BILL ANALYSIS
AB 770
Page 1
GOVERNOR'S VETO
AB 770 (Mullin)
As Amended August 22, 2006
2/3 vote
-----------------------------------------------------------------
|ASSEMBLY: |44-36|(January 30, |SENATE: |23-14|(August 28, |
| | |2006) | | |2006) |
-----------------------------------------------------------------
-----------------------------------------------------------------
|ASSEMBLY: |45-30|(August 28, | | | |
| | |2006) | | | |
-----------------------------------------------------------------
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
AB 770
Page 2
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.
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.
AB 770
Page 3
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
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;
AB 770
Page 4
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;
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
AB 770
Page 5
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).
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
AB 770
Page 6
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 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,
AB 770
Page 7
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
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.
GOVERNOR'S VETO MESSAGE :
This bill is unnecessary at this time. Recent
legislation has been enacted to address various problems
cited by the author in proposing this bill, including
directives to the Department of Consumer Affairs and the
AB 770
Page 8
Department of Real Estate to develop an on-line
education resource for common interest development board
members, as well as a requirement that associations
provide dispute resolution procedures. It is necessary
to gauge the effectiveness of this recently enacted
legislation before creating an entirely new state
office.
Additionally, this bill provides no clarification on the
type of dispute resolution services that will be
provided by the proposed Ombudsperson, and does not
specify the difference between informal dispute
resolution required by this bill and formal mediation,
which the Ombudsperson would not provide.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0017982