BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 864
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: davis
VERSION: 6/5/07
Analysis by: Mark Stivers FISCAL: yes
Hearing date: July 3, 2007
SUBJECT:
Identification of substandard building purchasers
DESCRIPTION:
This bill requires the buyers of substandard properties to
provide identifying information and a rehabilitation plan to the
local code enforcement agency.
ANALYSIS:
The California Building Standards Code (Title 24 of the
California Code of Regulations) contains building standards and
regulations as adopted by the California Building Standards
Commission. Buildings are considered substandard under state
law if a violation of building standards results in any of the
following conditions:
Inadequate sanitation.
Structural hazards.
Nuisances.
Unsafe or inoperable wiring, plumbing, mechanical equipment.
Faulty weather protection.
Other fire, health or safety hazards.
Local building officials generally enforce building codes. When
violations are discovered, a building official sends the owner a
letter notifying him or her of the deficiency. Except in cases
of imminent danger, the officials then give the owner at least
thirty days to correct the violation. If violations remain
uncorrected, the code officials may hold an administrative
hearing and pursue fines and/or liens on the property. In rare
cases involving recalcitrant owners, a code enforcement agency
AB 864 (DAVIS) Page 2
may seek a receivership for the property or may ask the district
attorney or city attorney to file criminal charges.
Current law requires that when a property changes ownership
during the time between the issuance of a notice of violation
and the abatement of that violation, the transferor (generally a
seller, and referred to here as such) must record a notice of
conveyance and provide the code enforcement agency with the
correct name, address, and identification number of the
transferee (generally a buyer, and referred to here as such).
This bill requires the buyers of substandard properties to
provide identifying information and a rehabilitation plan to the
local code enforcement agency. Specifically, the bill:
Applies to any property for which the code enforcement agency
has recorded a notice of pending action, a notice of
substandard conditions, or a document stating that the
building is uninhabitable.
Requires a buyer of such a property, concurrent with the
transfer of the property, to provide the code enforcement
agency with a notarized document containing the address of the
property, the names, addresses, telephone number, fax number,
and email of all owners, the date of the transfer, and a plan
of correction for the substandard conditions.
Requires a buyer to also provide a government-issued
identification document that includes a picture of the buyer.
Requires a buyer to verify, under penalty of perjury, that the
information provided is true and correct.
If the buyer is a legal entity, such as a partnership or
corporation, requires the buyer to provide the information
described above for one or more officers of the entity.
Requires an out-of-state buyer to designate a person within
California to manage the property and requires that person to
accept the designation in a notarized statement.
Allows the enforcement agency, upon request, to share the name
and address of the buyer with a tenant or tenant association
or organization.
For occupied properties of at least 16 units, requires that
the identifying information of the buyers be posted on the
property.
Allows local governments to adopt and enforce local ordinances
that duplicate or supplement these requirements.
Provides that a person who fails to provide the information or
who provides false information is subject to a misdemeanor
punishable by imprisonment for up to one year, a fine of up to
AB 864 (DAVIS) Page 3
$10,000, or both.
Prohibits a person who is not in compliance with these
requirements from collecting rent, issuing a notice of rent
increase, or issuing a three-day eviction notice.
Exempts property owned by a governmental entity or by a
financial institution that has acquired the property through
foreclosure.
COMMENTS:
1.Purpose of the bill . According to the author, substandard
properties cause blight and increased crime in our
neighborhoods. These properties are particularly susceptible
to being transferred to sham transferees who have no intention
of fixing up the properties and who are difficult to locate.
Whereas current law requires the seller to provide information
on the buyer to the enforcement agency, this bill requires the
buyer to confirm this identification information as well as
provide a plan of correction. This will help enforcement
agencies track down new owners and get them to repair
substandard properties.
2.Difficulty of locating property owners . Effective enforcement
of building codes requires building code officials and
prosecutors to know exactly who owns the property. Not only
is it critical that notice letters reach the actual owner, but
in cases where criminal charges are filed, the suit must name
an individual. Ascertaining who actually owns an individual
parcel, however, can be a difficult task. The names and
mailing addresses of property owners are often taken from
recorded deeds and listed at the county assessor's office.
These listings are unverified, can include fictitious business
names or unregistered corporations, may list only a post
office box for an address, and may not reflect changes in
ownership that are not recorded. Even if an owner can be
identified, there may not be enough information to locate the
owner for the purposes of serving legal papers. Serving an
owner is even more difficult if the assessor's roll lists an
owner in another state or foreign country.
3.One or two bites at the apple ? Under current law, when a
substandard property is transferred, the transferor (generally
a seller) must record a notice of conveyance and provide the
code enforcement agency with the correct name, address, and
identification number of the transferee. According to the
sponsor, this often does not occur, and enforcement agencies
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are reluctant to prosecute former owners who are no longer
responsible for the property. To address this problem, this
bill shifts the reporting requirement to the transferee
(generally a buyer) and adds a number of additional
requirements, but the bill does not do away with the
requirement on the transferor. As a result, both buyer and
seller would be required to report information on the buyer.
The committee may wish to consider whether the requirements of
this bill should replace the current requirements for sellers.
4.How will buyers know of the reporting requirement ? This bill
requires the buyer of a substandard property to provide
identifying and contact information to the local enforcement
agency and makes failure to comply a misdemeanor. The buyer
must provide this information concurrently with the sale of
the property. With this concurrency requirement, it is the
author's belief that escrow companies will inform their
clients of the law and ensure that the buyer submits the
required paperwork.
5.Severe penalties for non-compliance . In the event that a
buyer fails to provide the required documentation or provides
false information, this bill allows the enforcement agency to
seek criminal penalties against the buyer, including jail time
of up to one year and fines of up to $10,000. In addition,
the buyer is prohibited from collecting rents, increasing
rents, or evicting tenants for non-payment of rent until they
comply. While these penalties will surely get a buyer's
attention and remove any incentive to avoid prosecution for
the code violations, they are severe for what amounts to a
failure to report. The committee may wish to consider whether
the penalties are proportionate to the crime.
6.The L.A. experience . AB 1112 (Goldberg), Chapter 487,
Statutes of 2001, established a three-year pilot program
requiring private apartment owners in Los Angeles County to
register with the county if a code enforcement agency had
recorded against the property a notice of substandard
conditions or other document declaring the property to be
untenantable. At the end of the three-year period, the
county's Department of Health Services, which had been
designated by the Board of Supervisors to implement the
program, reported to the Legislature that the program was
ineffective. A total of only 25 owners of substandard
apartment buildings registered with the county, and the
properties were all located in four of the county's 88 cities.
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Of the 35 cities that responded to a survey, 70% did not
utilize the program. Of those that did, 83% said the program
was ineffective. The author believes that this bill will be
more effective than the pilot program because the registration
requirement is triggered by a sale or other exchange.
7.Exemption for lenders . The bill creates an exemption from the
reporting requirement for financial institutions that assume
ownership of a property subject to the terms of a loan (i.e.,
foreclosure). Exempt financial institutions include banks,
trust companies, savings associations, savings and loan
associations, industrial banks, finance lenders, residential
mortgage lenders, and credit unions. The bill does not exempt
lenders who are real estate brokers or other beneficiaries
under a deed of trust. The California Mortgage Association
has requested that the exemption apply to these lenders as
well who obtain a property pursuant to the terms of a loan.
The sponsor believes that exempting non-established entities,
such as individuals and real estate brokers, will defeat the
purpose of the bill. Large established lenders can be easily
found by enforcement agencies, allowing them to continue
enforcement efforts and ensure repair of the property. Small
lenders and individuals are not so easily found. Without
contact information for these small lenders, the enforcement
agency cannot do its job. The committee may wish to consider
whether small lenders should be exempt from the bill or not.
If an exemption is appropriate, the committee may wish to
consider whether it should be time-limited to a duration that
allows the lender to resell but not hold the property.
8.Arguments in opposition . Opponents argue that this bill will
discourage investment in and the rehabilitation of substandard
properties by placing unreasonable burdens on purchasers. In
addition, legitimate buyers will not be able to provide a
rehabilitation plan at closing because they do not know the
extent of the needed repairs until they assume ownership and
have the ability inspect the property. Opponents also believe
the criminal penalties provided in the bill are inappropriate.
9.Technical amendments .
On page 4, line 8 strike "an agreement of"
On page 7, lines 4-5 strike "consistent with this
section. When local laws" and insert "that"
On page 7, line 5 strike ", this" and insert ". This"
AB 864 (DAVIS) Page 6
10. Double referral . The Senate Rules Committee has
double-referred this bill to the Transportation and Housing
Committee and the Public Safety Committee. If the committee
approves this bill, it will be re-referred to the Public
Safety Committee.
Assembly Votes:
Floor: 43-34
Appr: 12-5
H&CD: 6-1
POSITIONS: (Communicated to the Committee before noon on
Wednesday, June 27,
2007)
SUPPORT: Los Angeles City Attorney Rocky Delgadillo
(sponsor)
Bet Tzedek Legal Services
California Rural Legal Assistance Foundation
Habitat for Humanity
Oakland City Attorney John Russo
Western Center on Law and Poverty
OPPOSED: Apartment Association of California Southern
Cities
California Apartment Association
California Association of Realtors
California Land Title Association
California Mortgage Association
United Trustees Association