BILL ANALYSIS �
AB 771
Page 1
Date of Hearing: April 27, 2011
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 771 (Butler) - As Amended: April 25, 2011
SUBJECT : Common interest developments: requests for
documents: fees
SUMMARY : Requires a homeowners association (HOA) in a common
interest development (CID) to provide each owner of a separate
interest in a CID with a statement of the fees that may be
charged for providing documents to a prospective buyer.
Specifically, this bill :
1)Defines "agent of the association" as any person or entity
providing the documents at the time of sale to a buyer on
behalf of a HOA.
2)Adds a form listing documents a seller of a separate interest
must provide to a prospective buyer as soon as practicable
before transfer of title of the separate interest or execution
of the sales contract.
3)Requires an HOA to provide a statement and form to the members
of an HOA as part of the existing disclosure requirements
describing the fees that may be charged to a seller to
procure, prepare, reproduce, and deliver specified documents
required to be provided to a buyer.
4)Requires an HOA to update the statement and form if the fees
or information change.
5)Requires a seller to provide a copy of the last 12 months of
approved HOA board minutes to a prospective buyer.
6)Provides that the disclosure documents that are required to be
provided to the prospective buyer before the transfer of title
or execution of the sales contract may be made available
electronically or posted on the HOA Web site or the "agent of
the association's" website and must be accessible to a seller
or any other recipient authorized by the owner.
7)Allows an HOA to charge a reasonable fee for the procurement,
preparation reproduction or delivery of the documents required
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to be provided to a prospective buyer before the transfer of
title or execution of a sales contract.
8)Prohibits an HOA from charging additional fees for the
electronic delivery of the documents required to be provided
to a prospective buyer before the transfer of title or
execution of a sales contract.
9)Provides that documents required to be provided under this
section, must be distinguished from other fees, fines or
assessments billed as part of the sales transaction.
10)Provides that delivery of the documents required by this
section shall not be conditioned upon or required to be
combined with any other documents, items or services.
11)Provides that an HOA may contract with any person or entity
to procure, prepare reproduce, and deliver the documents
required to be provided to a prospective buyer before the
transfer of title or execution of a sales contract.
12)Requires an HOA to provide a perspective purchaser with a
copy of the completed form detailing the list of documents
that are required to be provided to a prospective buyer before
the transfer of title or execution of a sales contract when
the documents are delivered.
EXISTING LAW
1)Requires HOAs to provide the members of the CID with specified
documents including:
a) a pro forma operating budget;
b) a summary of the reverse funding plan;
c) a statement describing the HOA's policies requiring
enforcing lien right; and
d) a summary of the HOA's insurance policies.
(Civil Code Section 1365)
1)Requires an owner of a separate interest to provide the
following documents as soon as practicable before the transfer
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of title or the execution of a real property sales contract to
a prospective buyer:
a) a copy of the governing documents of the CID;
b) restrictions on occupancy based on age;
c) copies of documents required by Civil Code Section 1365
(see above);
d) a statement of the current and special assessments;
e) a summary of any alleged violations that are unresolved
against the owner of the separate interest; and
f) a list of any construction defects, and any pending
special assessments that have been approved by the board of
directors but have not been made due.
(Civil Code Section 1368)
1)Provides that a HOA may hire a "managing agent" to operate the
day-to-day functions of the CID (Civil Code Section 1363.1).
2)Defines a "managing agent" as a person or entity who for
compensation exercises control over the assets of the CID
(Civil Code Section 1363.1).
FISCAL EFFECT : None.
COMMENTS :
There are over 49,000 CIDs in the state that range in size from
three to 27,000 units. CIDs make up over 4.9 million housing
units which represents approximately one quarter of the state's
housing stock. CIDs include condominiums, community apartment
projects, 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 separate ownership interests and the
management of common property and enforcement of restrictions by
a HOA. CIDs are governed by the Davis Stirling Act as well as
the governing documents of the association including bylaws,
declaration, and operating rules.
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An owner in a CID is required to provide a prospective purchaser
with specified documents listed in Civil Code Section 1368 as
soon as practicable before the transfer of title or the
execution of a real property sales contract to a prospective
buyer. Sellers, who do not have current documents to provide to
a prospective buyer, can request the documents from the HOA
which has 10 days to provide copies to the seller. In some CIDs,
the HOA contracts with a management company or other agent to
collect the documents, reproduce them and provide them to the
seller. Existing law provides the HOA may only charge a
reasonable fee based on the actual cost of to procure, prepare
and reproduce the items for the owner.
In the recent case of Berryman v. Merit Property Management (152
Cal Capp 4th 1544, 2007) the court determined that an agent of
the HOA was not subject to the provision requiring that the HOA
charge only the actual cost to procure, prepare and reproduce
the documents for the owner.
The court determined that although an HOA is prohibited by
charging above the actual costs and making a profit, a managing
agent is not.
The sponsor of this bill is concerned that a prospective buyer
may be charged for documents, fees or assessments that are not
required by Civil Code Section 1368. The purpose of this bill
is to provide greater transparency for the seller who is
providing the documents and the prospective buyer about what
fees they will be charged for the disclosure documents required
by Civil Code Section 1368 by adding a disclosure form that both
the seller and the prospective buyer will receive.
This bill allows an HOA to continue to contract with a managing
agency to procure, prepare, reproduce and delivery the documents
required by the seller while attempting to provide greater
transparency to the seller and prospective buyer. By adding a
disclosure form, which details the documents and the associated
fees, and providing it to both the seller as an annual
disclosure, and to the prospective buyer and the time of sale,
both will be aware of the costs.
Another issue that the sponsor is attempting to address in this
bill, is to separate out the fees charged for delivering the
documents required by Civil Code �1368 from other fees or
assessments that a purchaser may pay during the sales
transaction. This bill attempts to resolve this issue by
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specifying that the form listing the disclosure documents must
be provided to a buyer separate from any other fees or
assessments.
Arguments in Opposition :
According to the California Association of Community Managers
(CACM), "the sponsor has indicated to CACM that it does not want
"bundling" of fees for other requested services outside of Civil
Code � 1368 during the escrow/transfer of title process. The
other services/documents typically requested during the sales
process are requested of the association by escrow, title,
lenders, realtors, etc. For example, lenders may require the
association to complete and deliver a "certification" document
(sometimes over 40 questions in length and time consuming to
complete) so that financing can be approved for the purchaser.
The association is not obligated to complete this or other
related services outside of Civil Code �1368.
However, the management company does respond and provides the
requested documents and services, for a fee, to assure the sale
can be completed. An itemized list of documents, services, and
fees for services provided are then delivered to escrow from the
management firm.
From the statewide research we have completed, it appears the
"bundling" of fees that CAR opposes occurs after delivery of
documents and services, on the settlement statement prepared by
escrow. Neither the community management firm nor the
association has any control over this activity. Once the
management company provides the itemized information in
accordance with Civil Code �1368 and/or the additional services
as requested, it is no longer involved in the transaction. Our
observation is that in most cases neither the buyer nor the
seller is aware of these necessary services and transactions
until escrow provides settlement statements with a list of fees
due in escrow."
Staff comments :
It is somewhat unclear if this bill will accomplish greater
transparency for both the seller and the prospective buyer of
the fees they should be charged for delivery of the disclosure
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documents required by Civil Code Section 1368. Although the
process for the seller to receive a copy of the fees the HOA can
charge for the disclosure documents when they sell their home is
clear, the process for the prospective buyer is a more indirect.
As CACM points out the managing agent is responsible for
delivering the documents to the seller and in some cases to the
escrow company directly, bypassing the seller. Once the
managing agent passes the documents off to the escrow company,
it will be left to the escrow company to ensure that the fee for
providing the disclosure documents is separate from other fees.
The managing agent cannot be at the closing to ensure that the
form and documents are provided separately from other fees and
assessments it will be up to the escrow agent to do so.
Double referred : The Assembly Committee on Rules referred AB
771 to the Committee on Housing and Community Development and
Judiciary. If AB 771 passes this committee, the bill must be
referred to the Committee on Judiciary.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (CAR)
Opposition
California Association of Community Managers (CACM)
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085