BILL ANALYSIS �
AB 2430
Page 1
Date of Hearing: May 6, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 2430 (Maienschein) - As Amended: April 7, 2014
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : TRANSFER DISCLOSURES
KEY ISSUE : SHOULD ADDITIONAL MEASURES BE TAKEN TO CLARIFY AND
FURTHER THE INTENT OF A RECENT 2011 LAW SEEKING TO ADDRESS THE
PROBLEM OF POTENTIAL OVERCHARGING OF DOCUMENT-RELATED FEES
AGAINST A PURCHASER OF PROPERTY IN A COMMUNITY INTEREST
DEVELOPMENT?
SYNOPSIS
Under existing law, when an owner of a separate interest in a
common interest development (CID) wishes to sell that interest,
he or she must provide a prospective buyer with a number of
specified documents, including, among other things, the
operating rules, financial statements, governing documents and
other disclosures governing the operations of the CID. A seller
who lacks the necessary documents to provide to a prospective
buyer can request the documents from the homeowner's association
(HOA) of the CID, which has 10 days to provide copies to the
seller or someone designated by 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 to procure, prepare and
reproduce the items for the owner.
According to the author, this bill is follow-up legislation to
AB 771 (Butler) Ch. 206, Stats. 2011, which prohibited the
"bundling" of CID document fees with fees for other
escrow-related services and documents in an attempt to eliminate
the practice of over-charging for the CID documents. Among
other things, this bill: (1) requires the fee for each document
provided to the seller for the purpose of transmission to the
prospective purchaser by the seller to be individually itemized
in the statement required to be given to the prospective
purchaser; and (2) requires a seller to provide a prospective
purchaser current copies of any disclosure documents that are in
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the seller's possession at no cost. The bill's sponsor,
California Association of Realtors, believes that this measure
will provide greater transparency and ensure that companies
employed by an HOA do not circumvent legal requirements
prohibiting bundling of fees and requiring the seller to
compensate the document provider, rather than the prospective
purchaser. The bill has no known opposition, and was approved
by the Housing and Community Development Committee by a
unanimous 7-0 vote.
SUMMARY : Prohibits the reported practice of bundling of
required CID disclosure documents with other documents not
required to be disclosed, and requires greater transparency and
itemization of fees. Specifically, this bill :
1)Requires the fee for each document provided to the seller for
the purpose of transmission to the prospective purchaser by
the seller to be individually itemized in the statement
required to be given to the prospective purchaser.
Additionally, updates the statutory form to reflect this new
fee itemization requirement.
2)Clarifies that any documents that a seller is not required to
provide to a prospective purchaser of a separate interest
shall not be included with the required CID disclosure
documents.
3)Prohibits the "bundling" of required disclosure documents with
other documents that are not required as part of the
disclosure requirements.
4)Clarifies that an HOA must collect the fee for procuring,
preparing, reproducing, and delivering documents from the
seller (emphasis added).
5)Clarifies that fees for any CID disclosure documents shall be
distinguished from, separately stated, and separately billed
from, all other fees, fines, or assessments billed as part of
the transfer or sales transaction.
6)Requires a seller to provide a prospective purchaser current
copies of any disclosure documents that are in the seller's
possession at no cost.
7)States that it is the seller of a separate interest's
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responsibility to compensate the HOA, person, or entity that
provides the required disclosure documents.
EXISTING LAW :
1)Requires the seller of a separate interest in a CID, as soon
as practicable before the transfer of title or the execution
of a real property sales contract, to provide specified
documents to a prospective purchaser of that interest,
including but not limited to:
a) A copy of all the governing documents of the CID;
b) Restrictions on occupancy based on age;
c) Copies of documents required as part of the pro forma
budget;
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;
f) A list of any construction defects;
g) Any pending special assessments that have been approved
by the board of directors but have not been made due;
h) Any prohibition in the governing documents on renting or
leasing a separate unit. (Civil Code Section 4525. All
further references are to this code unless otherwise
stated.)
2)Requires the HOA, within 10 days of written request, to
provide the owner of the separate interest with a copy of the
documents specified above. (Section 4530(a).)
3)Permits the HOA to collect a reasonable fee based upon its
actual cost for the procurement, preparation, reproduction,
and delivery of the above requested documents, and prohibits
the charge of additional fees by the HOA for the electronic
delivery of the documents. (Section 4530(b)(1).)
4)Requires the HOA, upon request, to provide a written or
electronic estimate of the fees that will be assessed for
providing the requested documents. Further provides that the
estimate shall be made upon a prescribed billing disclosure
form. (Section 4530(b)(2).)
5)Provides the statutory form for billing disclosures as
required by Section 4530. (Section 4528.)
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FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : According to the author, this bill is needed
follow-up legislation to further the intent of AB 771 (Butler)
Ch. 206, Stats. 2011, which sought to eliminate the practice of
over-charging fees for CID documents by prohibiting the
"bundling" of these fees with fees for other escrow-related
services and documents. In addition to that problem, this bill
also seeks to address other reported transactional problems with
charging of fees for documents relating to the sale of a home
within a community interest development (CID).
Need for the Bill. Enacted in 2011, AB 771 created a billing
disclosure form that an HOA must provide to an owner listing all
of the documents that must be disclosed and the cumulative cost
of those documents. The bill also specified that the disclosure
documents required under Section 4525 could not be combined with
other documents, items, or services. Despite these prohibitions
in now existing law, the Realtors report that some management
companies or other persons still engage in the practice of
bundling the required CID disclosure documents with other
documents and charging more in fees. According to the bill's
sponsor, the California Association of Realtors:
Our members who specialize in CID transactions have
complained that several "abuses" continue to be
experienced in the exchange of documents required in a
transaction involving the sale of a unit in a CID. Such
abuses include third party agents of the seller
continuing to "bundle" fees for documents not related to
the Davis-Stirling Act requirements with the
Davis-Stirling fees, and third-party agents of the seller
requiring a prospective purchaser to pay for required
disclosure documents that are currently statutorily
required to be provided by sellers. This bill will
tighten up the CID transaction requirements initially
enacted by AB 771 and eliminate any and all bundling of
other transaction and escrow fees with the Davis-Stirling
Act fees.
General Background of CIDs : There are over 50,000 common
interest developments (CIDs) in California that vary in size and
structure, but that are generally multi-unit communities
characterized by the following: (1) separate ownership of
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individual residential units coupled with an undivided interest
in common property; (2) covenants, conditions, and restrictions
(CC&Rs) that limit the use of both separate interests and common
property; and (3) management of common property and enforcement
of restrictions by a home owner's association (HOA). 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. CIDs are governed
by the Davis Stirling Act, as well as the governing documents of
the association, including its bylaws, declaration, and
operating rules.
Under existing law, when an owner of a separate interest in a
CID wishes to sell that interest, he or she must provide a
prospective buyer with a number of specified documents,
including, among other things, the operating rules, financial
statements, governing documents and other disclosures governing
the operations of the CID. A seller who lacks the necessary
documents to provide to a prospective buyer can request the
documents from the HOA, which has 10 days to provide copies to
the seller or someone designated by 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 to procure, prepare and
reproduce the items for the owner.
In Berryman v. Merit Property Management (152 Cal Capp 4th 1544,
2007), the court determined that an agent of the HOA is 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 from charging above the actual costs and making a
profit, a managing agent is not.
Transparency changes proposed by this bill . Seeking to provide
more transparency and consistency in document fees, this bill
would amend the above requirements in several ways. First, the
bill would prohibits the "bundling" of required CID disclosure
documents with other documents that are not required pursuant to
the disclosure requirements under Section 4525, and clarifies
that any documents that a seller is not required to provide to a
prospective purchaser of a separate interest shall not be
included with the required CID disclosure documents. According
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to proponents, this is important because when a management
company or other person bundles these documents together, the
fees for those documents are bundled with the fees for other
escrow-related services and documents, preventing any measure of
transparency for the individual fees associated with each
required CID document. In short, bundling document fees
together creates the opportunity for overcharging of fees
without the kind of simple transparency that might prevent such
a situation.
Existing law, Section 4528, provides a statutory form that lists
each of the CID disclosure documents and allows the HOA or third
party agent providing the documents to check whether a
particular document is included in the packet, and whether it is
not available or not applicable to the transaction. This bill
would add another column to the form to require itemization of
individual fees charged for each document, and would provide a
spot to indicate for each document whether it is provided
directly by the seller and confirmed in writing by the seller to
be current.
In addition, the bill provides that it is the seller's
responsibility to compensate the HOA, person, or entity that
provides the required disclosure documents, and further
clarifies that an HOA must collect the fee for procuring,
preparing, reproducing, and delivering documents from the seller
(emphasis added), and not from the prospective purchaser or
other party. Lastly, in order to minimize unnecessary costs to
prospective purchasers, the bill requires a seller to provide a
prospective purchaser current copies of any disclosure documents
that are in the seller's possession.
Proposed Author's Amendment . In the previous Committee, the
author agreed to make the following amendments to clarify that
the seller must be provided the billing disclosure form prior to
the completion of the initial request for CID documents. For
timing reasons, the amendments will be taken in this Committee,
and they are:
On page 5, line 15, strike out "Additional fees" and insert
"An additional fee"
On page 5, line 21, after "documents", insert "prior to
processing the request in paragraph (1) of subdivision (a)"
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REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334