BILL ANALYSIS �
AB 569
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Date of Hearing: January 23, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 569 (Chau) - As Amended: September 12, 2013
Policy Committee: Housing and
Community Development Vote: 7-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill relaxes restrictions to assist in the development and
financing of cooperative housing. Specifically, this bill:
1)Expands the category of institutions that a limited equity
housing corporation (LEHC) or workforce housing cooperative
trust can receive financing from and still be eligible to
receive an exemption from the requirement to obtain a public
report from the Bureau of Real Estate. State or federally
chartered credit unions and a certified community development
institution (CDFI) are added.
2)Allows a stock cooperative or LEHC to be sold or leased,
subject to a blanket encumbrance if specified conditions are
met
3)Exempts common interest developments (CIDs) from the election
provisions of the Davis Stirling Act if the governing
documents of the homeowner's association (HOA) provide that
all members of the CID are automatically members of the board
of directors of the HOA.
FISCAL EFFECT
Negligible fiscal impact.
COMMENTS
1)Purpose. The author explains that in California, a
cooperative is created when a corporation is formed for the
purposes of holding title to a property, and where all or
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substantially all of the members or shareholders of the
corporation are entitled to lease a unit in the property. The
author argues cooperatives lower the barrier to property
ownership, and create an important vehicle for the creation
and preservation of affordable housing. According to the
author, this bill would remove one of the more significant
barriers to financing cooperative housing.
2)Background : Nationwide, more than 1.2 million families of all
income levels live in homes owned and operated through
cooperative associations. Cooperative members own a share in
a corporation that owns or controls the building and or
property in which they live. Each shareholder is entitled to
occupy a specific unit and has a vote in the corporation.
Every month, shareholders pay an amount that covers their
proportionate share of the expense of operating the entire
cooperative which typically includes underlying mortgage
payments, property taxes, management, maintenance, insurance,
utilities and contributions to reserve funds. Cooperatives
can be any type of housing including townhouses, apartments,
single family homes, student housing, senior housing or
mobilehome parks. Proponents state the purpose of the
cooperative structure is to prevent speculation, encourage
long-term residency and preserve the affordable character of
the cooperative for future residents.
3)Blanket encumbrance . The California Subdivided Lands Act
prohibits, with a few limited exceptions, the sale of
cooperative shares when the units are subject to a "blanket
encumbrance." A blanket encumbrance is a single mortgage
taken out by the corporation and secured by the entire
property. The prohibition on blanket encumbrances serves to
protect cooperative members from losing their homes and
investments in the event that one member of the cooperative
fails to make payments to the single mortgage. However, the
prohibition on blanket encumbrances has the effect of banning
cooperatives in California, because lenders generally will not
lend on individual units in a cooperative.
4)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081
AB 569
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