BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 551|
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THIRD READING
Bill No: SB 551
Author: Lowenthal (D)
Amended: 1/23/06
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 9-4, 4/5/05
AYES: Torlakson, Cedillo, Ducheny, Kehoe, Lowenthal,
Machado, Murray, Simitian, Soto
NOES: McClintock, Ashburn, Maldonado, Runner
NO VOTE RECORDED: Margett
SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 4-1, 1/9/06
AYES: Figueroa, Florez, Murray, Simitian
NOES: Aanestad
NO VOTE RECORDED: Morrow, Vacancy
SENATE APPROPRIATIONS COMMITTEE : 7-4, 1/17/06
AYES: Murray, Alarcon, Alquist, Florez, Ortiz, Romero,
Torlakson
NOES: Aanestad, Ashburn, Dutton, Poochigian
NO VOTE RECORDED: Battin, Escutia
SUBJECT : Common interest development ombudsperson pilot
program
SOURCE : California Law Revision Commission
DIGEST : This bill establishes an Office of the Common
Interest Development Ombudsperson within the Department of
Consumer Affairs to provide education to both homeowners
CONTINUED
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and association officers.
ANALYSIS : A common-interest development (CID) is a form
of real estate where each homeowner has an exclusive
interest in a unit or lot and a shared or undivided
interest in common area property. Condominiums, planned
unit developments, stock cooperatives, community
apartments, and many resident-owned mobilehome parks all
fall under the umbrella of CIDs. The Davis-Stirling Common
Interest Development Act provides the legal framework under
which homeowner associations operate in CIDs. In addition
to the requirements of the Act, each CID is governed by a
homeowner association according to the recorded
declarations, bylaws, and operating rules of the
association.
Except at the initial stage of development, there is no
state oversight of CIDs. State laws and the governing
documents of an association can only be enforced through
the courts. Given the length and expense of litigation and
the inability of parties to obtain legal counsel in the
absence of large monetary damages, resolving disputes
through the courts is not an option in many cases.
This bill establishes an Office of the Common Interest
Development Ombudsperson (Office) within the Department of
Consumer Affairs (DCA) to provide education to both
homeowners and association officers. Specifically, this
bill:
1. Establishes the Office within the DCA, under the
supervision and control of the Director of DCA
(Director).
2. Provides that the Director shall employ a CID Ombudsman
(Ombudsman) and other officers and employees necessary
to carry out the powers delegated to the Ombudsman by
the Director.
3. Requires an association, upon its biennial filing of
identifying information with the Secretary of State
(SOS), to pay a CID Ombudsman fee. The initial fee
shall be equal to $10 each two years multiplied by the
number of separate interests within the association.
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4. Provides that the Ombudsman shall increase or decrease
the biennial fee amount every two years in order to
provide only the revenue that it estimates will be
necessary for the operation of the Office. The biennial
fee shall not exceed $20 per separate interest in an
association.
5. 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.
6. 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.
7. 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, upon
appropriation by the Legislature.
8. Requires 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. Provides that a fee may be charged
for training materials or courses that do not exceed the
actual cost.
9. Requires the Ombudsman to maintain a toll-free telephone
number.
10.Requires the Ombudsman to maintain an Internet web site
with the following information:
A. Relevant statutes and regulations pertaining to
the operation of a CID.
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B. Information concerning nonjudicial 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.
11.Requires information provided on the web site to also be
available in written form. Allows the Ombudsman to
charge a fee for these materials not to exceed their
actual cost of printing and delivery.
12.Requires an association to provide its members with
annual written notice of the web site address and
toll-free number of the Ombudsman.
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 submit, on or before January
1, 2009, recommendations to the Legislature on the
scope of the 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
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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.
16.Allows the Ombudsman to establish an advisory committee
that is comprised of a fair representation of interests
involved in CIDs.
17.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 (APA).
18.Provides that the Ombudsman shall adopt rules and
regulations governing the duties of the Office in
accordance with the APA.
19.Provides that the Office shall sunset on January 1,
2011, unless another statute is enacted to delete or
extend that date.
20.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.
Similar Legislation
This bill and an identical companion bill in the Assembly,
AB 770 (Mullin) comes out of recommendations from the
California Law Revision Commission to address problems
within CIDs.
Comments
There are over 36,000 CIDs in California containing a total
of more than three million housing units, fully a quarter
of the state's housing stock. This figure is growing
rapidly as roughly 60 percent of all new housing
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construction is contained within a CID. Yet when questions
or disputes arise, there is no place for homeowners or
board members to turn for assistance other than attorneys
or trade associations.
At least three other states and one county in Maryland have
established CID office of some sort. All but one of these
entities also authorizes the office to conduct certain
enforcement actions against an association that violates
state law. Nevada provides an interesting case study.
Initially, the state's role was limited to education and
enforcement, similar to this bill. Within a few years, it
became clear that enforcement authority was needed to
effectively deal with disputes in common interest
communities, and the state's role was expanded.
Nevada's ombudsman program employs 13 full time employees
while covering only one-tenth as many CID units as
California. If one extrapolates based on the size
difference, California's ombudsperson program would need as
many as 130 employees at a cost of roughly $13 million.
Given the three million CID units in California and the $5
per year fee per unit, the fees imposed by this bill will
generate roughly $15 million per year if the collection
rate were to reach 100 percent. The ombudsperson would
have the authority to raise or lower fees to meet
anticipated costs. Such an entity would be only somewhat
smaller than the State Department of Fair Employment and
Housing.
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 2008-09 Fund
Fee revenues ($6,000)**
($12,000)**($12,000)**Special*
Ombudsperson admin $163 $337
$337Special*
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Education, misc. $348 $860 $860
Special*
Printing, training
$7,520***$7,520*** Special*
materials***
* Fee Account of the CID Ombudsperson Fund
(continuously
appropriated fund created in the bill)
** Based on 2.4 million separate interests being
assessed $10 biennially
*** SB 551 authorizes the recouping of
costs for these materials
SUPPORT : (Verified 1/24/06)
California Law Revision Commission (source)
California Association of Community Managers
Executive Council of Homeowners
League of California Cities
OPPOSITION : (Verified 1/24/06)
The Stop Hidden Taxes Coalition
ARGUMENTS IN SUPPORT : According to the bill's sponsor,
volunteer CID directors face a difficult task. They must
operate a nonprofit corporation, manage significant real
property assets, budget for present and future maintenance
needs, and enforce property restrictions in a fair and
even-handed way - all while complying with a complex body
of regulatory law. Mistakes are inevitable and can lead to
costly and divisive problems. In addition, may CID
homeowners do not fully understand their rights under CID
law, and may mistakenly contest lawful action by an
association board. This bill helps to avoid CID disputes
by educating homeowners and providing practical advice on
managing a CID.
ARGUMENTS IN OPPOSITION : The Stop Hidden Taxes Coalition
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"is opposed to SB 551 (Lowenthal), which would impose a
biennial $10 per unit association tax (labeled a fee in the
bill) on common interest development associations." They
further state, "The threat of hidden taxes enacted by
end-runs around the State Constitution is becoming acute
for businesses and consumers in California. New tax-like
fees increase the cost of doing business and threaten jobs
that are already vulnerable because of high operating costs
in the state. For this reason, a coalition of business and
consumers has formed to raise public awareness and oppose
efforts to disguise taxes as fees."
JJA:mel 1/24/06 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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