BILL ANALYSIS
AB 770
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Date of Hearing: April 27, 3005
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Gene Mullin, Chair
AB 770 (Mullin) - As Amended: April 25, 2005
SUBJECT : Common interest development: ombudsperson
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 (CID).
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.
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 website with
the following information:
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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.
d) Yearly update on legislative changes to CID law and any
other information deemed useful.
1)Requires information provided on the website 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 website address and toll free number of
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 the Ombudsperson may adopt a fee of not more than $25
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.
c) Analysis of the most common and serious types of
disputes and any recommendations for statutory reform.
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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.
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 DCA shall employ the Ombudsperson and other officers
and employees as necessary to fulfill the requirements of the
office.
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 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
Secretary of State 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 Secretary of State.
8)Provides the Ombudsperson may establish a rule governing which
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association should pay the fee if a separate interest is part
of more than one association.
9)Requires the Ombudsperson adopt governing practices and
procedures in accordance with the Administrative Procedures
Act.
10) Provides 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.
11) Provides a sunset provision of January 1, 2011.
EXISTING LAW
1)The Davis Stirling Common Interest Development Act provides
the rules and regulations within which homeowner associations
may operate in a common interest development.
(Civil Code Section 1350 - 1376)
2)Requires the association to register every two years with the
Secretary of State for a fee and to provide certain
information regarding the organization. Failure to register
will result in a suspension of the association's rights as a
corporation and monetary penalties.
(Civil Code Section 1363.6)
3)Prohibits, except for emergency assessments as defined, the
board of directors of an association from imposing a regular
assessment that is more than 20% greater than the regular
assessment for the association's preceding fiscal year.
[Civil Code Section 1366(b)]
FISCAL EFFECT : Unknown
COMMENTS :
Background :
There are over 36,000 common interest developments (CID) in the
state that range in size from three to 27,000 units. CIDs make
up over three million total housing units which represents
approximately one quarter of the state's housing stock. In the
1990s, over 60% of all residential construction starts in the
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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
management of common property and enforcement of restrictions by
a community association. 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.
California Law Revision Commission :
This bill would implement a recommendation of the California Law
Revision Commission (Commission). The Commission 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. The Commission studies
the law in order to discover defects and anachronisms and
recommends legislation to make needed reforms. The Commission
has been studying common interest development law since 2001,
with an initial emphasis on nonjudicial dispute resolution and
dispute avoidance. Prior Commission 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
decisionmaking (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]. The
Commission develops its recommendations in an open public
process where all interested groups are invited to participate.
Need for the bill :
CID's are governed by elected volunteer directors. According to
the sponsor, 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
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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, 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.
Other Jurisdictions :
Several other states, including Florida, Nevada and Hawaii,
provide services to CID associations similar to the ones
proposed in this legislation. 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 the Davis
Stirling Act.
In Hawaii, the Real Estate Commission provides services to
condominiums including referrals and subsidy 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.
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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 Secretary of State when an
association files its statement of principal business activity.
The fee for the services of the Ombudsperson would be breakdown
to .42 cents per unit per month. Of the estimated 36,000 CIDs in
the state approximately 21,000 have registered with the
Secretary of State. Although the Secretary of State 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. 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 this committee 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 there frequency. One of the functions of the 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.
Location of the Office of the Ombudsperson :
According to the sponsor, DCA was chosen to house the
Ombudsperson for several reasons but primarily because of its
overall mission, i.e. to protect the public by receiving,
investigating and resolving complaints and its experience in
dispute resolution. Also, DCA serves as an umbrella organization
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overseeing a number of semi-autonomous regulatory bodies. The
sponsor also noted DCA has had experience in regulating various
business and professions and this knowledge
would prove valuable in starting up a new body like the
Ombudsperson.
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 CIDs oversees
their original budgets and governing documents would be a better
location for the Ombudsperson. ECHO also suggests that the
Ombudsperson may one day lead to additional and vital state role
in evaluating and monitoring the financial health of community
associations and setting standards for preserving member equity
in community reserves and DRE would be better equipped to deal
with this expanded role.
Bureau of Automotive Repair :
The Bureau of Automotive Repair (BAR) is part of DCA and
regulates approximately 41,000 California automotive repair
facilities, and licenses smog check, lamp and brake inspection
stations. This program has been successful at fielding consumer
complaints and following up to ensure the consumer is protected.
During the 2002/03 Fiscal Year, BAR negotiated $5.2 million
worth of refunds, rework, or adjustments from auto repair shops
on behalf of consumers.
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. The 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.
Request for Amendments :
The California Alliance of Retired Americans (CARA) has a
support if amended position with a request that several issues
be addressed. CARA has agreed to work with the author in an
attempt to address their concerns. CARA requests that
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developers pay a fee for each parcel or unsold unit to which
they hold title. The bill currently requires all separate
interests in an association to pay the $5 annual fee - this
includes developers of unsold units.
CARA states the Ombudsperson "duplicates existing state/county
services" and gives the example of the Dispute Resolution
Program Act of 1986 administered by Department of Consumer
Affairs. The DRPA is a county level program that is paid for by
local court fees and is only available in 31 of the 58 counties.
The bill proposes to put the Ombudspersons in DCA and nothing
would prevent the Agency from using any infrastructure they
already have in place. CARA further states in their letter,
"DCA is the state's enforcement agency for dispute resolution
and has a 20-year commitment to it." CARA also raises concern
about the need to "capitalize on administrative systems already
in place," the bill allows the Ombudsperson to contract with
third party mediators to provide mediation services.
CARA requests that property managers, law firms and other
vendors or "any person who uses the Office be taxed for its
creation." If required to pay the fee, vendors would probably
pass it on to homeowners so homeowners would be paying the fee
twice. Staff is also unclear how this fee would be collected
from vendors and which vendors would be required to pay.
CARA requests that the fee on homeowners shall be subject to the
20% cap imposed by Civil Code Section 1366 (b). The sponsor
provided the following response, "As a matter of policy, if the
state is going to impose direct costs on associations that can
only be recovered through assessment increases, then the
increase should not be counted in the 20% cap. Otherwise the
statutory fee would interfere with the association's ability to
collect assessments for its other responsibilities."
Finally, CARA requests that the $5 fee be reduced because the
original proposal to provide state oversight of CIDs included
enforcement of CID law and now that this has been removed the
fee should be "appropriately" reduced. Because there has not
been a centralized agency that receives calls from CID
homeowners there is no empirical data indicating the number of
calls the Office of the Ombudsperson will receive and the volume
of work it can anticipate. The bill currently allows the
Ombudsperson to adjust the fee to reflect operational expenses
projected every two years.
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Second policy committee of reference : The Assembly Committee on
Business and Professions requested the bill for hearing. If AB
770 passes this committee, the bill must be referred to the
Assembly Committee on Business and Professions.
REGISTERED SUPPORT / OPPOSITION :
Support
California Law Revision Commission (CLRC) (Sponsor)
American Federation of State, County and Municipal Employees
California Alliance for Consumer Protection (support if amend)
California Alliance for Retired Americans (CARA) (support if
amend)
California Association of Community Managers, Inc. (CACM)
California Association of Realtors (CAR)
Community Association Institute (CAI)
Executive Council of Homeowners (ECHO)
League of California Cities
Opposition
American Homeowners Resource Center (AHRC)
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085