BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 905| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: AB 905 Author: Beth Gaines (R) Introduced:2/26/15 Vote: 21 SENATE JUDICIARY COMMITTEE: 7-0, 6/9/15 AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 77-0, 4/30/15 (Consent) - See last page for vote SUBJECT: Time-shares: public report: real property inspection SOURCE: American Resort Development Association Resort Owner's Coalition DIGEST: This bill modifies the Vacation Ownership and Time-share Act of 2004 to authorize required copies of public reports pertaining to time-share interests and required copies of disclosures pertaining to exchange programs to be provided in a digital format at the discretion of the purchaser. This bill also exempts 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 the property has not been previously occupied, and, as a condition of transfer, the prospective purchaser would receive a copy of the public report. AB 905 Page 2 ANALYSIS: Existing law: 1) Regulates, in the Vacation Ownership and Time-share Act of 2004, 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.) 2) 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).) 3) 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).) 4) 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.) 5) 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 AB 905 Page 3 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.) 6) 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 specified information. (Bus. & Prof. Code Sec. 11234.) 7) 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.) 8) 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 specified information prior to or concurrently with the execution of a contract or subscription for membership in the exchange program. (Bus. & Prof. Code Sec. 11216.) 9) 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.) AB 905 Page 4 10)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: 1)Authorizes 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. 2)Provides 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. 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 AB 905 Page 5 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 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 AB 905 Page 6 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, authorizes 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 also relieves 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. Comments The author states: 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 AB 905 Page 7 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. Related/Prior Legislation AB 634 (Calderon, 2015) amends 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 legitimate association business, as defined. The bill is pending in the Senate Judiciary Committee. AB 2252 (Montanez, Chapter 697, Statutes of 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified6/9/15) American Resort Development Association (co-source) Resort Owner's Coalition (co-source) OPPOSITION: (Verified6/9/15) AB 905 Page 8 None received ASSEMBLY FLOOR: 77-0, 4/30/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, 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: Campos, Chávez, Gomez Prepared by:Tobias Halvarson / JUD. / (916) 651-4113 6/24/15 17:20:54 **** END ****