BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2001-2002 Regular Session
SB 1122 S
Senator Poochigian B
As Amended April 18, 2001
Hearing Date: May 15, 2001 1
Civil and Government Codes 1
CJW:cjt 2
2
SUBJECT
Real Estate: Disclosures Upon Transfer
DESCRIPTION
This bill would require owners of real property in any
local assessment district to notify prospective purchasers
of any such continuing assessments upon the subject
property.
In addition, this bill would require the local government
body levying the assessment to designate a department to
prepare a roll of assessment obligations, to respond to
inquiries, and to provide a Notice of Assessment on any
affected property upon the request of any individual for a
reasonable fee not to exceed ten dollars.
BACKGROUND
Transfers of real property have been required to be made by
written contract since before the Civil Code was enacted in
1872. For just as long, the common law has been applied to
address instances of fraud, mistake, and failure to
disclose material information in such contracts. From time
to time, the Legislature has supplemented the common law by
enacting statutory disclosure obligations for real property
transfers, most particularly the Transfer Disclosure
Statement law enacted in 1985. [Civ. Code Sec. 1102.6.]
In 1982, the Legislature enacted the Mello-Roos Community
Facilities Act, allowing local governments to form special
(more)
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taxation districts to finance public improvements. The
special property taxes permitted by these districts were in
addition to the usual property taxes anticipated by
homeowners, and no provision was made to notify residential
purchasers of the existence of such an additional
continuing tax on the property they were buying.
The Legislature addressed this issue by enacting a specific
real estate transfer disclosure requirement for Mello-Roos
taxes in 1992. [SB 1464 (Mello), Ch. 772, Stats. of 1992.]
This legislation also required the local government body
levying the tax to designate a department to prepare an
annual roll of such taxes, respond to inquiries about them,
and furnish notices disclosing the presence and amount of
such taxes upon request for a reasonable fee.
This bill would enact the same transfer disclosure
requirement, and require the same local government
assumption of disclosure responsibilities, for other local
property assessments as the above-referenced legislation
required for Mello-Roos taxes.
CHANGES TO EXISTING LAW
1. Existing law requires certain disclosures to be made
upon the transfer of real estate, and prescribes the
manner and form of the disclosures. [ See , e.g ., Civ.
Code Secs. 1102.6 (TDS Statement); 1102.6b (disclosure
provision for Mello-Roos taxes).]
This bill would amend Section 1102.6b of the Civil Code
to include assessments levied by local governments (as
defined in Section 53750 of the Government Code) in the
items for which disclosure is required to prospective
purchasers of real property.
2. Existing law requires any local government that levies
a Mello-Roos tax to designate a department to prepare an
annual roll of this tax on individual parcels of
property, to respond to inquiries about the tax, and to
furnish a Notice of Special Tax (in a format
substantially similar to a model set forth in the
statute) explaining the existence and amount of this tax
on any parcel, upon request for a reasonable fee not to
exceed ten dollars. [Govt. Code Sec. 53340.2.]
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This bill would place identical obligations on local
governments levying assessments under Government Code
Section 53750.
COMMENT
1. Stated need for legislation
The Howard Jarvis Taxpayer's Association, the sponsor of
this bill, states that the special tax districts
authorized by the Mello-Roos Act often were formed by
local governments at the behest of residential developers
to finance the streets, sewers, and other capital
improvements necessary to their developments. Since
there was no real estate transfer notice requirement for
these special taxes, however, many home purchasers in
Mello-Roos districts were caught by surprise when their
first tax bill on their new home included taxes they had
not anticipated.
The subsequent transfer disclosure law for Mello-Roos
taxes, which passed with the involvement and support of
the Howard Jarvis group, has succeeded in its goal to
inform prospective purchasers of these additional
financial obligations before they commit to a purchase.
In fact, the sponsor notes, the disclosure law has been
so successful in raising public awareness about these
taxes that residential developers who obtain alternative
financing for necessary capital improvements often
advertise their new housing tracts as having the
advantage of "no Mello-Roos" obligations.
According to the sponsor, however, one alternative
financing tool many developers are using in place of
Mello-Roos is a fairly old public improvement bonds
statute enacted in 1915, known as "the '15 Act."
[Streets & Highways Code Sec. 8500 et seq .] This Act
authorizes the sale of bonds to finance streets and other
capital improvements, and provides for repayment of the
bonds through assessments on the property parcels defined
as benefiting from the improvements.
The sponsor states that increasing use of the '15 Act is
creating the same problem for home purchasers initially
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posed by the Mello-Roos Act: The lack of a specific
transfer disclosure notice for these property assessments
means new homeowners are not informed about what often
are substantial continuing obligations on their new
homes. (As an example, the sponsor has provided a copy
of a 2001 property tax bill from a home in Orange County
listing a general property tax obligation of $5,276, plus
a "special assessment district" tax of $2,797. The
sponsor states the home purchaser had no idea this
special assessment tax existed until he received this
bill.)
To remedy this situation, the sponsor submits this bill,
which would provide for disclosure of such continuing
local property assessments to prospective home
purchasers.
2. Bill mirrors Mello-Roos disclosure law
This bill would amend Civil Code Section 1102.6b, the
existing Mello-Roos disclosure statute, to add "any
assessment" as described in Section 53750(b) of the
Government Code (defining local property assessments) to
the special property tax obligations required to be
disclosed by that section.
Further, this bill would add Section 53754 to the
Government Code, which (except for referring to
"assessments" instead of "special taxes") is a verbatim
restatement of that section of the Mello-Roos Act
describing local government obligations in providing
notice of the taxes associated with that act. [ See Govt.
Code Sec. 53340.2.] Like the Mello-Roos provision, this
bill would require the local government to designate a
department to prepare an annual roll of assessment
obligations by parcel number, and to promptly respond to
inquiries concerning current and future estimated tax
liability.
This bill would further provide that neither the
department, nor the government body levying the
assessment, "shall be liable if any estimate of future
tax liability is inaccurate, nor for any failure of any
seller to request a Notice of Assessment or to provide
the notice to the buyer." This language, again taken
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directly from the Mello-Roos provision, provides
appropriate protection to the government body, which is
unable to guarantee either the tax estimates it is
required to provide, or the actual provision to a
purchaser of the Notice of Assessment it is required to
make available to the seller.
Finally, this bill would provide a suggested form for the
Notice of Assessment the department is required to make
available, which except for the substitution of
"assessments" for "special taxes" is a verbatim reprint
of the suggested form in the Mello-Roos provision. The
bill would require substantial compliance with the
suggested form, which sets forth its warning provisions
in large type, explains the assessment obligations and
consequences of nonpayment in clear language, notes that
the sales contract may be terminated within three days of
personal receipt of the notice, and provides for the
buyer's acknowledgement of receipt of the notice. As
such, it would appear to provide adequate notice to
prospective purchasers.
3. No opposition anticipated
The sponsor states that, although realtors expressed some
initial concerns about the bill, they are satisfied that
the disclosure provision actually will protect them from
potential liability and therefore are not opposed.
The California Building Industry Association (CBIA) notes
that developer financing arrangements, and the general
tax or assessment consequences resulting therefrom, are
required to be disclosed to the Department of Real
Estate, which in turn makes such general information
publicly available upon request. The CBIA agrees,
however, that there is no current mechanism for
disclosing parcel-specific tax information or estimates
to prospective home purchasers. The CBIA does not oppose
this bill.
Support: None known
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Opposition: None known
HISTORY
Source: Howard Jarvis Taxpayer's Association
Related Pending Legislation: None Known
Prior Legislation: SB 1464 (Mello), Ch. 772, Stats. of
1992 (requiring property owner to make "good
faith effort" to obtain disclosure notice of
Mello-Roos taxes and to disclose same to
prospective purchaser; designating department
to prepare assessment roll and provide
disclosure notice on request)
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