BILL ANALYSIS
AB 770
Page 1
Date of Hearing: January 12, 2006
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 a homeowners' association (HOA), 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 HOA.
5)Provides that an HOA is excused from paying the biennial fee
for a given separate interest if the HOA certifies, on a form
developed by SOS, that another HOA has already paid the
biennial fee for the separate interest. The Ombudsperson may
adopt rules or regulations to determine which HOA 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 HOA may not increase regular
assessment fees by more than 20%, thereby making the fee
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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 HOA 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
HOA 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 HOA 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
Ombudsperson to provide assistance in resolving a dispute
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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 HOA
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;
b) Whether or not the Ombudsperson should have authority to
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oversee HOA elections; and,
c) Whether or not the provisions requiring a new HOA
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 Procedure 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 that there are 36,000
CIDs in the state, that volunteer directors face many
complexities in managing and complying with existing laws, and
that private litigation, which is the mechanism under existing
law to enforce CID law, is adversarial in nature.
EXISTING LAW :
1)Enacts the Davis-Stirling Common Interest Development Act,
which sets forth the rules and regulations under which HOAs
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
assessments, as defined, are excluded from this limitation.
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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
property, restricted by covenants and conditions that limit the
use of common area and the separate ownership interests and the
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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.
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
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.
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This bill imposes a new fee on more than 3 million California
homeowners . In order to fund the Office provided for in this
bill, a $10 biennial ($5 annually) per unit fee will be assessed
on associations. Based on PPIC's estimate of more than 3
million housing units within CIDs, this will generate about $30
million biannually ($15 million annually), assuming full
compliance. Although the HOA will technically be paying the
fee, this bill explicitly authorizes an HOA to pass this fee
onto the homeowners within the HOA; 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, this bill also provides
that the Ombudsperson may assess an additional $25 fee on those
who utilize the Office for mediation services.
The $10 biennial ($5 annually) fee is one of the most
controversial aspects of this bill. There are some who view
this fee as a new tax on more than 3 million Californians. The
funding mechanism for this bill is found on page 8, lines 14
through 38, and on page 9, lines 1 through 13.
Sunrise Review . In 2005, this bill was held in the Assembly
Business and Professions Committee and the concept was referred
to the Joint Committee on Boards, Commissions, and Consumer
Protection (Joint Committee) for review. The Joint Committee
held an informational hearing on November 17, 2005 to examine
the extent of the problem with CIDs and determine whether the
creation of an Ombudsperson's office within DCA was warranted.
Following the informational hearing, the Joint Committee made
the following recommendation: "There is clearly strong
sentiment among some residents who live in Common Interest
Developments for a degree of state involvement to help resolve
their problems. There appears to be some sound policy reasons
for creation of an Ombudsperson." On January 4, 2006, the Joint
Committee voted to support this recommendation, but did not make
a recommendation on the mediation program proposed to be part of
the ombudsperson's office or on the funding mechanism (i.e., a
$10 biennial fee per unit per CID) for the ombudsperson's
office.
An important focus of the Joint Committee was whether or not the
issues and problems within CIDs justify the creation of the
Office. Recent findings of a nationwide poll conducted by Zogby
International (sponsored by the Foundation for Community
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Association Research) in August 2005 help to shed some light on
whether or not the Office is necessary. The Zogby poll found
that 23% of residents in a CID had filed a complaint about
another member of the CID. Of this 23%, 72% said the complaint
had been resolved to their satisfaction. The analysis of the
Joint Committee states that "these numbers, of course, still
leave a significant, though not large percentage of residents
who were not satisfied. Nor is it clear from this survey how
California-specific numbers might look." The Joint Committee
concludes that "there appears to be room for some state
involvement in CIDs that would fall short of actual involvement
in CID disputes." Another finding of the Zogby poll indicated
that 72% of respondents had attended a community association
board meeting. This indicates a respectable level of
participation in CIDs by CID residents. Presumably, a high
level of participation in the community on the part of its
residents would lessen the need for government intervention;
however, the author points out that the question results may
give a false impression of the level of participation because
the poll fails to ask how many meetings each respondent had
attended. That is, a "yes" answer could indicate attendance at
one meeting or several.
Support . The Executive Council of Homeowners (ECHO) supports
this bill arguing that the creation of the Office will reduce
costly litigation by providing an authoritative and unbiased
agency to mediate disputes. ECHO also asserts that the Office
will assist volunteer directors by providing general guidance
and acting as an information resource. Finally, ECHO contends
that the data collection function of the Office is crucial in
addressing CID issues/problems and to expanding affordable
housing in California.
Support if amended . The California Alliance of Retired
Americans (CARA) has a "support if amended" position on this
bill. CARA enumerates two chief concerns with this bill in its
current form: (1) the financing of the Office; and, (2) the
lack of enforcement powers for the Office. CARA notes that the
financing issue is a difficult one because it is as yet unknown
what the actual Office will look like, the extent of services
the Office will offer, and the existence of differing revenue
projections (from $10.5 million to $15 million annually). CARA
contends that instead of taxing the consumer, other sources of
financing could be found. Possible revenue sources include:
(1) a portion of the revenue generated by the $30 fee that HOAs
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pay when registering with the California Secretary of State; (2)
a tax on private firms (property managers, for example) that use
the Office; (3) a per unit fee assessed on developers for each
parcel or unsold unit to which the developer holds title; and,
(4) local governments which approve CID subdivisions and benefit
from the expanded tax base CIDs create.
Regarding the lack of enforcement powers, CARA maintains that
"an Ombudsman Office without enforcement teeth can do little to
protect victims." CARA points out that California's other two
ombudsman offices for mobile home parks and nursing home
patients are both tied to the enforcement powers of the
departments which house them.
The Older Women's League of California also has a "support if
amended" position on this bill citing its concern with the vague
plans for the revenue generated by millions of dollars of new
fees in this proposal and the lack of enforcement powers for the
Office.
Opposition . The California Taxpayers' Association (Cal-Tax)
opposes AB 770, stating that this bill would "impose a $10
biennial association tax (labeled a fee in the bill) on common
interest development associations?.Taxes called fees are an end
run around the Constitution. First, this bill would impose a
tax that should require a two-thirds vote for passage?.This new
tax should not be classified as a fee to circumvent tax approval
procedures specified in the Constitution."
Technical amendment . The Committee may wish to consider the
following amendment in order to avoid redundancy and confusion
in the definition of "alternative dispute resolution" and
mediation:
On page 4, strike lines 1 through 19, inclusive.
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
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California Commission on Aging
Executive Council of Homeowners (ECHO)
League of California Cities
Numerous individuals
Opposition
California Taxpayers' Association (Cal-Tax)
Analysis Prepared by : Pablo Garza / B. & P. / (916) 319-3301