BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 2430 (Maienschein)
As Amended May 7, 2014
Hearing Date: June 17, 2014
Fiscal: No
Urgency: No
TH
SUBJECT
Transfer Disclosures
DESCRIPTION
The Davis-Stirling Common Interest Development Act requires an
association to provide those who purchase property within a
common interest development with specific governance, finance,
and policy documents relating to the development. This bill
would specify that an association may collect a reasonable fee
from the seller for the actual cost of providing these
documents, that the cost for these documents must be separately
stated and billed from other charges, and that these documents
may not be bundled with other documents required to be disclosed
as part of the sale.
BACKGROUND
In California, common interest developments (CIDs) are governed
by the Davis-Stirling Common Interest Development Act
("Davis-Stirling Act" or "Act"). A common interest development
is a form of real estate where each homeowner has an exclusive
interest in a unit or lot and a shared or undivided interest in
common area property. Owners of separate property in CIDs are
subject to the CID's covenants, conditions, and restrictions
(CC&R's), as well as the bylaws and operating rules of the
development. These documents are referred to collectively as
the governing documents. CIDs are also governed by a homeowners
association, which is run by volunteer directors that may or may
not have prior experience managing an association. The Court of
Appeal, Fourth Appellate District, previously observed that:
(more)
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[t]he homeowners associations function almost "as a second
municipal government, regulating many aspects of [the
homeowners'] daily lives." "[U]pon analysis of the
association's functions, one clearly sees the association as a
quasi-government entity paralleling in almost every case the
powers, duties, and responsibilities of a municipal
government. As a 'mini-government,' the association provides
to its members, in almost every case, utility services, road
maintenance, street and common area lighting, and refuse
removal. In many cases, it also provides security services
and various forms of communication within the community.
There is, moreover, a clear analogy to the municipal police
and public safety functions. . . ." In short, homeowners
associations, via their enforcement of the CC&R's, provide
many beneficial and desirable services that permit a common
interest development to flourish. (Villa Milano Homeowners
Ass'n v. Il Davorge (2000) 84 Cal.App.4th 819, 836 [citations
omitted].)
In addition to the standard residential property disclosures
required when property is sold, purchasers of separate interests
within a CID must receive copies of the governing documents,
certain financial reports, disclosures regarding the
association's current regular and special assessments and fees,
unresolved notices of violation pertaining to the property, and
related information. Since those documents are generally in the
association's possession, existing law allows the seller of the
property to request copies of those documents and requires the
association to provide them within 10 days. Current law
requires those disclosures to be delivered to the purchaser as
soon as practicable before transfer of title, or the execution
of a real property sales contract.
This bill would clarify certain statutory requirements
pertaining to the disclosure of these documents to prospective
purchasers. Specifically, it would require an association to
provide an estimate of the fees that will be assessed for
providing the documents, it would clarify that the seller shall
be responsible for covering any costs associated with providing
the required documents, it would require any fees associated
with obtaining the required documents to be individually
itemized and separately stated from any other fees billed as
part of the transfer or sales transaction, and it would prohibit
the bundling of these documents with other documents relating to
the transaction.
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CHANGES TO EXISTING LAW
Existing law , the Davis-Stirling Common Interest Development
Act, establishes the rules and regulations governing the
operation of a common interest development ("CID") and the
respective rights and duties of a homeowners association and its
members. (Civ. Code Sec. 4000 et seq.)
Existing law requires certain transferors of real property,
manufactured homes, mobilehomes, and residential stock
cooperatives, consisting of one to four units, to provide
detailed disclosures to the transferee of the property. (Civ.
Code Sec. 1102 et seq.)
Existing law requires the following documents ("required
documents") to be provided to a prospective purchaser of a
separate interest in a CID as soon as practicable before
transfer of title to the separate interest: (1) a copy of the
governing documents; (2) a statement regarding the
enforceability of a restriction on occupancy based on age, as
specified; (3) a copy of the association's most recent financial
documents, as specified; (4) a true written statement regarding
the amount of fees and assessments, any unpaid assessments, and
any monetary fines or penalties levied against the separate
interest; (5) a copy or summary of any prior notice sent to the
owner for an alleged violation of the governing documents that
remains unresolved; (6) a copy of the preliminary list of
defects provided to each member of the association; (7) a copy
of the latest information regarding defects; (8) any change in
assessments which have been approved but not become due and
payable as of the date of disclosure; (9) a statement regarding
prohibitions in the governing documents regarding renting or
leasing separate interests; and (10) if requested, a copy of all
minutes from the association's board meetings conducted during
the previous 12 months. (Civ. Code Sec. 4525(a).)
Existing law provides that, within 10 days of the mailing or
delivery of the request, the association shall provide the owner
with a copy of the 10 items described above. Those items may be
maintained in an electronic form and, if so, requesting parties
shall have the option of receiving them electronically.
Existing law authorizes the association to charge a reasonable
fee based upon the association's actual cost to procure,
prepare, and reproduce the requested items. (Civ. Code Sec.
4530.)
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Existing law further imposes the following requirements:
an association shall provide a written or electronic estimate
of the fees that will be assessed for providing the requested
documents;
fees assessed for these documents shall be distinguished from
other fees, fines, or assessments billed as part of the sales
transaction;
delivery of the documents shall not be withheld for any reason
nor subject to any condition except payment of the allowable
fee;
an association may provide the documents to a recipient
authorized by the owner; and
an association must provide the recipient with a copy of the
statutory form disclosing the amount billed for each document
being delivered. (Civ. Code Sec. 4530.)
This bill would modify the statutory form disclosing the amount
billed for each document being delivered by allowing a seller to
indicate that a required document is being directly provided by
the seller, but only when the seller has confirmed in writing
that the document is a current document.
This bill would clarify that an association may collect a
reasonable fee from the seller based upon the association's
actual cost for the procurement, preparation, reproduction, and
delivery of the required documents. An additional fee shall not
be charged for the electronic delivery of these documents in
lieu of a hard copy. This bill would also state that it is the
responsibility of the seller to compensate the association,
person, or entity that provides the required documents to the
prospective purchaser.
This bill would clarify that the association shall provide a
written or electronic estimate of the fees that will be assessed
for providing the requested documents prior to processing the
request.
This bill would require that fees assessed by an association for
these 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.
This bill would also require that fees assessed for each
document provided to the seller for the purpose of transmission
to the prospective purchaser shall be individually itemized in
the statement required to be provided by the seller to the
prospective purchaser.
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This bill would provide that a seller shall provide to the
prospective purchaser, at no cost, current copies of any of the
required documents that are in the possession of the seller.
This bill would specify that any documents not expressly
required by this section of the Davis-Stirling Act shall not be
included in the document disclosure, and that the bundling of
documents required to be provided pursuant to this section with
other documents relating to the transaction would be prohibited.
COMMENT
1. Stated need for the bill
The author writes:
Civil Code Section 4530 was enacted by AB 771 in 2011 to
eliminate the practice of "document bundling" in transactions
involving the sale of units in Common Interest Developments
(CIDs). It was intended to prohibit document bundling in CID
transactions and clarify the seller responsibilities in a
transaction involving the sale of a unit in a CID. . . .
Notwithstanding the current prohibitions in Section 4530,
bundling of escrow documents with the Davis-Stirling Act
required documents continues to be exercised by the third
party agents retained by CIDs to provide the required
documents to prospective purchasers. Additionally, third
party agents are requiring prospective purchasers to pay the
fees for acquiring the Davis-Stirling documents before they
are provided, when the law calls for this compensation to be
paid by the seller.
AB 2430 proposes to make it "perfectly clear" that
non-Davis-Stirling documents cannot be bundled with the
Davis-Stirling documents that are required to be provided by
the seller or seller's agent within 10 days of a request from
the prospective purchaser. AB 2430 also proposes to make it
"perfectly clear" that it is the seller who is required to pay
the document provider for provision of the documents to the
prospective purchaser, not the prospective purchaser.
2. Fairness and Transparency in Obtaining Required Documents
As noted above, the seller of a property within a common
interest development is required to provide copies of specified
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documents to prospective purchasers before a sale can take
place. Since those documents are generally in the possession of
an association, existing law allows a seller to submit a request
for those documents and gives the association 10 days to
respond. Before the law changed in 2011, stakeholders expressed
concern that significant amounts were being charged by third
party companies hired by an association to perform this service.
That year, the California Association of Realtors (CAR)
provided the Committee with examples of fees charged for
providing these documents that ranged from $250 to $1049. The
Legislature responded to stakeholder concerns by passing AB 771
(Butler, Ch. 206, Stats. 2011), which permitted an association
to collect a reasonable fee based on the association's actual
cost for producing the required documents. AB 771 also required
an association to provide an estimate of the cost for producing
the documents prior to providing them, and required an
association to distinguish the fees associated with the
provision of these required documents from any other fees,
fines, or assessments the CID bills as part of a sale.
According to CAR, "several abuses continue to be experienced in
the exchange of documents required in a transaction involving
the sale of a unit in a CID." CAR states, "[s]uch abuses
include representatives of the seller continuing to bundle fees
for documents not related to the Davis-Stirling Act requirements
with the Davis-Stirling fees; third party agents of the seller
requiring a prospective purchaser to pay for required documents;
and prospective purchasers being forced to pay for disclosures
that are currently statutorily required to be provided by the
sellers."
This bill responds to these reported abuses by clearly stating
that an association may collect a reasonable fee from the seller
for the actual cost of providing these documents, that the cost
for producing these documents must be separately stated and
billed from other charges, and that these documents may not be
bundled with other documents required to be disclosed as part of
the sale. These changes help ensure that prospective purchasers
are not held responsible for the cost of obtaining these
required documents, given that the duty to disclose these
documents is placed with the seller. (See Civ. Code Sec.
4525(a) ["The owner of a separate interest shall provide the
following documents to a prospective purchaser . . ."].) These
changes also add a degree of transparency to billing practices
concerning these documents by requiring an association to
separately state and itemize all charges related to the
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provision of these documents from other fees and charges
assessed during a sale. Additionally, by prohibiting a seller
from bundling other documents with documents required to be
provided under the Davis-Stirling Act, this bill arguably helps
separate (if not isolate) the costs associated with complying
with Davis-Stirling from costs incurred in producing other
documents or disclosures in the course of a sale.
Support : None Known
Opposition : None Known
HISTORY
Source : California Association of Realtors
Related Pending Legislation :
AB 968 (Gordon) would provide that an association subject to the
Davis-Stirling Common Interest Development Act is responsible
for maintaining, repairing, and replacing the designated common
area, the owner of each separate interest is responsible for
maintaining, repairing, and replacing their separate interest,
and the owner of the separate interest is responsible for
maintaining an exclusive use common area appurtenant to the
separate interest while the association is responsible for
repairing and replacing the exclusive use common area, unless
otherwise provided in the common interest development
declaration. This bill is in the Senate Committee on
Transportation and Housing.
AB 1360 (Torres) would allow associations subject to the
Davis-Stirling Common Interest Development Act to conduct
elections over the Internet. This bill is in the Senate
Committee on Judiciary.
AB 1738 (Chau) would codify certain minimum requirements for
association internal dispute resolution procedures, and would
provide that a member or the association may enlist the help of
an attorney or other person during the internal dispute
resolution process. This bill is in the Senate Committee on
Judiciary.
AB 2100 (Campos) would prohibit an association subject to the
Davis-Stirling Common Interest Development Act from imposing a
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fine or assessment against a member of a separate interest for
reducing or eliminating watering of vegetation or lawns during
any period for which the Governor has declared a state of
emergency, or a local government has declared a local emergency,
due to drought. This bill is in the Senate Committee on
Transportation and Housing.
AB 2104 (Gonzalez) would provide that any provision of the
governing documents or of the architectural or landscaping
guidelines or policies of an association subject to the
Davis-Stirling Common Interest Development Act shall be void and
unenforceable if it prohibits, or includes conditions that have
the effect of prohibiting, low water-using plants as a group or
as a replacement of existing turf, or if the provision has the
effect of prohibiting or restricting compliance with a local
water-efficient landscape ordinance or water conservation
measure. This bill is in the Senate Committee on Transportation
and Housing.
SB 992 (Nielsen) would prohibit an association subject to the
Davis-Stirling Common Interest Development Act from imposing a
fine or assessment on separate interest owners for reducing or
eliminating watering of vegetation or lawns during any period
for which the Governor has declared a state of emergency due to
drought. This bill is in the Assembly Committee on Housing and
Community Development.
SB 1026 (Vidak) would permit associations subject to the
Commercial and Industrial Common Interest Development Act and
the Davis-Stirling Common Interest Development Act to serve an
owner with a Notice of Default, the first step in the
non-judicial foreclosure process, for failure to pay required
assessments through posting, mailing, and publishing the
notices, as specified, when those notices cannot be personally
served after reasonable diligence, as specified. This bill is
in the Senate Committee on Judiciary.
Prior Legislation : AB 771 (Butler, Ch. 206, Stats. 2011)
requires a common interest development to provide an estimate of
the fees that it will assess for providing the documents
required for the sale of a unit and to distinguish these fees
from any other fees, fines, or assessments associated with the
sale.
Prior Vote :
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Assembly Floor (Ayes 78, Noes 0)
Assembly Committee on Judiciary (Ayes 10, Noes 0)
Assembly Committee on Housing and Community Development (Ayes 7,
Noes 0)
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