BILL ANALYSIS
AB 770
Page 1
Date of Hearing: April 28, 2005
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Gloria Negrete McLeod, Chair
AB 770 (Mullin) - As Amended: April 25, 2005
SUBJECT : Common interest developments: ombudsperson.
SUMMARY : Establishes the Office of the Common Interest
Development Ombudsperson (Office) within the Department of
Consumer Affairs (DCA) to provide education, to offer dispute
resolution services, and to collect data on common interest
developments (CIDs). Specifically, this bill :
1)Establishes the Office within DCA, under the supervision and
control of the Director of DCA (Director).
2)Provides that the Director shall employ a Common Interest
Development Ombudsperson (Ombudsperson) and other officers and
employees necessary to carry out the powers delegated to the
Ombudsperson by the Director.
3)Requires an association, upon its biennial filing of
identifying information with the Secretary of State (SOS), to
pay a Common Interest Development Ombudsperson fee. The
initial fee shall be equal to $10 multiplied by the number of
separate interests within the association.
4)Provides that the Ombudsperson shall increase or decrease the
biennial fee amount every 2 years in order to provide only the
revenue that it estimates will be necessary for the operation
of the Office. The biennial fee shall not exceed $20 per
separate interest in an association.
5)Provides that an association is excused from paying the
biennial fee for a given separate interest if the association
certifies, on a form developed by SOS, that another
association has already paid the biennial fee for the separate
interest. The Ombudsperson may adopt rules or regulations to
determine which association shall be responsible for paying a
separate interest's fee if that separate interest is part of
more than one association.
6)Provides that the fee shall not be counted towards the
existing provision that an association may not increase
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regular assessment fees by more than 20%, thereby making the
fee potentially an additional amount above the 20% cap on fee
increases.
7)Creates the Fee Account of the Common Interest Development
Ombudsperson Fund and requires SOS to transfer fee revenue to
this account for the exclusive purpose of funding the Office.
8)Requires the Ombudsperson to offer training materials and
courses to CID directors, officers and owners regarding the
operation of a CID and the rights and duties of an association
owner. Provides that a fee may be charged for training
materials or courses that do not exceed the actual cost.
9)Requires the Ombudsperson to maintain a toll-free number.
10)Requires the Ombudsperson to maintain an Internet website
with the following information:
a) Relevant statutes and regulations pertaining to the
operation of a CID;
b) Information concerning nonjudical resolution of
disputes, including locally available dispute resolution
programs;
c) Description of the services offered by the Ombudsperson;
d) Contact information for the Ombudsperson; and,
e) Any changes to laws governing CIDs and any other
information that the Ombudsperson deems to be useful to an
association or owner.
11) Requires information provided on the website to also be
available in written form. Allows the Ombudsperson to charge
a fee for these materials not to exceed their actual cost of
printing and delivery.
12)Requires an association to provide its members with annual
written notice of the website address and toll free number of
the Ombudsperson.
13)Provides that any interested party may request the
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Ombudsperson to provide assistance in resolving a dispute
involving the law governing CIDs or the governing documents of
a CID.
14)Requires the Ombudsperson, after receiving a complaint, to
confer with the interested parties and attempt to resolve the
dispute through mutual agreement. Provides that the
Ombudsperson may offer to mediate a dispute if it cannot first
be resolved through informal conference.
15)Provides the Ombudsperson may adopt a fee of not more than
$25 for mediation services or may contract with private
parties to provide mediation services.
16)Requires that within 60 days of assuming office an
association director must file a certification with the
Ombudsperson that they have read each of the following: the
declaration, articles of incorporation, by-laws of the
association and either the Davis-Stirling Common Interest
Development Act or a summary of the law.
17)Requires a person who is providing or proposes to provide the
services of a CID manager to disclose to the board of
directors in writing, on an annual basis, that they have read
the governing document of the association.
18)Requires the Ombudsperson to report no later than October 1
annually to the Legislature on the following:
a) The number of requests for assistance received;
b) How a request was or was not resolved and the staff time
required to resolve the inquiry;
c) The most common and serious types of disputes; and,
d) Any recommendations for statutory reform.
19)Requires the Ombudsperson to submit, on or before January 1,
2009, recommendations to the Legislature on the scope of the
Office and the following issues:
a) Whether or not the Ombudsperson should be authorized to
enforce CID law;
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b) Whether or not the Ombudsperson should have authority to
oversee association elections; and,
c) Whether or not the provisions requiring a new
association director or managing agent to certify they have
read the governing documents should be revised.
20)Allows the Ombudsperson to establish an advisory committee
that is comprised of a fair representation of interests
involved in CIDs.
21)Provides that information and advice provided by the
Ombudsperson has no binding legal effect and is not subject to
the rulemaking provisions of the Administrative Procedure Act.
22)Provides that the Ombudsperson shall adopt rules and
regulations governing the duties of the Office in accordance
with the Administrative Procedures Act.
23)Provides that the Office shall sunset on January 1, 2011
unless another statute is enacted to delete or extend that
date.
24)Makes legislative findings including the fact that there are
36,000 CIDs in the state, the complexities that volunteer
director's face in managing and complying with existing laws,
and the adversarial nature of private litigation which is the
mechanism under existing law to enforce CID law.
EXISTING LAW :
1)Enacts the Davis Stirling Common Interest Development Act
which sets forth the rules and regulations under which
homeowner associations may operate in a common interest
development.
2)Requires a CID to register every two years with the Secretary
of State for a fee of $30 and to provide certain information
regarding the association. If the CID fails to register, the
CID's rights as a corporation may be suspended and the CID
will be subject to monetary penalties.
3)Prohibits the board of directors of a CID from imposing a
regular assessment fee that is more than 20% greater than the
regular assessment fee for the CID's preceding year; emergency
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assessments, as defined, are excluded from this limitation.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the sponsor, the California
Law Revision Commission (CLRC), CIDs are governed by volunteers
who often make mistakes and violate procedures for conducting
hearings, adopting budgets, establishing reserves, enforcing
rules and restrictions and collecting assessments because of the
complexity of CID law. CLRC maintains that many homeowners do
not understand CID law and their rights under the governing
documents and that, as a result, conflicts arise between the
association and homeowners. CLRC notes that the only remedy
available to resolve disputes between a homeowner and an
association or between homeowners is private litigation. This
process can be both expensive and lead to animosity that can
degrade the quality of life of a community and lead to future
disputes. In addition, homeowners that sue their association
are ultimately suing themselves and their neighbors as the cost
of litigation is borne by the community.
CLRC states that, funded through a $5 fee per unit/per year, the
Ombudsperson would educate volunteer homeowner board directors
and homeowners through a toll-free number, website and provide
training materials and courses. The Ombudsperson would provide
information and advice to those who do not understand their
legal rights and responsibilities and offer assistance by
informally resolving disputes. In addition, the Ombudsperson
will collect data on the types of disputes that arise in CIDs
and make recommendations to the Legislature as to needed changes
in CID law.
Background . According to the Public Policy Institute of
California (PPIC), there are over 36,000 CIDs in the state that
range in size from three to 27,000 units. CIDs make up over 3
million total housing units that represent approximately one
quarter of the state's housing stock. PPIC notes that, in the
1990s, over 60% of all residential construction starts in the
state were CIDs. CIDs include condominiums, community apartment
projects, and housing cooperatives and planned unit
developments. They are characterized by a separate ownership of
dwelling space coupled with an undivided interest in a common
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property, restricted by covenants and conditions that limit the
use of common area and the separate ownership interests and the
management of common property and enforcement of restrictions by
a community association. Except when CIDs are first developed,
no state agency provides ongoing oversight to these communities.
Other jurisdictions . Other states, including Florida, Nevada
and Hawaii, provide services to CID associations similar to the
ones proposed in this bill. Both Florida and Nevada assess an
annual fee paid on homeowners and have found significant public
demand for the services of programs regulating CIDs. In 1997,
the Nevada Legislature created the Office of the Ombudsman for
Owners in Common Interest Communities to provide services to
CIDs, including education and informal dispute resolution.
Nevada has approximately 2,073 CIDs made up of 310,501 separate
interests, which represents one-tenth of the CIDs in California.
The Nevada Ombudsman charges a $3 annual fee per separate
interest and employs 13 full-time staff. In 2003, the Nevada
program was expanded to include enforcement power of the Davis
Stirling Act.
In Hawaii, the Real Estate Commission provides services to
condominiums, including referrals and subsidies for mediation
services, publishes information on their website and in print,
and responds to specific inquires. The Hawaii program is funded
by a $4 per unit biennial fee charged to registered
condominiums. Hawaii has 135,000 condominiums and in 2004
received 22,000 requests for information or advice. If the
experience of Hawaii is extrapolated to California, the
Ombudsperson could receive 488,000 requests for assistance.
CLRC . This bill would implement a recommendation of CLRC. CLRC
was created in 1953 as the permanent successor to the Code
Commission and given responsibility for the continuing
substantive review of California statutory and decisional law.
CLRC studies the law in order to discover defects and
anachronisms and recommends legislation to make needed reforms.
CLRC has been studying CID law since 2001, initially focusing on
nonjudicial dispute resolution and dispute avoidance. Prior
CLRC recommendations have been implemented to provide fair
procedures for association rulemaking [AB 512 (Bates), Chapter
557, Statutes of 2003], to require procedural fairness in
architectural review decision-making (ARD) [AB 2376 (Bates),
Chapter 346, Statutes of 2004], and to improve the use of ARD in
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resolving CID disputes [AB 1836 (Harman), Chapter 754, Statutes
of 2004]. CLRC develops its recommendations in an open public
process where all interested groups are invited to participate.
Placement in DCA . According to the sponsor, DCA was chosen to
house the Ombudsperson primarily because of DCA's overall
mission: to protect the public by receiving, investigating and
resolving complaints and because of its experience in dispute
resolution. Also, DCA serves as an umbrella organization
overseeing a number of semi-autonomous regulatory bodies. The
sponsor notes that DCA has had experience in regulating various
businesses and professions and that this knowledge would prove
valuable in starting up a new entity like the Office.
Both the Executive Council of Homeowners (ECHO) and the
California Alliance for Consumer Protection have requested the
author consider placing the Ombudsperson in the Department of
Real Estate (DRE) as an alternative to DCA. ECHO believes that
DRE, which already supervises the development of CID's original
budgets and governing documents, would be a better location for
the Ombudsperson. ECHO also suggests that the Ombudsperson may
one day lead to an additional, and vital, state role in
evaluating and monitoring the financial health of community
associations and in setting standards for preserving member
equity in community reserves. ECHO asserts that DRE would be
better equipped to deal with this expanded role.
Informational hearing by Assembly Housing and Community
Development Committee (H. & C.C.) . On March 9, 2005, H. & C.D.
held an informational hearing to discuss the role of state
assistance and oversight of CIDs. Several members of H. & C.D.,
as well as witnesses, discussed the fact that despite many
anecdotal reports of conflicts between homeowners in
associations, no agency within the state collects data on the
types of conflicts that arise within CIDs or their frequency.
One of the functions of the Ombudsperson will be to collect data
on the volume of assistance requested and the most common type
of disputes and to use this data to make yearly reports to the
Legislature on recommended legislative reform. Additionally,
the Ombudsperson will provide recommendations on several
specific issues on or before January 1, 2009, including if the
Ombudsperson should have authority to enforce CID law.
This bill imposes a new fee on approximately 3 million
Californians . In order to fund the Office provided for in this
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bill, a $10 biennial ($5 annually) per unit fee will be assessed
on associations. Based on PPIC's estimate of roughly 3 million
housing units within CIDs, this will generate about $30 million
biannually ($15 million annually). Although the association
will technically be paying the fee, this bill explicitly
authorizes an association to pass this fee onto the homeowners
within the association; see page 9, line 1 of this bill:
"subdivision (b) of Section 1366 (Civil Code) does not limit an
assessment increase necessary to recover the fee imposed by this
section." Furthermore, in its proposal for a full-fledged
bureau, CLRC estimates that about 1% of California homeowners
will file a complaint with an entity regulating CIDs. Using
this estimate, or even a more generous estimate, this bill still
subjects a large number of California homeowners to a fee in
order to fund a program that few of the homeowners who pay the
fee will actually utilize. Finally, this bill also provides
that the Ombudsperson may assess an additional $25 fee on those
who utilize the Office for mediation services.
This bill conflicts with "sunrise review ." The Joint Committee
on Boards, Commissions, and Consumer Protection (JCBCCP)
generally reviews proposals to create new licensure or
regulatory categories. This bill clearly establishes a new
regulatory entity within DCA and, as such, it logically follows
that this issue should be reviewed by JCBCCP before proceeding
through the legislative process. Furthermore, this bill plainly
recognizes that JCBCCP has jurisdiction over the Office: "the
Common Interest Development Ombudsperson Pilot Project is
subject to the sunset review process conducted by (JCBCCP),"
(see page 9, lines 18 through 22).
In other words, this bill creates a major program within DCA
without review by JCBCCP, and then subsequently makes that
program subject to review by JCBCCP. Prior to creating such a
program, it seems preferable for JCBCCP to review the proposed
program. This could be accomplished by making this bill a
2-year bill in conjunction with a formal referral to JCBCCP of
the issues addressed in this bill by the Chair of the Assembly
Business and Professions Committee pursuant to Business and
Professions Code Section 473.6.
Support if amended . The California Alliance of Retired
Americans (CARA) has a "support if amended" position. CARA
enumerates 4 chief concerns with this bill in its current form:
(1) that this bill does not address existing law which is the
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principal reason why disputes arise; (2) that this bill
"duplicates existing state/county services" such as DCA
administered dispute resolution centers; (3) that the cost of
the new Office is to be borne by homeowners alone while any
person, including property managers, law firms, and vendors, may
utilize its services; and, (4) that the Ombudsperson will not
have the power to enforce the few legal rights that homeowners
do have.
Regarding the fee contained in this bill, CARA urges that,
instead, those who use the Office be taxed, that "the new tax on
homeowners?be subject to the 20% cap imposed by Civil Code,
Section 1366," and that this bill state explicitly that
developers "be taxed a per unit fee for each parcel or unsold
unit to which they hold title."
Opposition . American Homeowners Resource Center (AHRC) opposes
the bill because it does not give the Ombudsperson the power to
enforce CID law or the governing documents of an association.
AHRC points out that this bill does include a provision
requiring the Ombudsperson to make a recommendation to the
Legislature as to the need for enforcement power by or any time
before January 1, 2009.
REGISTERED SUPPORT / OPPOSITION :
Support
California Law Revision Commission (sponsor)
American Federation of State, County, and Municipal Employees
(AFSCME)
California Association of Community Managers, Inc.
California Association of Realtors
California Association Institute
Executive Council of Homeowners (ECHO)
League of California Cities
Opposition
American Homeowners Resource Center (AHRC)
Analysis Prepared by : Pablo Garza / B. & P. / (916) 319-3301