BILL NUMBER: SB 1205 CHAPTERED
BILL TEXT
CHAPTER 26
FILED WITH SECRETARY OF STATE MAY 26, 1999
APPROVED BY GOVERNOR MAY 26, 1999
PASSED THE ASSEMBLY MAY 20, 1999
PASSED THE SENATE APRIL 26, 1999
AMENDED IN SENATE APRIL 14, 1999
AMENDED IN SENATE APRIL 12, 1999
INTRODUCED BY Senator Escutia
FEBRUARY 26, 1999
An act to amend Sections 65863.10 and 65863.11 of the Government
Code, relating to housing, and declaring the urgency thereof, to take
effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 1205, Escutia. Housing: governmental assistance.
Existing law prescribes requirements for an owner of a housing
development to give notice to tenants of the proposed termination or
prepayment of governmental assistance, and requires an owner to give
specified entities an opportunity to purchase the development upon
terms that represent a bona fide intention to sell.
This bill would provide that the owner is deemed in compliance
with those notice requirements when the owner decides to sell or
dispose of the property if, prior to July 1, 1999, the owner has
accepted such a bona fide offer. The bill would revise certain
conditions that must be met by a qualified purchaser and revise the
definition of an assisted housing development for that purpose.
The bill would declare that it is to take effect immediately as an
urgency statute.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 65863.10 of the Government Code is amended to
read:
65863.10. (a) As used in this section, the following terms have
the following meaning:
(1) "Affected tenant" means a tenant household residing in an
assisted housing development, as defined in paragraph (2), at the
time notice is required to be provided pursuant to this section, that
benefits from the government assistance.
(2) "Assisted housing development" means a multifamily rental
housing development that receives governmental assistance under any
of the following federal programs:
(A) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance,
under Section 8 of the United States Housing Act of 1937, as amended
(42 U.S.C. Sec. 1437f).
(B) The following federal programs:
(i) The Below-Market-Interest-Rate Program under Section 221(d)(3)
of the National Housing Act (12 U.S.C. Sec. 1715l(d)(3) and (5)).
(ii) Section 236 of the National Housing Act (12 U.S.C. Sec.
1715z-1).
(iii) Section 202 of the Housing Act of 1959 (12 U.S.C. Sec.
1701q).
(C) Programs for rent supplement assistance under Section 101 of
the Housing and Urban Development Act of 1965, as amended (12 U.S.C.
Sec. 1701s).
(D) Programs under Section 515 of the Housing Act of 1949, as
amended (42 U.S.C. Sec. 1485).
(3) "City" means a general law city, a charter city, or a city and
county.
(4) "Prepayment" means the payment in full or refinancing of the
federally insured or federally held mortgage indebtedness prior to
its original maturity date, or the voluntary cancellation of mortgage
insurance, on an assisted housing development described in
subparagraph (B) of paragraph (2) that would have the effect of
removing the current low-income affordability restrictions contained
in the applicable laws and the regulatory agreement.
(5) "Termination" means an owner's decision not to extend or renew
its participation in a federal subsidy program for an assisted
housing development described in subparagraph (A) of paragraph (2),
either at or prior to the scheduled date of the expiration of the
contract, that may result in an increase in tenant rents or a change
in the form of the subsidy from project-based to tenant-based.
(b) At least nine months prior to the anticipated date of
termination of a subsidy contract or prepayment on an assisted
housing development, the owner proposing the termination or
prepayment of governmental assistance shall provide a notice of the
proposed change to each affected tenant household residing in the
assisted housing development at the time the notice is provided. The
notice to the tenants shall contain all of the following:
(1) The anticipated date of the termination or prepayment of the
federal program, and the identity of the federal program, as
described in subdivision (a).
(2) The current rent and anticipated new rent for the unit on the
date of the prepayment or termination of the federal program.
(3) A statement that a copy of the notice will be sent to the city
or county, or city and county, where the assisted housing
development is located, to the appropriate local public housing
authority, if any, and to the Department of Housing and Community
Development.
(4) A statement of the possibility that the housing may remain in
the federal program after the proposed date of subsidy termination or
prepayment if the owner elects to do so under the terms of the
federal government's offer.
(5) A statement of the owner's intention to participate in any
current replacement federal subsidy program made available to the
affected tenants.
(6) The name and telephone number of the city, county, or city and
county, the appropriate local public housing authority, if any, the
Department of Housing and Community Development, and a legal services
organization, that can be contacted to request additional written
information about an owner's responsibilities and the rights and
options of an affected tenant.
(c) (1) The notice shall also be filed at the same time with the
mayor of the city in which the assisted housing development is
located, or if located in an unincorporated area with the chairperson
of the board of supervisors of the county, with the appropriate
local public housing authority, if any, and with the Department of
Housing and Community Development.
(2) In addition to the information provided in the notice to the
affected tenant, the notice to the mayor or chairman of the board of
supervisors, the appropriate local public housing authority, if any,
and the Department of Housing and Community Development shall contain
information regarding the number of affected tenants in the project,
the number of units that are government assisted and the type of
assistance, the number of the units that are not government assisted,
the number of bedrooms in each unit that is government assisted, and
the ages and income of the affected tenants. The notice shall
briefly describe the owner's plans for the project, including any
timetables or deadlines for actions to be taken and specific
governmental approvals that are required to be obtained, the reason
the owner seeks to terminate the subsidy contract or prepay the
mortgage, and any contacts the owner has made or is making with other
governmental agencies or other interested parties in connection with
the notice. The information contained in the notice shall be based
on data that is reasonably available from existing written tenant and
project records.
(d) This section shall not require the owner to obtain or acquire
additional information that is not contained in the existing tenant
and project records, or to update any information in his or her
records. The owner shall not be held liable for any inaccuracies
contained in these records or from other sources, nor shall the owner
be liable to any party for providing this information.
(e) For purposes of this section, service of the notice to the
affected tenants, the city or county, the city and county, the
appropriate local public housing authority, if any, and the
Department of Housing and Community Development by the owner pursuant
to subdivisions (b) and (c) shall be made by first-class mail
postage prepaid.
(f) Nothing in this section shall enlarge or diminish the
authority, if any, that a city, county, city and county, affected
tenant, or owner may have, independent of this section.
(g) If, prior to July 1, 1999, the owner has already accepted a
bona fide offer from a qualified entity, as defined in subdivision
(d) of Section 65863.11, at the time the owner decides to sell or
otherwise dispose of the development, the owner shall be deemed in
compliance with this section if the owner complies with any and all
prepayment and opt out notice requirements imposed by federal law.
(h) This section shall remain in effect only until January 1,
2002, and as of that date is repealed, unless a later enacted
statute, which is enacted on or before January 1, 2002, deletes or
extends that date.
SEC. 2. Section 65863.11 of the Government Code is amended to
read:
65863.11. (a) Terms used in this section shall be defined as
follows:
(1) "Assisted housing development" and "development" mean a
multifamily rental housing development as defined in paragraph (2) of
subdivision (a) of Section 65863.10.
(2) "Owner" means an individual, corporation, association,
partnership, joint venture, or business entity which holds title to
an assisted housing development.
(3) "Tenant" means a tenant, subtenant, lessee, sublessee, or
other person legally in possession or occupying the assisted housing
development.
(4) "Tenant association" means a group of tenants who have formed
a nonprofit corporation, cooperative corporation, or other entity or
organization, or a local nonprofit, regional, or national
organization whose purpose includes the acquisition of an assisted
housing development and which represents the interest of at least a
majority of the tenants in the assisted housing development.
(5) "Low or moderate income" means having an income as defined in
Section 50093 of the Health and Safety Code.
(6) "Very low income" means having an income as defined in Section
50052.5 of the Health and Safety Code.
(7) "Local nonprofit organizations" means not-for-profit
corporations organized pursuant to Division 2 (commencing with
Section 5000) of Title 1 of the Corporations Code, that have as their
principal purpose the ownership, development, or management of
housing or community development projects for persons and families of
low or moderate income and very low income, and which have a broadly
representative board, a majority of whose members are
community-based and have a proven track record of local community
service.
(8) "Local public agencies" means housing authorities,
redevelopment agencies, or any other agency of a city, county, or
city and county, whether general law or chartered, which are
authorized to own, develop, or manage housing or community
development projects for persons and families of low or moderate
income and very low income.
(9) "Regional or national organizations" means not-for-profit,
charitable corporations organized on a multicounty, state, or
multistate basis that have as their principal purpose the ownership,
development, or management of housing or community development
projects for persons and families of low or moderate income and very
low income.
(10) "Regional or national public agencies" means multicounty,
state, or multistate agencies that are authorized to own, develop, or
manage housing or community development projects for persons and
families of low or moderate income and very low income.
(11) "Use restriction" means any federal, state, or local statute,
regulation, ordinance, or contract that, as a condition of receipt
of any housing assistance, including a rental subsidy, mortgage
subsidy, or mortgage insurance, to an assisted housing development,
establishes maximum limitations on tenant income as a condition of
eligibility for occupancy of the units within a development, imposes
any restrictions on the maximum rents that could be charged for any
of the units within a development; or requires that rents for any of
the units within a development be reviewed by any governmental body
or agency before the rents are implemented.
(12) "Profit-motivated organizations and individuals" means
individuals or two or more persons organized pursuant to Division 1
(commencing with Section 100) of Title 1 of, Division 3 (commencing
with Section 1200) of Title 1 of, or Division 1 (commencing with
Section 15001) of Title 2 of, the Corporations Code, that carry on as
a business for profit.
(13) "Department" means the Department of Housing and Community
Development.
(b) An owner of an assisted housing development who has not, prior
to January 1, 1991, given notice of intent to terminate a subsidy
contract or prepay the mortgage pursuant to Section 65863.10, shall
not sell, or otherwise dispose of the development in a manner which
would result in either (1) a discontinuance of its use as an assisted
housing development, or (2) the termination of any low-income use
restrictions which apply to the development, unless the owner or its
agent proposing the removal of government assistance shall first have
provided each of the entities, listed in subdivision (c), an
opportunity to purchase the development at a price and upon terms
which represent a bona fide intention to sell, in compliance with
subdivision (g).
(c) The entities to whom an opportunity to purchase shall first be
provided include the following:
(1) The tenant association of the development.
(2) Local nonprofit organizations and public agencies.
(3) Regional or national nonprofit organizations and regional or
national public agencies.
(4) Profit-motivated organizations or individuals.
(d) For the purposes of this section, to qualify as a purchaser of
an assisted housing development, an entity listed in subdivision (c)
shall do all of the following:
(1) Be capable of managing the housing and related facilities for
its remaining useful life, either by itself or through a management
agent.
(2) Agree to obligate itself and any successors in interest to
maintain the affordability of the assisted housing development for
persons and families of low or moderate income and very low income
for either a 30-year period from the date that the purchaser took
legal possession of the housing or the remaining term of the existing
federal government assistance specified in subdivision (a) of
Section 65863.10, whichever is greater. The development shall be
continuously occupied in the approximate percentages that those
persons and families occupied that development on the date the owner
gave notice of intent or the approximate percentages specified in
existing use restrictions, whichever is higher. This obligation
shall be recorded prior to the close of escrow in the office of the
county recorder of the county in which the development is located and
shall contain a legal description of the property, indexed to the
name of the owner as grantor. An owner that obligates itself to an
enforceable regulatory agreement that will ensure for a period of not
less than 30 years that rents for units occupied by low and very low
income households or that are vacant at the time of executing a
purchase agreement will conform with restrictions imposed by Section
42(f) of the Internal Revenue Code shall be deemed in compliance with
this paragraph.
(3) Local nonprofit organizations and public agencies shall have
no member among their officers or directorate with a financial
interest in assisted housing developments that have terminated a
subsidy contract or prepaid a mortgage on the development.
(e) If an assisted housing development is not economically
feasible, as defined in paragraph (3) of subdivision (h) of Section
17058 of the Revenue and Taxation Code, a purchaser shall be entitled
to remove one or more units from the rent and occupancy requirements
as is necessary for the development to become economically feasible,
provided that once the development is again economically feasible,
the purchaser shall designate the next available units as low-income
units up to the original number of those units.
(f) If an owner decides to sell, or otherwise dispose of the
assisted housing development pursuant to subdivision (b), at least
the amount of time required for advance notice pursuant to Section
65863.10 prior to the anticipated date of termination of a subsidy
contract or mortgage prepayment of a development that would result in
either (1) a discontinuance of its use as an assisted housing
development or (2) the termination of any low-income use restrictions
that apply to the development, the owner shall first give notice of
his or her bona fide intention to sell, or otherwise dispose of the
development to each qualified entity on the list provided to the
owner by the department, in accordance with subdivision (p), as well
as to those qualified entities that directly contact the owner. The
notice shall conform to the requirements of subdivision (g) and shall
be sent to the entities by registered or certified mail, return
receipt requested. The owner shall also post a copy of the notice in
a conspicuous place in the common area of the development.
If the owner already has a bona fide offer to purchase from a
qualified entity, at the time the owner decides to sell, or otherwise
dispose of the development, the owner shall not be required to
comply with the provisions of this subdivision.
(g) The initial notice of a bona fide intention to sell shall
contain all of the following:
(1) The sales price; the terms of assumable financing, if any; the
terms of the subsidy contract, if any; and proposed improvements to
the property to be made by the owner in connection with the sale, if
any.
(2) A statement that each of the type of entities listed in
subdivision (c) has the right to purchase the development under this
section in the order and according to the priorities established in
subdivision (h).
(3) A statement that the owner will make available to each of the
type of entities listed in subdivision (c), within 15 business days
of receiving a request therefor, itemized lists of monthly operating
expenses, capital improvements as determined by the owner made within
each of the two preceding calendar years, the amount of project
reserves, and copies of the two most recent financial and physical
inspection reports on the development, if any, filed with the
federal, state, or local agencies.
(4) A statement that the owner will make available to each of the
entities listed in subdivision (c), within 15 business days of a
request therefor, the most recent rent roll listing the rent paid for
each unit and the subsidy, if any, paid by a governmental agency as
of the date the notice of intent was made pursuant to Section
65863.10, and a statement of the vacancy rate at the development for
each of the two preceding calendar years.
(5) A statement that the owner has satisfied all notice
requirements pursuant to subdivision (b) of Section 65863.10.
(h) If a qualified entity elects to purchase an assisted housing
development, it shall make a bona fide offer to purchase the
development within 180 days from the date of an owner's bona fide
intention to sell. A qualified entity's bona fide offer to purchase
shall identify whether it is a tenant association, nonprofit
organization, public agency, or profit-motivated organizations or
individuals and shall certify, under penalty of perjury, that it is
qualified pursuant to subdivision (d). During the first 120 days
from the date of an owner's bona fide notice of intention to sell, an
owner shall only accept a bona fide offer to purchase from the
tenant association. If at the end of the first 120-day period no
purchase agreement has been executed, the owner may accept a bona
fide offer to purchase from any qualified entity specified in
subdivision (c) during the remaining 60 days.
(i) If at the end of that 180-day period no purchase agreement has
been executed and a person or entity other than those entities
listed in subdivision (c) has offered to purchase, or otherwise
acquire the development, and the owner of the development has
complied with the provisions of this section and Section 65863.10,
the owner may accept a bona fide offer to purchase from this person
or entity.
(j) When a bona fide offer to purchase has been made to an owner
in response to a bona fide intention to sell, and the offer is
accepted, a purchase agreement shall be executed.
(k) Either the owner or the qualified entity may request that the
fair market value of the property, as a development, be determined by
an independent appraiser qualified to perform multifamily housing
appraisals, who shall be selected and paid by the requesting party.
All appraisers shall possess qualifications equivalent to those
required by the members of the Appraisers Institute. This appraisal
shall be nonbinding on either party with respect to the sales price
of the development offered in the bona fide intention to sell, the
bona fide offer to purchase, or the acceptance or rejection of
either.
(l) During the 180-day period following the initial 180-day period
required pursuant to subdivision (h), an owner may accept an offer
from a person or an entity that does not qualify under subdivision
(d), provided that the acceptance does not conflict with applicable
federal laws governing who may purchase an assisted housing
development. This acceptance shall be made subject to the owner
providing each qualified entity that made a bona fide offer to
purchase the first opportunity to purchase the development at the
same terms and conditions as the pending offer to purchase, unless
these terms and conditions are modified by mutual consent. The owner
shall notify in writing those qualified entities of the terms and
conditions of the pending offer to purchase, sent by registered or
certified mail, return receipt requested. The qualified entity shall
have 15 days from the date the notice is mailed to submit a bona
fide offer to purchase and that offer shall be accepted by the owner.
The owner shall not be required to comply with the provisions of
this subdivision if the person or the entity making the offer during
this time period agrees to maintain the development for persons and
families of low and moderate income and very low income, in
accordance with paragraph (2) of subdivision (d).
(m) This section shall not apply to any of the following: a
government taking by eminent domain or negotiated purchase; a forced
sale pursuant to a foreclosure; a transfer by gift, devise, or
operation of law; a sale to a person who would be included within the
table of descent and distribution if there were to be a death
intestate of an owner; or an owner who certifies, under penalty of
perjury, the existence of a financial emergency during the period
covered by the first right of refusal requiring immediate access to
the proceeds of the sale of the development. The certification shall
be made pursuant to subdivision (o).
(n) An owner, at any time during the period subsequent to giving
notice of the bona fide intention to sell in accordance with
subdivision (f), may decide not to sell, or otherwise dispose of the
development and may withdraw the notice of intention to sell.
However, at any time that the owner again decides to sell, or
otherwise dispose of the development, the provisions of this section
shall apply.
(o) Prior to the close of escrow, an owner selling, leasing, or
otherwise disposing of a development to a purchaser who does not
qualify under subdivision (d) shall certify under penalty of perjury
that the owner has complied with all provisions of this section and
Section 65863.10. This certification shall be recorded and shall
contain a legal description of the property, shall be indexed to the
name of the owner as grantor, and may be relied upon by good faith
purchasers and encumbrances for value and without notice of a failure
to comply with the provisions of this section.
Any person or entity acting solely in the capacity of an escrow
agent for the transfer of real property subject to this section shall
not be liable for any failure to comply with this section unless the
escrow agent either had actual knowledge of the requirements of this
section or acted contrary to written escrow instructions concerning
the provisions of this section.
(p) The department shall undertake the following responsibilities
and duties:
(1) Maintain a form containing a summary of rights and obligations
under this section and make that information available to owners of
assisted housing developments as well as to tenant associations,
local nonprofit organizations, regional or national nonprofit
organizations, public agencies, and other entities with an interest
in preserving the state's subsidized housing.
(2) Compile, maintain, and update a list of entities in
subdivision (c) that have either contacted the department with an
expressed interest in purchasing a development in the subject area or
have been identified by the department as potentially having an
interest in participating in a right-of-first-refusal program. The
department shall publicize the existence of the list statewide. Upon
receipt of a notice of intent under Section 65863.10, the department
shall make the list available to the owner proposing the termination
or removal of government assistance. If the department does not
make the list available at any time, the owner shall only be required
to send a written copy of the bona fide intention to sell to the
qualified entities which directly contact the owner and to post a
copy of the intention to sell in the common area pursuant to
subdivision (f).
(q) The provisions of this section may be enforced either in law
or in equity by any qualified entity entitled to exercise the
right-of-first-refusal under this section, that has been adversely
affected by an owner's failure to comply with the provisions of this
section.
An owner may rely on the statements, claims, or representations of
any person or entity that the person or entity is a qualified entity
as specified in subdivision (c), unless the owner has actual
knowledge that the purchaser is not a qualified entity. If the
person or entity is not an entity as specified in subdivision (c),
that fact, in the absence of actual knowledge as described in the
preceding sentence of this subdivision, shall not give rise to any
claim against the owner for a violation of this section.
(r) It is the intent of the Legislature that the provisions of
this section are in addition to, but not preemptive of, applicable
federal laws governing the sale, or other disposition of a
development which would result in either (1) a discontinuance of its
use as an assisted housing development or (2) the termination of any
low-income use restrictions which apply to the development.
(s) This section shall remain in effect only until December 31,
2000, and as of that date is repealed, unless a later enacted
statute, which is enacted on or before December 31, 2000, deletes or
extends that date.
SEC. 3. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect. The facts constituting the necessity are:
Nonprofit organizations purchasing affordable housing units must
close escrow by June 10, 1999, to receive available tax credits. The
enactment of this act before that date is necessary to extend the
availability of those credits.