BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 1128
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: DeSaulnier
VERSION: 2/18/10
Analysis by: Mark Stivers FISCAL: no
Hearing date: April 6, 2010
SUBJECT:
Common interest developments: transfer fees in the Rossmoor
Walnut Creek community
DESCRIPTION:
This bill allows the Golden Rain Foundation of Walnut Creek to
continue to charge transfer fees to the purchasers of units
within the common interested developments to which it provides
services.
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
are all CIDs. Each CID is governed by a homeowner association
according to the recorded declarations, bylaws, and operating
rules of the association. The Davis-Stirling Common Interest
Development Act provides the legal framework under which
homeowner associations operate in CIDs.
Homeowner associations generally fund their activities through
monthly assessments on individual homeowners. The assessments
cover not only the operating costs of the association, but also
maintenance reserves and services that the association provides
to its members. Some
CIDs have created affiliated entities, called "community service
organizations or similar entities" (CSOs), to provide services
to residents of the common interest development. The
Davis-Stirling Act generally precludes an association or a CSO
SB 1128 (DESAULNIER) Page 2
from imposing any assessment, penalty, or fee in connection with
a transfer of title for an individual interest except to cover
the association's actual costs related to the transfer. The
act, however, contains an exemption that grandfathers in CSOs
that meet either of the following criteria:
The CSO was established prior to February 20, 2003 and exists
to fund or perform environmental mitigation or to restore or
maintain wetlands or native habitat, as required by the state
or local government as an express written condition of
development.
The CSO was established and received a transfer fee prior to
January 1, 2004 and after January 1, 2006 allows a purchaser
to pay the transfer fee under an installment plan of at least
seven years.
The statute defines a CSO as a nonprofit entity, other than an
association, that is organized to provide services to residents
of the common interest development or to the public in addition
to the residents, to the extent community common areas or
facilities are available to the public.
Located in Walnut Creek, Rossmoor is a senior community that is
home to over 9,600 seniors. The Golden Rain Foundation of Walnut
Creek is a nonprofit corporation designated to serve as trustee
under a trust agreement benefiting the seventeen affiliated
common interest developments in the Rossmoor community. The
purpose of the Foundation is to provide administrative services
and to own and maintain major infrastructure and facilities
within the developments. Currently, the residents of Rossmoor
pay a one-time transfer fee upon moving into the community. The
transfer fee is used to pay for infrastructure and facilities
costs in lieu of increased assessments or monthly dues on the
residents.
Since 2004 when the CSO provisions described above took effect,
the Golden Rain Foundation of Walnut Creek has considered itself
to be a CSO and therefore eligible to continue charging a
transfer fee. In 2008, however, in the case of Golden Rain
Foundation v. Franz, a case involving whether or not a separate
but similar foundation affiliated with Leisure World of Seal
Beach was required to make financial documents available to
residents, the 4th District Court of Appeal in Southern
California opined that the Seal Beach Golden Rain Foundation was
an association rather than a CSO for purposes of the Davis
SB 1128 (DESAULNIER) Page 3
Stirling Act and therefore required to make financial documents
available to residents. Given the similarities between the Seal
Beach and Walnut Creek Golden Rain Foundations, the Golden Rain
Foundation of Walnut Creek is now concerned that its ability to
charge a transfer fee could be challenged.
This bill provides that the Golden Rain Foundation of Walnut
Creek may continue to charge transfer fees to the purchasers of
units within the CIDs to which it provides services if it
charged a transfer fee prior to January 1, 2010.
COMMENTS:
1.Purpose of the bill . According to the author, by allowing the
Golden Rain Foundation of Walnut Creek to continue to charge a
one-time transfer fee to residents, this bill will ensure the
continuity of services to residents of the Rossmoor Valley.
The recent appellate court decision from Southern California
raised concerns for the Golden Rain Foundation of Walnut Creek
that it would not be found to be a community service
organization under current law. If the Foundation is
determined to be an association and not a community service
organization, it will no longer be able to charge a transfer
fee, which will threaten the stability of Rossmoor's
infrastructure and facilities funding. The only way to
maintain funding and services will be to shift a significant
burden onto individual seniors at Rossmoor in the form of
increased dues and assessments.
2.An association or a CSO ? The Southern California appellate
court decision has thrown into question whether the Golden
Rain Foundation of Walnut Creek is a CSO or an association.
This bill clarifies the Foundation's ability to continue
charging transfer fees without taking sides as to the status
of the Foundation with respect to other provisions of the
Davis Stirling Act. It defines the Foundation neither as a
CSO nor as an association and therefore leaves that decision
to the courts.
3.All for one, and one for all . Though legally unrelated, there
are three Golden Rain Foundations in California that are all
similar in structure: in Walnut Creek, Seal Beach, and Laguna
Woods. According to the sponsor, the Seal Beach foundation
applies transfer fees similar to those of Walnut Creek, and
the Laguna Woods foundation applied such fees early in its
life but has not since the mid-1990s. In order to avoid
SB 1128 (DESAULNIER) Page 4
revisiting this issue in the future, the committee may wish to
consider broadening the bill to cover the Seal Beach
foundation which arguably faces the same ambiguity.
4.Working with the Realtors . While it has taken no formal
position on the bill, the California Association of Realtors
has expressed acceptance of the concept of clarifying the
grandfathering of Rossmoor's transfer fees as well as concerns
over the uncodified, single-entity manner in which the bill is
drafted. The author is working with the Realtors on
alternative language to achieve the same result in a different
manner and may offer such amendments in committee.
5.Technical amendments .
On page 2, line 6, strike "that" and insert "such"
On page 2, line 6, strike "development" and insert
"developments"
On page 2, line 7, strike "2010" and insert "2004"
On page 2, line 13 after "property" insert "in the
manner"
On page 2, lines 13-14, strike "a community service
organization" and insert "an entity"
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
March 31, 2010)
SUPPORT: Golden Rain Foundation of Walnut Creek (sponsor)
Rossmoor Walnut Creek
3 individual residents of Rossmoor Walnut Creek
OPPOSED: None received.