BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 1216
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: fuentes
VERSION: 2/18/11
Analysis by: Mark Stivers FISCAL: no
Hearing date: June 14, 2011
SUBJECT:
Preservation of existing affordable housing
DESCRIPTION:
This bill allows tenants who live in affected affordable housing
units, the Department of Housing and Community Development, the
local public housing authority, and the city or county in which
the development is located to bring an action in court to
enforce the preservation right-of-first refusal law.
ANALYSIS:
Since the 1960s, developers have constructed at least 425,000
units of affordable rental housing in California with the
assistance of federal, state, and local subsidies that require
owners to maintain rents at affordable levels for a specified
period of time. Examples of such subsidies include
project-based Section 8, Federal Housing Administration (FHA)
mortgages, low-income housing tax credits, state loans and
grants, and city and county redevelopment funds. The
affordability restrictions on assisted units typically last
30-55 years, depending on the program.
Once affordability obligations expire, owners may preserve the
affordability of the units by renewing assistance or by
refinancing with new public subsidies, or they may convert the
development to market rate. Under some federal programs, owners
can also terminate affordability restrictions early by prepaying
the underlying mortgage or opting out of the rental assistance
contract. According to the state-chartered California Housing
Partnership Corporation, California has already lost more than
20,000 units of housing affordable to low-income households to
market rate conversions, and 82,000 more units are considered
"at risk" of conversion in the next five years.
In order to "preserve" the long-term affordability of these
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at-risk units, current law prohibits a property owner from
converting an affordable property to market rate without first
providing notice to tenants, local and state governments, and
potential preservation purchasers (i.e., those who may wish to
purchase the development in order to preserve the affordability
restrictions) at least one year in advance.
In addition, during this one-year notice period, current law
also provides preservation purchasers with limited priority to
purchase the property if the owner is inclined to sell. This is
known as the "preservation right-of-first refusal law." Prior
to or concurrent with the delivery of the 12-month notice
described above, the owner must notify prospective preservation
purchasers who have contacted the owner directly or who are on a
list maintained by the Department of Housing and Community
Development (HCD) of the opportunity to submit a purchase offer.
The owner is not required to accept any offer but may only
accept offers from preservation purchasers for 180 days after
the purchase offer notice. If the owner rejects a purchase
offer during this time, the owner must give the preservation
purchaser who made the offer an opportunity to match and preempt
any offer from a non-preservation purchaser accepted during the
second 180 days after the purchase offer notice. These
requirements and priorities also apply if an owner seeks to sell
or otherwise dispose of a property that is eligible for
conversion in the next five years.
In general, an owner is exempt from both the notice and
preservation right-of-first refusal laws if he or she or a
successor owner agrees to retain existing tenants and extend the
affordability of the units for at least 30 years. If an owner
ultimately sells to a non-preservation purchaser, he or she must
certify under penalty of perjury that he or she has complied
with the notice and preservation right-of-first refusal laws.
If an owner fails to comply with the notice law, tenants who
live in affected affordable housing units, HCD, the local public
housing authority, and the city or county in which the
development is located may bring an enforcement action. If an
owner fails to comply with the preservation right-of-first
refusal law, only a preservation purchaser may enforce the law.
This bill allows tenants who live in affected affordable housing
units, HCD, the local public housing authority, and the city or
county in which the development is located to bring an action in
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court to enforce the preservation right-of-first refusal law.
In addition, this bill provides that a seller's failure to
record the certification of compliance shall not affect the
rights of a purchaser or encumbrancer who acts in good faith and
is unaware of the violation.
COMMENTS:
1.Purpose of the bill . The conversion of affordable housing
units to market rate increases rents and displaces low-income
families. State law aims to prevent the loss of affordable
units with the notice and preservation right-of-first refusal
laws. If an owner fails to provide the notice, however, there
is little chance to prevent these units from converting to
market rate. The entities that currently have the right to
enforce the provisions, primarily affordable housing
developers, have little way of knowing that they had the right
to make a purchase offer for an assisted housing development
if they never received the notice from the owner. Even if
they do become aware that an owner has failed to follow the
law, they may be reluctant to sue for fear of alienating the
owner with whom they are trying to negotiate the purchase of
the property. Expanding enforcement authority to include
affected tenants as well as affected public agencies is a way
to ensure greater compliance with the right-of-first-refusal
law and, ultimately, the preservation of precious affordable
housing.
2.Consistent with the preservation notice law . Under current
law, tenants and affected public entities may bring an action
to ensure compliance with the preservation notice law. Under
the preservation right-of-first-refusal law, however, only
qualified entities have standing to sue. This bill conforms
the two related statutes such that tenants and affected public
entities may enforce both laws.
3.Previous legislation . AB 2019 (Fuentes) of 2008 contained
similar provisions to this bill. Governor Schwarzenegger
vetoed AB 2019 with the following message:
This bill would give tenants the ability to initiate
legal action against an owner of publicly subsidized,
rent-restricted, or assisted housing if the owner fails
to provide the proper legal notice when the owner
decides to remove the property from the subsidized
housing market.
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This measure, while well intentioned, attempts to
achieve this goal by expanding the number of individuals
who have standing to initiate legal action and enforce
current notification requirements. This could increase
overall litigation throughout the state. In addition,
owners, who may have simply been unaware of the
notification requirements, may face excessive and
unnecessary delays or court cost prior to the sale or
transfer of their property. These types of delays and
burdens could discourage potential buyers of the
affordable housing development and increase the chances
that individuals who own, or are considering the
purchase of, affordable housing units will choose not to
enter the market.
4.Recommended amendment . The current preservation notice and
right-of-first refusal statutes apply when a "termination" of
public subsidies occurs, which is defined as "an owner's
decision not to extend or renew its participation in a
federal, state, or local government subsidy program or
private, nongovernmental subsidy program for an assisted
housing development." Because a termination may occur
automatically without a "decision" per se, this definition
needs to be clarified to refer to the failure to extend or
renew a subsidy.
Assembly Votes:
Floor: 50-27
L Gov: 6-3
HCD: 5-2
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
June 8, 2011)
SUPPORT: California Rural Legal Assistance Foundation
(sponsor)
City of Santa Monica
Western Center on Law and Poverty
OPPOSED: None received.
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