BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 770|
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THIRD READING
Bill No: AB 770
Author: Mullin (D)
Amended: 8/22/06
Vote: 21
SENATE BUS. PROF. & ECON. DEV. COMMITTEE : 3-2, 6/12/06
AYES: Figueroa, Florez, Simitian
NOES: Aanestad, Morrow
SENATE APPROPRIATIONS COMMITTEE : 8-5, 8/17/06
AYES: Murray, Alarcon, Alquist, Escutia, Florez, Ortiz,
Romero, Torlakson
NOES: Aanestad, Ashburn, Battin, Dutton, Poochigian
ASSEMBLY FLOOR : 44-36, 1/30/06 - See last page for vote
SUBJECT : Common interest developments
SOURCE : California Low Revision Commission
DIGEST : This bill creates an Ombudsmans Office within
the Department of Consumer Affairs to deal with Common
Interest Developments.
ANALYSIS :
Existing Law
1.The Davis-Stirling Common Interest Development Act sets
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forth the rules and regulations under which Home Owner
Associations (HOAs) may operate in a common interest
development (CID).
2.Provides that parties to most disputes within a CID
should first resort to informal processes of dispute
resolution, and establishes minimum guidelines to assure
such processes in matters that are headed to litigation
are "fair, reasonable and expeditious." If the dispute
does not involve pending litigation, the parties are not
required to use a third party to help resolve their
dispute, but must, at a minimum, meet and confer with one
another. If either an HOA or a homeowner wishes to file
an enforcement action in court, they must first have
tried to engage in some form of alternative dispute
resolution with a third party - though the law does not
require such efforts to be successful, or even to
actually occur.
3.Requires a CID to register every two years with the
Secretary of State (SOS) 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.
4.Prohibits the board of directors of a CID from imposing
a regular assessment fee that is more than 20 percent
greater than the regular assessment fee for the CID's
preceding year; emergency assessments, as defined, are
excluded from this limitation.
5.Requires secret ballots and other procedural safeguards
for elections in CIDs.
6.Provides some measure of protection to an owner's equity
in a CID home when the owner fails to pay relatively
small assessments to their common interest development
associations. HOAs may not file a foreclosure action to
collect delinquent assessments of less than $1,800 or any
assessments that are more than 12 months delinquent. In
such cases, an association may recover the debt by going
to small claims court.
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7.Requires, to the extent existing funds are available,
that the Department of Consumer Affairs (DCA) and the
Department of Real Estate (DRE) develop an education
website for the boards of directors of HOAs regarding the
role, duties, laws, and responsibilities of board members
and the nonjudicial foreclosure process.
8.Provides CID homeowners may access financial records and
board minutes, and regulates the way in which boards of
directors may grant exclusive use access to common areas.
This bill:
1.Establishes the Common Interest Development Ombudsman
within the DCA, under the supervision and control of the
Director of DCA (Director).
2.Requires an association, upon its biennial filing of
identifying information with the Secretary of State, to
pay a CID Ombudsman fee. The initial fee shall be equal
to six dollars each two years multiplied by the number of
separate interests within the association.
3.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 Ombudsman may adopt rules or
regulations to determine which association shall be
responsible for paying a separate interest fee if that
separate interest is part of more than one association.
4.Provides that the fee shall not be counted towards the
existing provision that an association may not increase
regular assessment fees by more than 20 percent, thereby
making the fee potentially an additional amount above the
20 percent cap on fee increases.
5.Creates the Fee Account of the CID Ombudsman Fund and
requires SOS to transfer fee revenue to this account for
the exclusive purpose of funding the Office. Cost
incurred by the SOS shall be reimbursed from the CID
Ombudsman Fund.
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6.Requires, beginning July 1, 2007, the Ombudsman 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 and provides
that a fee may be charged for training materials or
courses that do not exceed the actual cost.
7.Requires, beginning July 1, 2007, the Ombudsman to
maintain a toll-free telephone number.
8. Requires, beginning July 1, 2007, the Ombudsman 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
Ombudsman.
D. Contact information for the Ombudsman.
E. Any changes to laws governing CIDs and any other
information that the Ombudsman deems to be useful to
an association or owner.
9. Requires, beginning July 1, 2007, information provided
on the website to also be available in written form and
allows the Ombudsman to charge a fee for these materials
not to exceed their actual cost of printing and delivery.
10. Requires an association, on or before July 1, 2007, to
provide its members with annual written notice of the
website address and toll free number of the Ombudsman.
11. Provides, beginning July 1, 2007, that any interested
party may request the Ombudsman to provide assistance in
resolving a dispute involving the law governing CIDs or
the governing documents of a CID.
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12. Requires, beginning July 1, 2007, the Ombudsman, after
receiving a complaint, to confer with the interested
parties and attempt to resolve the dispute through mutual
agreement.
13. Requires that within 60 days of assuming office an
association director must file a certification with the
Ombudsman 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.
14. 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.
15.Requires the Ombudsman 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 resolving the inquiry.
C. The most common and serious types of disputes.
D. Any recommendations for statutory reform.
16. Requires the Ombudsman to submit, on or before January
1, 2009, recommendations to the Legislature on the scope
of the Ombudsman's Office and the following issues:
A. Whether or not the Ombudsman should be authorized
to enforce CID law.
B. Whether or not the Ombudsman should have
authority to oversee association elections.
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.
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D. Whether the Ombudsman should provide or subsidize
mediation of common interest disputes.
17.Allows the Ombudsman to establish an advisory committee
that is comprised of a fair representation of interests
involved in CIDs.
18.Provides that the Ombudsman shall adopt rules and
regulations governing the duties of the Office in
accordance with the Administrative Procedures Act.
19.Provides that information and advice provided by the
Ombudsman has no binding legal effect and is not subject
to the rulemaking provisions of the Administrative
Procedure Act.
20.Provides that the Ombudsman's Office shall sunset on
January 1, 2009 unless another statute is enacted to
delete or extend that date.
21.Makes legislative findings including the fact that there
are 41,000 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.
Background
What are CIDS ? CIDs consist of groups of homeowners who
also jointly own a common interest in parts of the
property. CIDs include condominiums, community apartment
projects, and housing cooperatives and planned unit
developments. They are characterized by a separate
ownership of individual dwelling space coupled with an
undivided interest in property common to all owners. An
"undivided interest" means that no owner has a "share" of
the common property, but rather all own it together without
there being any individual portions or areas. Unlike their
ownership of their own dwelling space, no owner can
individually decide to do anything they want with the
common property. The common property may be hallways and
lobby areas (in condominiums, for example), swimming pools,
parkways, streets, or virtually anything else.
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How many CIDs are there ? Both the CLRC and the Public
Policy Institute of California (PPIC) have studied the
emerging issues related to CIDs in California. There is
little doubt that CIDs are now an established and growing
part of California's social fabric. According to data
gathered by Levy & Company, a CPA firm that provides
services to HOA's, there are over 41,000 CIDs in the state
that range in size from three to 27,000 units. CIDs make
up over 4.3 million total housing units in California
alone, and they represent approximately one quarter of the
state's housing stock. More significantly, PPIC points out
that in the 1990s, over 60 percent of all new residential
construction starts in the state were CIDs. This very
strongly suggests that any problems currently existing with
CIDs will grow at a high rate in the years to come.
What are CC&Rs ? All owners in a CID must agree to abide by
a set of Covenants, Conditions and Restrictions (CC&Rs)
that limit not only the use of the common area, but even
certain aspects of the separate ownership interests of each
individual. For example, CC&Rs may regulate the color that
homes may be painted, whether owners may have pets, or what
kind of trees may be planted on a homeowner's individual
property. The California Supreme Court has clearly ruled
that the CC&Rs are presumed to be reasonable and are thus
enforceable in virtually all but the most exceptional
cases. Consequently, the terms of the CC&Rs are extremely
important for every homeowner to read and understand.
What is an HOA ? The common management of CIDs is the
responsibility of a Home Owners Association (HOA), run by
an elected board of directors who must be owners in the
CID. Among their powers is the ability to enforce and
interpret the terms of the CC&Rs, to levy assessments on
the owners, and to create new rules on behalf of the
homeowners. In this sense, then, HOAs exercise a form of
governmental authority within a CID - and are, in effect,
all three branches of the "government:" executive,
legislative and judicial. All those who buy into a CID
are required to receive a brief overview of CID ownership.
The following statutorily mandated language from that
disclosure sums up the rights and responsibilities of CID
ownership:
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"When contemplating the purchase of a dwelling in a
common interest development, you should consider
factors beyond the attractiveness of the dwelling units
themselves. Study the governing instruments and give
careful thought to whether you will be able to exist
happily in an atmosphere of cooperative living where
the interests of the group must be taken into account
as well as the interests of the individual. Remember
that managing a common interest development is very
much like governing a small community . . . the
management can serve you well, but you will have to
work for its success."
Many CIDs contract with outside management companies to
advise them on proper management techniques and
procedures. The management companies may not,
themselves, make decisions, which are the sole
responsibility of the elected Board. However, like
accountants or lawyers, these professionals may have
access to information and networks that can help them in
their decision-making process.
What is the State's involvement with CIDs ? Except when
CIDs are first developed, no state agency provides ongoing
oversight to these communities. During initial
construction, when the first owners are moving in, the DRE
oversees the beginning stages of the HOA, particularly
focusing on the governing documents, such as the CC&Rs.
When the final homeowners have moved in, DRE involvement
ends, and the HOA is fully in charge of all governance.
Homeowners, all of whom have a direct economic and social
stake in the HOA, must then agree among themselves on all
matters relating to the current and future status of their
HOA.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2006-07 2007-08
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2008-09 Fund
Fee revenues ($19,350)**
($38,700)** Special*
Ombudsperson admin,
dispute resolution $7,100
$10,900 Special*
Printing, training materials $5,389***
$10,778*** Special*
SOS: administration, IT $250
$350 Special*
_____
* Fee Account of the Common Interest Development
Ombudsperson Fund, created in bill
** Based on estimated 4.3 million CID units paying six
dollars fee every two years
*** AB 770 authorizes the recouping of costs for these
materials
SUPPORT : (Verified 8/22/06)
California Law Revision Commission (source)
Association of Federal, State, County and Municipal
Employees
California Commission on Aging
Executive Council of Homeowners
League of California Cities
OPPOSITION : (Verified 8/22/06)
American Homeowners Resource Center
California Taxpayer Association
Community Association Institute
Department of Consumer Affairs
Department of Finance
Secretary of State
Stop Hidden Taxes Coalition
ARGUMENTS IN SUPPORT : The California Law Revision
Commission argues that the Ombudsman is necessary in order
to provide a centralized place to disseminate consistent
and correct information about common interest developments
(CIDs), as well as to collect information about CIDs, and
perhaps, to provide for mediation. Mistakes and
misunderstandings are not uncommon in the CID context:
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"CIDs are governed by volunteer directors, elected from
among the unit owners. Faced with the complexity of
CID law, many of these volunteers make mistakes and
violate procedures for conducting hearings, adopting
budgets, establishing reserves, enforcing rules and
restrictions, and collecting assessments. Many CID
homeowners do not understand their rights under CID law
and under their association's governing documents.
These sorts of mistakes and misunderstandings
inevitably lead to conflicts within the development,
either between the association and an individual
homeowner, or between homeowners."
ARGUMENTS IN OPPOSITION : The Secretary of State opposes
this bill for several reasons. First, the bill requires
additional staff to handle the anticipated increase in
workload. Second, having multiple agencies deal with
multiple functions may very well confuse the public.
Assessments will be payable to the Secretary of State, but
the office's functions will be performed by the Ombudsman.
This will cause aggravation. Finally, the Secretary of
State argues that its database system will have to be
revamped to capture the number of separate interests in
order to properly calculate the proper fees.
ASSEMBLY FLOOR :
AYES: Arambula, Baca, Bass, Berg, Bermudez, Calderon,
Canciamilla, Chan, Chavez, Chu, Cohn, Coto, De La Torre,
Dymally, Evans, Frommer, Goldberg, Hancock, Jerome
Horton, Jones, Karnette, Klehs, Koretz, Laird, Leno,
Levine, Lieber, Lieu, Liu, Montanez, Mullin, Nation,
Nava, Oropeza, Parra, Pavley, Ridley-Thomas, Ruskin,
Saldana, Salinas, Torrico, Vargas, Wolk, Nunez
NOES: Aghazarian, Benoit, Blakeslee, Bogh, Cogdill,
Daucher, DeVore, Emmerson, Garcia, Harman, Haynes,
Shirley Horton, Houston, Huff, Keene, La Malfa, La Suer,
Leslie, Matthews, Maze, McCarthy, Mountjoy, Nakanishi,
Negrete McLeod, Niello, Plescia, Richman, Sharon Runner,
Spitzer, Strickland, Tran, Umberg, Villines, Walters,
Wyland, Yee
JJA:do 8/22/06 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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