BILL ANALYSIS
AB 864
Page 1
Date of Hearing: April 25, 2007
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Lori Saldana, Chair
AB 864 (Davis) - As Amended: April 16, 2007
SUBJECT : Substandard buildings
SUMMARY : Requires registration with the building code
enforcement agency (enforcement agency), by a person or entity
who acquires a property that is uninhabitable or otherwise found
to be in substandard condition. Specifically, This bill :
1)Requires, upon a sale or exchange of real property, a person
or entity who acquires such real property that has a notice of
substandard condition, notice of substandard building, or
uninhabitability to register with the enforcement agency.
2) Requires registration include:
a) Filing with the enforcement agency a notarized document
containing:
i) the name, true mailing address, telephone, fax and
e-mail of all owners;
ii) the address of the subject property;
iii) date of transfer;
iv) the plan (including timeline, costs and available
financial resources) for correction of substandard
conditions; and
v) proof, if any, of liability insurance.
b) Providing the enforcement agency with personal
identification issued by the federal, California, another
state, or local government.
c) Posting of information contained in 2) a) i-iii) above
at the subject property if more than 16 units and any
portion of the property is occupied.
3)Enumerates the persons to be identified for registration for
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an entity that is a corporation, limited liability company,
partnership, limited partnership, trust, or real estate
investment trust.
4)Requires an owner who resides outside California, to identify
a natural person who resides in state and who manages the
property.
5)Requires a person, or entity, who must register under these
provisions, to deposit into an escrow account an amount to
fund the correction of the building code violations.
6)Allows the enforcement agency to disclose to the tenants, upon
request, the name and address of the person or entity that
acquires the property.
7)Allows local governments to adopt and enforce laws consistent
with AB 864.
8)Establishes a misdemeanor for failure to comply with these
provisions or otherwise provide false information to an
enforcement agency.
9)Provides that a person or entity that does not comply with AB
864 may not raise or collect rent or issue a three day notice
to pay or quit.
10)Exempts from application, real property owned by a government
entity.
11)Repeals a cross reference to existing law that expired in
2005.
EXISTING LAW:
Requires a seller or transferor, within 5 days of the sale,
recordation or conveyance of a property cited for building code
violations, to record a Notice of Conveyance of Substandard
Property that includes the name and address of the new owner and
to provide the enforcement agency with the name, address, and
driver's license number of all buyers and sellers with an
interest in the property greater than 5 percent (Health & Safety
Code Section 17991).
FISCAL EFFECT : Unknown.
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COMMENTS :
Background
Vacant and run-down homes, apartments, and commercial buildings
can often pose on-going health and public safety problems for
neighborhoods. Existing law allows local building officials to
abate nuisances and building code violations after giving a
30-day notice. After inspecting a property, the local building
official requires the property owner to repair or demolish the
building. If the property owner does not make timely repairs,
the local building official can make the repairs or demolish the
building and seek to recover costs from the owner. As the
affordable housing shortage continues it is critical that
housing stock not be lost when repairs could have been made
early on to prevent condemnation.
Under the State Housing Law, all residential dwellings are
subject to building standards as adopted by the California
Building Standards Commission in the California Building
Standards Code (Title 24 of the California Code of Regulations).
Building codes are generally enforced by local building
officials, often as local ordinances. When violations are
discovered or a nuisance conditions exists, a building official
sends the owner a letter notifying him or her of the deficiency.
Owners are then generally given at least 30 days to correct the
violation. If violations remain uncorrected after 30 days, code
officials may institute any appropriate action or proceeding to
correct building code violations or abate nuisances.
AB 1112 (Goldberg), Chapter 487, Statutes of 2001, established a
similar real property registration requirement as provided under
AB 864 to apply as a pilot program in Los Angeles County. AB
1112 created a residential rental property registry which
allowed local code enforcement to locate the owner of the
property in the event of an emergency, or code violation.
The rationale behind AB 1112 articulated the same concerns as
those expressed by the author of AB 864, which is that in some
cases it is difficult to locate the legal owner of property.
According to the author of AB 1112, "in efforts to hide true
legal ownership, such owners have been know to create limited
liability partnerships, out-of-state or offshore corporations,
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family trusts and/or sham operations."
AB 1034 (Mullin), Chapter 474, Statutes of 2003, applied the
registration requirement statewide.
In transfer of ownership, new owners are given notice of a
condition and given an opportunity for correction. Code
enforcement and/or criminal prosecution are suspended during
this period.
"Flipping" is a continual transfer of ownership that can result
in avoiding code enforcement. "Flipping" also allows sham
property transfers that hinders prosecution and code
enforcement.
In the event that an owner resides out of state, it is difficult
for authorities to contact the person, or they otherwise may be
beyond the jurisdiction of local authorities.
Need for the bill
According to the author, it is common place for unscrupulous
owners of substandard properties to transfer ownership to escape
responsibility for fixing or maintaining rental properties.
There is nothing in the law that requires a buyer to record
anything accepting the deed, so that even if the new "owner" is
located, he or she is easily able to disclaim ownership stating
that the grant deed was never accepted. Without the new buyer
acknowledging ownership and providing a plan for correction, the
repair of substandard properties maybe indefinitely delayed or
never accomplished. This bill would require the buyer or
transferee of substandard property to similarly register, just
as the seller is required under existing law.
Arguments in Support
Supporters argue that AB 864 is vital in order to determine
responsibility for compliance with code enforcement actions.
Too often, properties with building code violations are
"flipped" to other owners, often shells within shells, making it
impossible to enforce code compliance.
In addition the requirement to deposit funds into escrow to
complete repairs will render the strategy of flipping useless.
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Arguments in Opposition
According to the California Mortgage Association, AB 864 will
result in the unintended consequence of discouraging interested
parties from acquiring property and bringing it up to code.
Additional requirements on parties who wish to acquire property
that is subject of a code violation may cause potential buyers
to decide that acquisition and improvement is no longer a
worthwhile endeavor.
The Apartment Association of California Southern Cities argues
the following:
1)The bill will stop legitimate transfers of property where a
substandard building condition exists because the new owner
must "deposit into an escrow account . . . an amount
sufficient to fund the correction of the violations". New
owners will never be able to meet this demand because they
will not be able to identify contractor(s), designers,
engineers, architects and all of the other professionals that
the new owner must contract with to make necessary repairs in
this time frame assuming the building will be repaired and not
demolished.
2)New owners cannot secure financing for a property they do not
own to make the repairs to the building.
3)The bill mandates that proof of insurance shall be provided
the day new owners take title to the property. This is an
impossible standard.
The California Bankers Association opposes AB 864 because it
imposes new duties on lenders, who acquire an interest in real
property through foreclosure. In the event that a borrower
abandons a substandard property, lenders would be subject to the
provisions of this measure.
Staff Comments
The Committee may wish to consider that this bill adds a fairly
substantial requirement on purchasers of property that have
building code violations. AB 864 requires a buyer to deposit
into escrow an amount sufficient to effect necessary repairs to
make the building, code compliant. The Committee may wish to
consider whether such a requirement is truly feasible. In some
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instances a buyer may acquire a building that is vacant. It may
take several months to complete repairs. This provision would
likely disqualify any buyer from purchasing a property unless
they have the full amount of necessary funds to immediately
complete all repairs.
The Committee may wish to consider how an accurate determination
of all costs to repair would be determined. For certain
buildings, it could take a considerable amount of time to gather
all the various bids and estimates from contractors to determine
costs. Additionally, if the purchaser of a rental property is a
contractor him or herself and plans to do some or much of their
own work, how will the amount of repair then be calculated?
These provisions were not included in the Los Angeles County
pilot program so there is no practical experience from which to
draw. The Committee may wish to delete the escrow provision from
the bill.
Suggested Amendment
On page 6: delete lines 18-25.
REGISTERED SUPPORT / OPPOSITION :
Support
Los Angeles City Attorney Rocky Delgadillo (Sponsor)
Bet Tzedek Legal Services, Los Angeles
California Rural Legal Assistance Foundation
City of Oakland
Eviction Defense Network, Los Angeles
Habitat for Humanity for Greater Los Angeles
Inner City Law Center, Los Angeles
Western Center on Law & Poverty
Opposition
Apartment Association of California Southern Cities
California Association of Realtors
California Bankers Association
California Land Title Association
California Mortgage Association
Analysis Prepared by : Hubert Bower / H. & C.D. / (916)
319-2085
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