BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 569
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: chau
VERSION: 9/12/13
Analysis by: Mark Stivers FISCAL: yes
Hearing date: May 6, 2014
SUBJECT:
Cooperative housing
DESCRIPTION:
This bill allows a stock cooperative or limited-equity housing
cooperative to be sold or leased subject to a blanket
encumbrance under specified conditions.
ANALYSIS:
Cooperative housing members own a share in a corporation that
owns or controls the building(s) 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.
Limited-equity cooperatives limit the resale value of shares.
Generally targeted at low- and moderate-income people (in the
80-120% of median-income range), the purpose of limited-equity
cooperatives is to prevent speculation, encourage long-term
residency, and preserve the affordable character of the
cooperative for a wide variety of future residents.
The Subdivided Lands Law generally requires a person who
proposes to subdivide a property into five or more parcels for
purpose of sale or lease to obtain a public report from the
Bureau of Real Estate (BRE) before the subdivider may market the
lots or units. This law is intended to ensure that prospective
buyers receive disclosure of pertinent information about the
subdivision and that developers complete improvements or arrange
for their completion. The law contains a number of exemptions,
including one for a limited-equity housing cooperative that
AB 569 (CHAU) Page 2
meets both of the following conditions:
A public agency has provided the land or financed at least 50
percent of the total development cost or $100,000, whichever
is less.
A regulatory agreement provides assurances for completion of
the common areas and facilities and ensures that every
prospective purchaser receives, prior to sale, a membership
information report that contains full disclosure of the
financial obligations and responsibilities of cooperative
membership, rules regarding the resale of shares, the
financing of the cooperative, occupancy restrictions,
management arrangements, and any other information pertinent
to the benefits, risks, and obligations of cooperative
ownership.
The Subdivided Lands Law also generally prohibits the sale or
lease of lots or parcels within a subdivision if the lots or
parcels are subject to a "blanket encumbrance," which is a
mortgage secured by the entire property or more than one lot or
parcel. This prohibition does not apply if the encumbrance
contains a release clause that unconditionally allows a
purchaser to obtain legal title free and clear of the blanket
encumbrance upon compliance with the terms and conditions of the
purchase or lease.
Cooperative housing developments also fall under the
Davis-Stirling Act, which governs all common interest
developments (CIDs). The act requires that a board of directors
govern a CID and, when elections are held for the board of
directors, specifies various election procedures, including use
of secret ballots and the appointment of an inspector of
elections.
This bill :
Allows non-public institutions, specifically state or
federally chartered credit unions or certified community
development financial institutions, to provide financing to a
limited-equity housing cooperative for purposes of qualifying
for the exemption from the Subdivided Lands Law.
Allows a stock cooperative or limited-equity housing
cooperative to sell shares or enter into leases subject to a
blanket encumbrance if all of the following conditions are
met:
AB 569 (CHAU) Page 3
The seller or lessor provides prospective purchasers and
lessees notice that the property is subject to a blanket
encumbrance and notice is included in every purchase and
lease contract.
The property has obtained a public report from the BRE
that accounts for the blanket encumbrance.
The governing documents for the association require the
association to create within one year of the sale of at
least 50 percent of the individual interests and maintain
during the term of the blanket encumbrance a financing
reserve amount equal to at least three months of the amount
of the debt service payments due on the blanket encumbrance
or a lesser amount acceptable to the BRE commissioner.
Exempts CIDs in which all members or shareholders
automatically become members of the board of directors from
the provisions of the Davis-Stirling Act that are applicable
to the election of directors.
COMMENTS:
1.Purpose of the bill . According to the author and sponsors,
housing cooperatives lower the barrier to property ownership
and therefore create an important vehicle for the creation and
preservation of affordable housing. This bill will remove
some of the more significant barriers to developing
cooperative housing.
2.Blanket encumbrances . Currently, developers or residents
cannot build or convert a cooperative without a mortgage, but
with a mortgage they cannot sell shares. This prohibition on
blanket encumbrances has the effect of banning housing
cooperatives in California. The bill solves this classic
dilemma by allowing cooperatives to sell shares in a
development subject to a blanket encumbrance if they provide
specified safeguards to protect members of cooperatives.
3.Previous legislation . This bill is substantively identical to
AB 1024 (Torres) as this committee approved it last year on a
10-0 vote. Senator Torres subsequently amended AB 1024
to deal with a different subject matter. This bill brings the
original AB 1024 back to life.
4.Double-referral . The Senate Rules Committee has referred this
bill to both this committee and the Judiciary Committee.
AB 569 (CHAU) Page 4
Assembly Votes:
Floor: 78-0
Appr: 16-0
H&CD: 7-0
POSITIONS: (Communicated to the committee before noon on
Wednesday, April 30,
2014.)
SUPPORT: Bay Area Community Land Trust
California Center for Cooperative Development
East Bay Cooperative Housing Coalition
San Francisco Community Land Trust
Sustainable Economies Law Center
Walnut House
8 individuals
OPPOSED: None received.