attached as an exhibit to the public report;
                 any initial or special fee due from the purchaser at  
               closing together with a description of the purpose and the  
               method of calculating the fee;
                 a description of any financing offered by or available  
               through the developer;
                 a description of any liens, defects, or encumbrances on  
               or affecting the title to the time-share interests;
                 a description of any bankruptcies, pending civil or  
               criminal suits, adjudications, or disciplinary actions of  
               which the developer has knowledge, that would have a  
               material effect on the developer's ability to perform its  
               obligations;
                 any current or expected fees or charges to be paid by  
               time-share purchasers for the use of any amenities related  
               to the time-share plan;
                 a description and amount of insurance coverage provided  
               for the protection of the purchaser;
                 the extent to which a time-share interest may become  
               subject to a tax lien or other lien arising out of claims  
               against purchasers of different time-share interests;
                 a statement disclosing any right of first refusal or  







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               other restraint on the transfer of all or any portion of a  
               time-share interest;
                 a statement disclosing that a deposit made in connection  
               with the purchase of a time-share interest shall be held by  
               an escrow agent until expiration of any right to cancel the  
               contract and that a deposit shall be returned to the  
               purchaser if he or she elects to exercise his or her right  
               of cancellation, as specified;
                 a statement that the assessments collected from the  
               purchasers will be kept in a segregated account separate  
               from the assessments collected from the purchasers of other  
               time-share plans managed by the same managing entity, along  
               with a statement identifying the location of the account  
               and a disclosure of the rights of owners to inspect the  
               records pertaining to their accounts;
                 if the time-share plan provides purchasers with the  
               opportunity to participate in an exchange program, a  
               description of the name and address of the exchange company  
               and the method by which a purchaser accesses the exchange  
               program;
                 any other information that the developer, with the  
               approval of the commissioner, desires to include in the  
               public report; and
                 any other information reasonably requested by the  
               commissioner.  (Bus. & Prof. Code Sec. 11234.)

             Existing law  establishes additional disclosures for public  
            reports for specific time-share interest multisite time-share  
            plans and for nonspecific time-share interest multisite  
            time-share plans.  (Bus. & Prof. Code Sec. 11234.)

             Existing law  provides that if a developer offers a purchaser  
            the opportunity to subscribe to or to become a member of an  
            exchange program, or if an exchange company offers directly to  
            the purchaser the opportunity to subscribe to or become a  
            member of an exchange company, the developer or exchange  
            company shall provide to the purchaser in writing all of the  
            following information prior to or concurrently with the  
            execution of a contract or subscription for membership in the  
            exchange program:
                 the name and address of the exchange company;
                 the names of all officers, directors, and shareholders  
               of the exchange company;
                 whether the exchange company or any of its officers or  
               directors have any legal or beneficial interest in any  







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               developer or managing entity for any time-share plan  
               participating in the exchange program and, if so, the  
               identity of the time-share plan and the nature of the  
               interest;
                 a copy of the form of the contract between the purchaser  
               and the exchange company, along with a statement that the  
               purchaser's contract with the exchange company is a  
               contract separate and distinct from the purchaser's  
               contract with the seller of time-share interests;
                 whether the purchaser's participation in the exchange  
               program is dependent upon the continued affiliation of the  
               applicable time-share plan with the exchange program;
                 whether the purchaser's participation in the exchange  
               program is voluntary;
                 a fair and accurate description of the terms and  
               conditions of the purchaser's contractual relationship with  
               the exchange program and the procedure by which changes  
               thereto may be made;
                 a fair and accurate description of the procedures  
               necessary to qualify for and effectuate exchanges;
                 a fair and accurate description of all limitations,  
               restrictions, and priorities employed in the operation of  
               the exchange program, including, but not limited to,  
               limitations on exchanges based on seasonality,  
               accommodation size, or levels of occupancy, expressed in  
               conspicuous type.  If those limitations, restrictions, or  
               priorities are not uniformly applied by the exchange  
               company, the information shall include a clear description  
               of the manner in which they are applied;
                 whether exchanges are arranged on a space available  
               basis and whether any guarantees of fulfillment of specific  
               requests for exchanges are made by the exchange company;
                 whether and under what circumstances an owner, in  
               dealing with the exchange program, may lose the right to  
               use and occupy an accommodation of the time-share plan  
               during a reserved use period with respect to any properly  
               applied for exchange without being provided with substitute  
               accommodations by the exchange program;
                 the fees or range of fees for participation by owners in  
               the exchange program, a statement of whether any such fees  
               may be altered by the exchange company and the  
               circumstances under which alterations may be made;
                 the name and address of the site of each accommodation  
               included within a time-share plan participating in the  
               exchange program;







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                 the number of accommodations in each time-share plan  
               that are available for occupancy and that qualify for  
               participation in the exchange program, expressed within the  
               following numerical groups: 1-5; 6-10; 11-20; 21-50; and 51  
               and over;
                 the number of currently enrolled owners for each  
               time-share plan participating in the exchange program,  
               expressed within the following numerical groups: 1-100;  
               101-249; 250-499; 500-999; and 1,000 and over; and a  
               statement of the criteria used to determine those owners  
               who are currently enrolled with the exchange program;
                 the disposition made by the exchange company of use  
               periods deposited with the exchange program by owners  
               enrolled in the exchange program and not used by the  
               exchange company in effecting exchanges; and
                 the following information for the preceding calendar  
               year, which shall be independently audited by a certified  
               public accountant in accordance with the standards of the  
               Accounting Standards Board of the American Institute of  
               Certified Public Accountants and reported annually no later  
               than August 1 of each year:
               o      the number of owners currently enrolled in the  
                 exchange program;
               o      the number of time-share plans that have current  
                 affiliation agreements with the exchange program;
               o      the percentage of confirmed exchanges, which is the  
                 number of exchanges confirmed by the exchange program  
                 divided by the number of exchanges properly applied for,  
                 together with a complete and accurate statement of the  
                 criteria used to determine whether an exchange request  
                 was properly applied for;
               o      a statement in conspicuous type to the effect that  
                 the percentage described above is a summary of the  
                 exchange requests entered with the exchange program in  
                 the period reported and that the percentage does not  
                 indicate the probabilities of an owner's being confirmed  
                 to any specific choice or range of choices;
               o      the number of use periods for which the exchange  
                 program has an outstanding obligation to provide an  
                 exchange to an owner who relinquished a use period during  
                 a particular year in exchange for a use period in any  
                 future year; and
               o      the number of exchanges confirmed by the exchange  
                 program during the year.  (Bus. & Prof. Code Sec. 11216.)








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             This bill  would authorize a developer to provide a public  
            report required by the Vacation Ownership and Time-share Act  
            of 2004, as well as any disclosures pertaining to an exchange  
            program, to a purchaser in writing or in a digital format at  
            the discretion of the purchaser.

           1.Existing law  provides that it is the duty of a real estate  
            broker or salesperson to a prospective purchaser of  
            residential real property, as defined, to conduct a reasonably  
            competent and diligent visual inspection of the property  
            offered for sale and to disclose to that prospective purchaser  
            all facts materially affecting the value or desirability of  
            the property that an investigation would reveal, and to make  
            other specified disclosures about the property and  
            transaction, if that broker has a written contract with the  
            seller to find or obtain a buyer or is a broker who acts in  
            cooperation with that broker to find and obtain a buyer.   
            (Civ. Code Sec. 2079 et seq.)

             Existing law  specifies that the duty of a real estate broker  
            or salesperson to conduct a reasonably competent and diligent  
            visual inspection of a property does not apply to transfers  
            which are required to be preceded by the furnishing, to a  
            prospective transferee, of a copy of a public report pursuant  
            to Section 11018.1 of the Business and Professions Code and  
            transfers which can be made without a public report pursuant  
            to Section 11010.4 of the Business and Professions Code,  
            unless the property has been previously occupied.  (Civ. Code  
            Sec. 2079.6.)

             This bill  would additionally provide that the duty of a real  
            estate broker or salesperson to conduct a reasonably competent  
            and diligent visual inspection of a property and to provide  
            specified disclosures about the property and transaction does  
            not apply to transfers which are required to be preceded by  
            the furnishing, to a prospective transferee, of a copy of a  
            public report pursuant to Section 11234 of the Business and  
            Professions Code pertaining to time-share plans, unless the  
            property has been previously occupied.

                                        COMMENT
           
           1.Stated need for the bill
           
          The author states:







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            Under existing law, purchasers of timeshares must be provided  
            an extensive public report on the development.  Existing law  
            also mandates that purchasers of timeshare exchange program[s]  
            be given detailed information regarding the program . . . In  
            this modern and increasingly paperless world, many consumers  
            would prefer not to get these sometimes bulky disclosures in  
            paper form.  AB 905 allows the disclosures to be made  
            electronically - at the discretion of the purchaser.  It also  
            replaces language that was inadvertently left out of previous  
            timeshare legislation.  In 2004, a rewrite of the timeshare  
                                                   law (AB 2252 - Montanez) deleted the mandated timeshare report  
            from [Business and Professions Code] Section 11018.1 and  
            placed an expanded report requirement in [a] new section --  
            [Business and Professions Code] Section 11234.  However, Civil  
            Code Section 2079.6 was never amended to reflect that change.

           2.Providing Disclosures Electronically
           
          This bill would explicitly authorize developers and sellers of  
          time-share interests to provide copies of a time-share's public  
          report and required disclosures about time-share exchange  
          programs to prospective purchasers electronically at the  
          purchaser's discretion.  The ability to receive public reports  
          and other statements disclosing the terms and conditions of a  
          time-share purchase electronically at the purchaser's option  
          would seem to give consumers greater control over how they  
          receive these rather lengthy disclosures.  Some consumers may be  
          more likely to read the disclosures if they are presented in  
          electronic format, whereas others might find them easier to  
          ignore.  However, since this bill would leave it to the consumer  
          to decide what format to receive these materials in, the bill is  
          unlikely to undermine existing disclosure requirements and may  
          arguably improve the disclosure process.  Staff notes that the  
          Legislature has previously authorized consumers to receive  
          certain real estate disclosures and notices electronically,  
          including under the Davis-Stirling Common Interest Development  
          Act, which allows homeowners to receive documents from a  
          homeowners association by electronic delivery if the recipient  
          has consented, in writing, to that method of delivery.  (Civ.  
          Code Sec. 4040.)  This bill would expand to time-share interests  
          the existing practice of providing certain real estate  
          disclosures electronically.
           3.Eliminating Duty to Inspect and Disclose
           







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          This bill would also exempt licensed real estate brokers or  
          salespersons from the duty to conduct a reasonably competent and  
          diligent visual inspection of a time-share property and to  
          disclose all facts materially affecting the value or  
          desirability of the property to a prospective purchaser when, as  
          a condition of transfer, the prospective purchaser would receive  
          a copy of the public report, provided the property has not been  
          previously occupied.  Normally, a licensed real estate  
          professional is duty-bound to properly inspect and advise their  
          client of the conditions of a property the client is considering  
          purchasing.  This inspection is typically done alongside other  
          specialized inspections, such as of a roof or a plumbing system,  
          during the final phases of a real estate transaction.  It is  
          intended to help ensure that the purchaser of real property  
          understands what he or she is purchasing.

          However, relieving licensed real estate brokers or salespersons  
          from the duty to conduct visual inspections of time-share  
          properties that have not been previously occupied and are the  
          subject of public reports would remove an arguably unnecessary  
          obligation currently imposed on licensees.  Having not been  
          previously occupied, these properties are less likely to have  
          characteristics affecting the value or desirability of the  
          property that would be revealed during a visual inspection.  For  
          these types of properties, a public report is likely to be more  
          objective, more comprehensive, and a better source for  
          evaluating the value or desirability of a property than a visual  
          inspection conducted by a licensee.


           Support  :  None Known

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  American Resort Development Association; Resort Owner's  
          Coalition

           Related Pending Legislation  :  AB 634 (Calderon, 2015) would  
          amend the Vacation Ownership and Time-share Act of 2004 to  
          prohibit a time-share owner's association from publishing its  
          list of owners or providing a copy of the list to any time-share  
          interest owner or to any third party, or from using or selling  
          the list for commercial purposes, except to accomplish  







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          legitimate association business, as defined.  This bill is  
          pending in the Senate Judiciary Committee.

           Prior Legislation  :  AB 2252 (Montanez, Ch. 697, Stats. 2004)  
          consolidated and revised the body of time-share vacation  
          property law, streamlined the regulatory approval process of  
          time-share plans, and added new consumer protections and  
          disclosures to create the Vacation Ownership and Time-share Act  
          of 2004.
           Prior Vote  :

          Assembly Floor (Ayes 77, Noes 0)
          Assembly Appropriations Committee (Ayes 17, Noes 0)
          Assembly Business and Professions Committee (Ayes 14, Noes 0)

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