BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 569|
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THIRD READING
Bill No: AB 569
Author: Chau (D)
Amended: 7/1/14 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 11-0, 5/6/14
AYES: DeSaulnier, Gaines, Beall, Cannella, Galgiani, Hueso,
Lara, Liu, Pavley, Roth, Wyland
SENATE JUDICIARY COMMITTEE : 6-1, 6/24/14
AYES: Jackson, Anderson, Lara, Leno, Monning, Vidak
NOES: Corbett
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 78-0, 1/29/14 (Consent) - See last page for
vote
SUBJECT : Cooperative housing
SOURCE : California Center for Cooperative Development
DIGEST : 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
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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 (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
meets both of the following conditions:
1.A public agency has provided the land or financed at least 50%
of the total development cost or $100,000, whichever is less.
2.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 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
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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:
1.Provides that notwithstanding prohibitions in the Subdivided
Lands Act, an individual interest in a stock cooperative or a
limited-equity housing cooperative may be sold or leased
subject to a blanket encumbrance if all of the following
conditions are met:
A. The required notice is provided to every prospective
purchaser of the interest and is included in every purchase
contract;
B. The property subject to the sale has obtained a public
report from the Bureau of Real Estate that accounts for the
blanket encumbrance; and
C. The governing documents require the association to
create and maintain during the term of the blanket
encumbrance all of the following:
(1) Prior to the sale of any individual interests, a
financing reserve amount equal to at least two months of
the amount of the debt service payments due on the
blanket encumbrance.
(2) Within one year of the sale of at least 25% of the
individual interests, a financing reserve amount equal to
at least three months of the amount of the debt service
payments due on the blanket encumbrance.
(3) Within one year of the sale of at least 50% of the
individual interests, a financing reserve amount equal to
at least five months of the amount of the debt service
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payments due on the blanket encumbrance.
(4) Within one year of the sale of at least 75% of the
individual interests, a financing reserve amount equal to
at least eight months of the amount of the debt service
payments due on the blanket encumbrance.
1.Provides that a limited-equity housing cooperative or a
workforce housing cooperative trust shall be exempt from the
requirements of the Subdivided Lands Act if, alone or in any
combination with other specified entities, a state or
federally chartered credit union or a state or federally
certified community development financial institution directly
finances or subsidizes at least 50% of the total construction
or development cost or $100,000, whichever is less, of the
housing cooperative.
2.Provides that a director shall not be required to be elected
pursuant to the Davis-Stirling Act if the governing documents
of a common interest development, including a housing
cooperative, provide that one member from each separate
interest is a director.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/5/14)
California Center for Cooperative Development (source)
Bay Area Community Land Trust
East Bay Cooperative Housing Coalition
Fairview House
Housing Land Trust of Sonoma County
Northern California Land Trust
Oakland Community Land Trust
San Diego Community Land Trust
San Francisco Community Land Trust
Sustainable Economies Law Center
Urban Moshav
Urban Strategies Council
Walnut House Cooperative
ARGUMENTS IN SUPPORT : The author writes:
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Existing law, under the California Subdivided Land Act
prohibits, with a few limited exceptions, the sale of housing
cooperative shares when the units are subject to a "blanket
encumbrance." Blanket encumbrances most commonly take the form
of a 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 the cooperative defaults on its
mortgage. However, this prohibition also has the effect of
banning housing cooperatives in California because the most
common way that a cooperative finances the purchase of a
building is by means of a single blanket mortgage.
AB 569 creates safeguards to protect members of cooperatives,
while allowing a cooperative to obtain a single mortgage.
Specifically, the bill allows a cooperative to sell or lease
units subject to a blanket encumbrance so long as the
cooperative has obtained a public report from the Department of
Real Estate, built a reserve fund sufficient to make mortgage
payments for three months, and cooperative members receive clear
and specific notice of the risks of buying or leasing a unit
subject to a blanket encumbrance. Additionally, the bill
exempts CIDs from election procedures for board members when the
bylaws require that every member serve on the board of
directors, and adds state or federally chartered credit unions
and state or federally certified community development financial
institutions to the list of financing agencies qualified to
enter into an agreement under the public reporting exemptions.
ASSEMBLY FLOOR : 78-0, 1/29/14
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hern�ndez,
Holden, Jones, Jones-Sawyer, Levine, Linder, Lowenthal,
Maienschein, Mansoor, Medina, Melendez, Morrell, Mullin,
Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, V.
Manuel P�rez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas,
Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron,
Weber, Wieckowski, Wilk, Williams, Yamada, John A. P�rez
NO VOTE RECORDED: Logue, Perea
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JA:e 8/5/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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