BILL ANALYSIS
AB 567
Page 1
Date of Hearing: January 16, 2008
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Lori Saldana, Chair
AB 567 (Saldana) - As Amended: April 10, 2007
SUBJECT : Common Interest Development Bureau
SUMMARY : Establishes the Office of the Common Interest
Development Bureau (Bureau) as
a pilot project within the Department of Consumer Affairs (DCA)
to provide education, dispute
resolution, data collection, and abatement of violations of the
law in common interest
developments (CID). Specifically, this bill:
1)Makes legislative findings including the fact that there are
41,000 CIDs in the state, the complexities that volunteer
director's face in managing and complying with existing laws,
and the adversarial nature of private litigation which is the
mechanism under existing law to enforce CID law.
2)Requires the Bureau to offer training materials and courses to
CID directors, officers and owners regarding the operation of
a CID and the rights and duties of an association owner.
Provides a fee may be charged for training materials or
courses that do not exceed the actual cost.
3)Requires that within 60 days of assuming office an association
director or employment as a community manager either must file
a certification with the Bureau that they have read each of
the following: the declaration, articles of incorporation,
by-laws of the association, and either the Davis-Stirling
Common Interest Development Act or a summary of the law.
4)Requires the Bureau to maintain a toll-free number and an
internet web site.
5)Requires a homeowners association (HOA) to provide its members
with annual written notice of the web site address and toll
free number of the Bureau.
6)Provides any interested party may request that the Bureau
provide assistance in resolving a dispute involving the laws
governing CIDs or the governing documents of a CID.
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7)Provides if the Bureau receives a complaint from a CID
homeowner alleging a HOA has violated the law, the Bureau will
do one of the following:
a) refer the complaint to another state or federal agency
if it is within the jurisdiction of that
agency;
b) investigate the alleged violation; and/or
c) dismiss the complaint for failure to state a violation
of law.
8)Requires if the Bureau determines after an investigation that
a violation of law has occurred then it will attempt to remedy
the violation by mutual agreement of the parties.
9)Provides only if a violation cannot be remedied by mutual
agreement of the two parties, the Bureau may serve a written
citation on the HOA, which includes the law that has been
violated, an order to cease the activity, and may include a
maximum $1000 fine depending on the size of the association
and the gravity of the violation, and the procedure for
requesting an administrative hearing on the citation.
10) Requires the HOA must file a request for an administrative
hearing on the citation within 30 days of receipt and requires
DCA to conduct the hearing within 90 days of the request.
11) Requires DCA to appoint a presiding officer qualified as an
administrative law judge, who is not an employee of the
Bureau, to review the citation and administer the hearing.
12) Provides the final decision in an administrative review is
subject to judicial review.
13) Provides an order or fine is enforceable only after it is
upheld in the administrative hearing or if the HOA does not
request a hearing within 30 days of receiving the citation.
14) Provides if a HOA does not comply with an order or fine,
the Bureau may file an action in superior court to enforce.
If the court determines it is enforceable, the court shall
issue a judgment which has the same force as a judgment in a
civil action.
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15) Requires a HOA to inform the membership each year of any
citations it receives, the nature of the citations, and any
fines levied against the HOA.
16) Requires the Bureau to report annually to the Legislature
no later than October 1 of each year on the following:
a) number of requests for assistance received;
b) how a request either was or was not resolved and staff
time required to resolve the inquiry; and
c) analysis of the most common and serious types of disputes
and any recommendations for statutory reform.
17)Requires the Bureau to submit on or before January 1,
2011, recommendations to the
Legislature on the scope of the Office specifically on
the following issues:
a) whether or not the Bureau should have authority to
oversee association elections; and
b) whether or not the provisions requiring a new association
director or managing agent certify they have read the
governing documents should be revised.
18)Allows the Bureau to establish an advisory committee that
is comprised of a fair
representation of interests involved in CIDs.
19) Requires an association to pay the Bureau a biennial fee to
the Secretary of State (SOS) every two years in the amount of
$10 for each separate interest within the CID.
20) Provides the biennial fee is not subject to the same
approval requirements for regular assessments of the
association.
21) Allows the Bureau to evaluate the biennial fee amount every
two years to determine if it should be adjusted to provide the
necessary revenue for the next two years. Restricts the
biennial fee to no more than $20.
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22) Creates the Common Interest Bureau Fund within the SOS in
which all Bureau fee revenue will be placed for the continuous
appropriation of the operation of the Bureau.
23)Requires the Bureau to reimburse the SOS for any cost it
incurs.
24) Provides a HOA is excused from paying the fee for a
separate interest if another association has already paid the
fee and certified payment through a form to be developed by
the SOS.
25) Provides the Bureau may establish a rule governing which
association should pay the fee if a separate interest is part
of more than one association.
26) Requires the Bureau adopt governing practices and
procedures in accordance with the Administrative Procedures
Act.
27) Provides information and advice provided by the Bureau has
no binding legal effect and is not subject to the rulemaking
provisions of the Administrative Procedure Act.
28)Delays the hiring of staff for the Bureau for six months
after creation.
29)Provides a sunset provision of January 1, 2013.
EXISTING LAW
1)The Davis Stirling Common Interest Development Act provides
the rules and regulations within which homeowner associations
may operate in a common interest development (Civil Code
Sections 1350 - 1376).
2)Requires the association to register every two years with the
SOS for a fee and to provide certain information regarding the
organization. Failure to register will result in a suspension
of the association's rights as a corporation and monetary
penalties (Civil Code Section 1363.6).
3)Prohibits, except for emergency assessments as defined, the
board of directors of an association from imposing a regular
assessment that is more than 20% greater than the regular
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assessment for the association's preceding fiscal year [Civil
Code Section 1366(b)].
FISCAL EFFECT : Unknown.
COMMENTS :
Background :
There are over 41,000 CIDs in the state that range in size from
three to 27,000 units. CIDs make up over four million total
housing units which represents approximately one quarter of the
state's housing stock. In the 1990s, over 60% of all residential
construction starts in the state were CIDs. CIDs include
condominiums, community apartment projects, and housing
cooperatives and planned unit developments. They are
characterized by a separate ownership of dwelling space coupled
with an undivided interest in a common property, restricted by
covenants and conditions that limit the use of common area, and
the separate ownership interests and the management of common
property and enforcement of restrictions by a HOA. CIDs are
governed by the Davis Stirling Act as well as the governing
documents of the association including bylaws, declaration, and
operating rules. Except when CIDs are first developed, no state
agency provides ongoing oversight to these communities.
Need for the bill :
CID's are governed by elected volunteer directors. According to
the sponsor, faced with the complexity of CID law, many
volunteer directors make mistakes and violate procedures for
conducting hearings, adopting budgets, establishing reserves,
enforcing rules and restrictions, and collecting assessments.
Many homeowners do not understand CID law and their rights under
the governing documents; as a result, conflicts arise between
the association and homeowners.
The only remedy available to resolve disputes between a
homeowner and an association or between homeowners is private
litigation. This process can be both expensive and lead to
animosity that can degrade the quality of life of a community
and lead to future disputes. In addition homeowners that sue
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their association are ultimately suing themselves and their
neighbors as the cost of litigation is borne by the community.
Funded through a $5 fee per unit/per year, the Bureau would
educate volunteer homeowner board directors and homeowners
through a toll free number, web site, provide training materials
and courses, informal conference, and by citing and fining HOAs
that after investigation are found to have violated state law.
In addition, the Bureau will collect data on the types of
disputes that arise in CIDs and make recommendations to the
Legislature as to needed changes in CID law. Similar programs
are pending in other states including both Arizona and New
Jersey.
Other Jurisdictions :
Several other states, including Florida, Nevada and Hawaii,
provide services to CID associations similar to the ones
proposed in this legislation. Both Florida and Nevada are funded
through an annual fee paid by homeowners and have found
significant public demand for their services. The Nevada
Legislature created the Office of the Ombudsman for Owners in
Common Interest Communities to provide services to CIDs
including education and informal dispute resolution. Nevada
has approximately 2,073 CIDs made up of 310,501 separate
interests which represents one-tenth of the CIDs in California.
The Nevada Ombudsman charges a $3 annual fee per separate
interest and employs 13 full time staff. In 2003, the Nevada
program was expanded to include enforcement power. Nevada,
Florida, Maryland and Hawaii include an administrative
enforcement authority component in their CID oversight agency.
In Hawaii, the Real Estate Commission provides services to
condominiums including referrals and subsidy for mediation
services, publishes information on their website and in print,
and responds to specific inquires. The Hawaii program is funded
by a $4 per unit biennial fee charged to registered
condominiums. In 2004, Hawaii's program received 22,000 requests
for advice from their 135,000 condominiums.
Bureau Fee :
The proposed CID Bureau would be funded through a yearly $5 fee
for each separate interest collected biennially by the
association and paid to the SOS when an association files its
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statement of principal business activity. The fee for the
Bureau's services breaks down to 42 cents per unit per month. Of
the estimated 41,000 CIDs in the state, approximately 21,000
have registered with the SOS. Although the SOS does not
currently track the number of units in an association the
average size of a CID is 100 units. At the current level of
compliance, the 2.1 million units that have been registered will
produce approximately $10.5 million annually. If all CIDs comply
with registration the $5 annual fee generated by this pilot
program would produce approximately $20 million per year. The
Bureau has discretion to adjust the fee if the actual cost of
the program is higher or lower every two years. Also the
Legislature may reduce the fee based on reports from the Bureau
and/or audits.
Remedial authority :
AB 567 provides the Bureau the authority to remedy violations of
the law. If the Bureau receives a complaint from a homeowner
about their HOA and determines there has been a violation of
law, it will attempt to resolve the complaint through informal
conference and mutual agreement of the parties; however, if that
is not possible it may issue a citation to the HOA. Individual
CID homeowners and organizations representing seniors in the
state contend that without the cite-and-fine feature the Bureau
would not be effective at ensuring that the laws in CIDs are
followed.
The Bureau would have authority to enforce only state law and
not the associations governing documents. In addition to
ordering a violation of law be corrected, the Bureau could
impose punitive sanctions. The availability of these sanctions
could encourage cooperation in resolving disputes informally and
would serve to deter intentional misconduct. If the HOA and
homeowner entered into a conciliation agreement, a sanction
could be avoided which creates an incentive to cooperate with
the Bureau to remedy the violation. In assessing a fine against
a HOA, the Bureau would consider several different factors,
including the size of the
HOA, the gravity of the violation, the presence or absence of
just cause or an excuse, and the history of prior violations.
The administrative dispute resolution assistance could resolve
many disputes that might otherwise end up in court. As a result,
the proposed law could significantly reduce the number of CID
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cases that are filed in the courts.
Data Collection:
On March 9, 2005, this committee held an informational hearing
to discuss the role of state assistance and/or oversight of
CIDs. Several members of the committee as well as witnesses
discussed the fact that despite many anecdotal reports of
conflicts between homeowners in associations, no agency within
the state collects data on the types or frequency of conflicts
that arose within CIDs. One of the functions of the Bureau will
be to collect data on the volume of assistance requested and the
most common disputes and to make yearly reports to the
Legislature on recommended legislative reform based on this
data. Additionally, the Bureau will provide recommendations on
several specific issues on or before January 1, 2011.
Opposition:
The CID Bureau is opposed by several organizations representing
the boards of HOAs. These groups fear that volunteer board
members will be deterred from joining their HOA boards because
they are concerned about the enforcement authority of the
Bureau. Executive Council of Homeowners (ECHO) is opposed
unless amended and states, "Although ECHO understands the
importance of holding associations and their leaders
accountable, we are extremely concerned that AB 567 will create
a leadership crisis by punishing before we educate." ECHO
argues "the appropriate charter for a CID Bureau would initially
focus on a targeted, consistent statewide educational campaign,
paired with a plan to methodically gather data on problem areas
within community associations."
Additionally, ECHO would like to see the CID Bureau housed in
the Department of Real Estate which in their opinion, "currently
handles a number of CID issues and posses expertise in the
area." With these changes, ECHO would support the creation of a
CID Bureau to provide "much needed guidance for community
associations."
California Association of Community Managers (CACM) representing
the community managers and management firms who provide products
and services to also feel the enforcement provisions are
premature, a violation under the bill is too broad and the
Bureau will increase costs for all homeowners.
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Author's amendments:
The author has requested the following technical amendments to
correct implementation deadlines and the sunset date to reflect
that the bill is now a two-year bill:
On page 9, line 32 replace 2008 with 2009.
On page 10, line 31 replace 2011 with 2012.
On page 12, line 7 replace 2013 with 2014.
On page 12, line 8 replace 2013 with 2014.
Similar legislation:
In 2006, SB 551 (Lowenthal) would have created a CID Bureau with
all of the duties included in AB 567 including enforcement
authority and was funded through a $10 biennial fee. The bill
failed passage by a vote of 3 to 4 in the Assembly Committee on
Business and Professions.
AB 770 (Mullin) would have created the Office of the Common
Interest Development Ombudsperson as a pilot project within DCA
to provide education, informal dispute resolution and data
collection about CIDs funded through a $6 biennial fee. This
bill was vetoed by the Governor (veto message as follow):
This bill is unnecessary at this time. Recent
legislation has been enacted to address various
problems cited by the author in proposing this bill,
including directives to the Department of Consumer
Affairs and the Department of Real Estate to develop an
on-line education resource for common interest
development board members, as well as a requirement
that associations provide dispute resolution
procedures. It is necessary to gauge the effectiveness
of this recently enacted legislation before creating an
entirely new state office.
Additionally, this bill provides no clarification on the
type of dispute resolution services that will be provided by
the proposed Ombudsperson, and does not specify the
difference between informal dispute resolution required by
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this bill and formal mediation, which
the Ombudsperson would not provide.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
California Association of Community Managers (CACM)
Community Association Institute (CAI)
Executive Council of Homeowners (ECHO) (unless amended)
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085