BILL ANALYSIS
AB 770
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CONCURRENCE IN SENATE AMENDMENTS
AB 770 (Mullin)
As Amended August 22, 2006
Majority vote
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|ASSEMBLY: |44-36|(January 30, |SENATE: |23-14|(August 28, |
| | |2006) | | |2006) |
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Original Committee Reference: H. & C.D.
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, informal dispute resolution and data collection on
common interest developments (CIDs). Specifically, this bill :
The Senate amendments :
1)Reduce the per unit fee homeowner associations collect for
each separate interest within the CID to $6 biennially.
2)Update and make changes to the statistical findings regarding
the number of CIDs dwellings in the state.
3)Specify the Ombudsperson must be a civil servant.
4)Delete the provision allowing the Ombudsperson to offer to
provide mediation to resolve a dispute in a CID for a fee or
to contract with local mediators to provide similar services.
5)Require the Ombudsperson to make a recommendation as to
whether or not the office should provide or subsidize
mediation.
6)Clarify that the Secretary of State (SOS) shall be reimbursed
for any cost incurred from the process of collecting and
filing the biennial fee in the CID Ombudsperson Fee Fund.
7)Specify communications between the Ombudsperson and an
individual participating in informal dispute resolution is
deemed mediation for the purposes of ensuring confidentiality.
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8)Change the January 1, 2012, sunset date for the pilot program
to July 1, 2009.
AS PASSED BY THE ASSEMBLY , this bill established the
Ombudsperson as a pilot project within DCA to provide education,
dispute resolution and data collection on CIDs. Specifically,
this bill :
1)Made 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.
2)Required 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. Provided a fee may be charged for training materials
or courses that do not exceed the actual cost.
3)Required 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)Required 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. Required other
disclosures of the section be made in writing as well.
5)Required the Ombudsperson to maintain a toll-free number.
6)Required the Ombudsperson to maintain a 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
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Ombudsperson; and,
d) Yearly update on legislative changes to CID law and any
other information deemed useful.
1)Required 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)Required an association to provide its members with annual
written notice of the Web site address and toll free number of
the Ombudsperson.
3)Provided 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)Required the Ombudsperson after receiving a complaint to
confer with the interested parties and attempt to resolve the
dispute through mutual agreement. Provided that if a dispute
cannot be resolved through informal conference then the
Ombudsperson may offer to mediate.
5)Provided 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)Required 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)Required 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;
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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 certify they have
read the governing documents should be revised.
1)Provided that DCA shall employ the Ombudsperson and other
officers and employees as necessary to fulfill the
requirements of the office.
2)Allowed the Ombudsperson to establish an advisory committee
that is comprised of a fair representation of interests
involved in CIDs.
3)Required 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)Provided the biennial fee is not subject to the same approval
requirements for regular assessments of the association.
5)Allowed 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)Created 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)Provided 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)Provided 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)Required the Ombudsperson to adopt governing practices and
procedures in accordance with the Administrative Procedures
Act (APA).
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10) Provided information and advice provided by the
Ombudsperson has no binding legal effect and is not subject to
the rulemaking provisions of the APA.
11) Provided a sunset provision of January 1, 2012.
12) Delayed operation of the Ombudsperson to July 1, 2007.
FISCAL EFFECT : Assuming there are 4.3 million CID units who
would pay a $6 fee every two years, this bill would generate
$12.9 million annually in fee revenues for the office. DCA
estimates administering the program, adopting needed
regulations, reimbursing the advisory committee's per diem and
expenses, preparing the required reports, creating and
maintaining a CID tracking system and website, staffing a
toll-free telephone line and two informal dispute resolution
offices, producing training materials, and general office
expenses will cost $8.7 million annually.
COMMENTS : There are approximately 41,000 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
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
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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 $3 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
offering informal dispute resolution. 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.
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.
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
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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.
Opposition: The Stop Hidden Taxes Coalition opposes this bill
because it "imposes tax (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
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