BILL ANALYSIS
AB 770
Page 1
ASSEMBLY THIRD READING
AB 770 (Mullin)
As Amended January 23, 2006
Majority vote
HOUSING 5-1 BUSINESS & PROFESSIONS
6-1
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|Ayes:|Mullin, Baca, Hancock, |Ayes:|Bass, Oropeza, Koretz, |
| |Salinas, Torrico | |Nation, Vargas, Yee |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Leslie |Nays:|Negrete McLeod |
| | | | |
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APPROPRIATIONS 13-5
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|Ayes:|Chu, Bass, Berg, | | |
| |Calderon, | | |
| |De La Torre, Karnette, | | |
| |Klehs, Leno, Nation, | | |
| |Oropeza, Jones, Saldana, | | |
| |Yee | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Sharon Runner, Emmerson, | | |
| |Haynes, Nakanishi, | | |
| |Walters | | |
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SUMMARY : Establishes the Office of the Common Interest
Development Ombudsperson (Ombudsperson) as a pilot project
within the Department of Consumer Affairs (DCA) to provide
education, dispute resolution and data collection on common
interest developments (CIDs).
Specifically, this bill :
1)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.
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2)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 a fee may be charged for training materials
or courses that do not exceed the actual cost.
3)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.
4)Requires a person who is providing or proposes to provide the
services of a CID manager disclose to the board of directors
in writing on an annual basis that they have read the
governing document of the association. Requires other
disclosures of the section be made in writing as well.
5)Requires the Ombudsperson to maintain a toll-free number.
6)Requires the Ombudsperson to maintain an Internet Web site
with the following information:
a) Relevant statutes and regulation regarding the operation
of a CID;
b) Information concerning nonjudical resolution of disputes
or for locally available dispute resolution programs;
c) Description of services and contact information for the
Ombudsperson; and,
d) Yearly update on legislative changes to CID law and any
other information deemed useful.
1)Requires information provided on the Web site 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.
2)Requires an association to provide its members with annual
written notice of the Web site address and toll free number of
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the Ombudsperson.
3)Provides any interested party may request the Ombudsperson
provide assistance in resolving a dispute involving the law
governing CIDs or the governing documents of a CID.
4)Requires the Ombudsperson after receiving a complaint to
confer with the interested parties and attempt to resolve the
dispute through mutual agreement. Provides if a dispute
cannot be resolved through informal conference then the
Ombudsperson may offer to mediate.
5)Provides that the Ombudsperson may adopt a fee of not more
than $50 for mediation services or may contract with private
parties to provide mediation services.
6)Requires the Ombudsperson to report annually to the
Legislature no later than October 1 on the following:
a) Number of requests for assistance received;
b) How a request either was or was not resolved and staff
time required to resolve the inquiry; and,
c) Analysis of the most common and serious types of
disputes and any recommendations for statutory reform.
1)Requires the Ombudsperson to submit on or before January 1,
2009, recommendations to the Legislature on the scope of the
office specifically on 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
oversee association elections; and,
c) Whether or not the provisions requiring a new
association director or managing agent certify they have
read the governing documents should be revised.
1)Provides that DCA shall employ the Ombudsperson and other
officers and employees as necessary to fulfill the
requirements of the office.
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2)Allows the Ombudsperson to establish an advisory committee
that is comprised of a fair representation of interests
involved in CIDs.
3)Requires an association to pay a CID Ombudsperson Fee to the
Secretary of State (SOS) every two years in the amount of $10
for each separate interest within the CID.
4)Provides the biennial fee is not subject to the same approval
requirements for regular assessments of the association.
5)Allows the Ombudsperson to evaluate the biennial fee amount
every two years to determine if it should be adjusted to
provide the necessary revenue for the next two years.
Restricts the biennial fee to no more than $20.
6)Creates the Common Interest Ombudsperson Fund within the SOS
in which all CID Ombudsperson fee revenue will be placed for
the continuous appropriation of the operation of the
Ombudsperson.
7)Provides an association is excused from paying the fee for a
separate interest if another association has already paid the
fee and certified payment through a form to be developed by
the SOS.
8)Provides the Ombudsperson may establish a rule governing which
association should pay the fee if a separate interest is part
of more than one association.
9)Requires the Ombudsperson to adopt governing practices and
procedures in accordance with the Administrative Procedures
Act (APA).
10) Provides information and advice provided by the
Ombudsperson has no binding legal effect and is not subject to
the rulemaking provisions of the APA.
11) Provides a sunset provision of January 1, 2012.
12) Delays operation of the Ombudsperson to July 1, 2007.
FISCAL EFFECT : According to the Assembly Appropriations
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Committee analysis:
1)According to the SOS, about 21,000 of the state's 26,000 CIDs,
representing about 80% of all CID units are registered. Based
on the $10 biennial fee, initial revenues would be $12 million
annually and would increase as more existing CID units are
registered and more new CIDs are constructed.
2)The Department of Consumer Affairs estimates the following
costs:
1)$600,000 annually for the Ombudsperson, three administrative
support staff, and two legal support staff.
2)$450,000 annually for data collection system, Web site
maintenance, and the toll-free phone number; and, $150,000 in
one-time start-up costs for these functions.
3)Informal dispute resolution and mediation, staffing will
depend on demand for these services. DCA assumes annual
complaints from 1% of CID units (30,000), which would require
119 staff at an annual cost of $9.2 million plus $1 million
for mediation contracts.
4)Additional costs for education and training, including course
materials, will be offset by charges to users of these
services.
COMMENTS : 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 30,000 units. 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 management of common
property and enforcement of restrictions by a community
association. CIDs make up over three million total housing
units which represents approximately one quarter of the state's
housing stock. In 2003, the total homeowner association
revenues were estimated at $6.3 billion. Assessments vary
widely from thousands of dollars a month to nominal amounts per
month. In 2002, the average assessment was $112 per unit in a
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planned development and $186 per unit in condominiums and
cooperatives. In the 1990s, over 60% of all residential
construction starts in the state were CIDs. CIDs are governed by
the Davis Stirling Act as well as the governing documents of the
association including the bylaws, declaration, and operating
rules. Except when CIDs are first developed, no state agency
provides ongoing oversight to these communities.
Need for bill: CID's are governed by elected volunteer
directors. According to the sponsor, the California Law
Revision Commission (CLRC), faced with the complexity of CID
law, many volunteer directors make mistakes and violate
procedures for conducting hearings, adopting budgets,
establishing reserves, enforcing rules and restrictions and
collecting assessments. Many homeowners do not understand CID
law and their rights under the governing documents; as a result,
conflicts arise between the association and homeowners. 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.
Funded through a $5 fee per unit/per year, the Ombudsperson
would educate volunteer homeowner board directors and homeowners
through a toll-free number, Web site 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.
Other jurisdictions: Several other states, including Florida,
Nevada and Hawaii, provide services to CID associations similar
to the ones proposed in this bill. Both Florida and Nevada are
funded through an annual fee paid by homeowners and have found
significant public demand for their services. 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.
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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 state law.
In Hawaii, the Real Estate Commission provides services to
condominiums including referrals and subsidy for mediation
services, publishes information on their Web site 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.
Ombudsperson fee: The proposed CID Ombudsperson would be funded
through a yearly $5 fee for each separate interest collected
biennially by the association and paid to the SOS when an
association files its statement of principal business activity.
The fee for the services of the Ombudsperson would breakdown to
$ 0.42 per unit per month. Of the estimated 36,000 CIDs in the
state approximately 21,000 have registered with the SOS.
Although the SOS does not currently track the number of units in
an association the average size of a CID is 100 units. At the
current level of compliance, the 2.1 million units that have
been registered will produce approximately $10.5 million
annually. If all CIDs comply with registration, the $5 annual
fee generated by this pilot program would produce approximately
$15 million per year. DCA estimates the cost to operate the CID
Ombudsperson Office at approximately $11.4 million. The
Ombudsperson has discretion to adjust the fee if the actual cost
of the program is higher or lower, every two years. Also the
Legislature may reduce the fee based on reports from the
Ombudsperson and or audits.
Data collection: On March 9, 2005, the Assembly Committee on
Housing and Community Development held an informational hearing
to discuss the role of state assistance and/or oversight of
CIDs. Several members of the Committee 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
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Ombudsperson will be to collect data on the volume of assistance
requested and the most common disputes and to make yearly
reports to the Legislature on recommended legislative reform
based on this data. 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.
Enforcement: This bill requires the Ombudsperson to make a
recommendation to the Legislature within the first three years
of operation as to the need to expand the office to include
enforcement powers. This bill provides a first step toward
improvement, with the next step being dependent on the
Ombudsperson's own empirical findings. This is similar to the
approach that was followed in Nevada, where enforcement powers
were added only after experience under the Ombudsman approach
indicated the need.
Fee: The CID Ombudsperson as proposed in this bill will be
housed in DCA. All of DCA's current programs are self-funded
through license fees, the cost of which is passed on to the
consumers being protected. California Alliance for Retired
Americans (CARA) has suggested that anyone who uses or benefits
from the Ombudsperson be required to assist with the financing
of the office. CARA specifies that builders, local governments
and property managers should pay a fee. In theory, such a
financing scheme seems reasonable; however, in reality it simply
is not practical. First, there are no other examples of such a
financing mechanism. Second, any fee paid by a builder or a
property manager would simply get passed on to the unit owner.
AB 643 (Lowenthal) of 2001 was enacted requiring all CIDs to
register with the SOS and provide specified information; CIDs
are charged a fee not to exceed $30 per CID for this
registration every two years. CARA suggests using these funds
to support the CID Ombudsperson Office. The SOS currently
charges $15 for registration and the funds collected are
dedicated for staffing and operations. Fifteen dollars is a
flat fee charged to the entire CID, regardless of the number of
units, and not per unit.
Opposition: The Stop Hidden Taxes Coalition opposes this bill
because it "imposes a $10 biennial association tax
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(labeled a fee in the bill) on common interest development
associations. First, this bill would impose a tax that should
require a two-thirds vote for passage. Taxes should not be
classified as fees to circumvent tax approval procedures
specified in the Constitution."
However, a fee is not a tax if the funds raised are used to
provide services or privileges to those who pay the fee, or to
regulate that group. The fee in this bill would be paid by CID
homeowners for services provided to CID homeowners. Legislative
Counsel indicates that this is not a tax bill and therefore does
not require a two-thirds approval.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0013711