Berding | Weil - Attorneys At Law

Legislative Round-Up

2008 Budget Impasse Impacts CID Legislation

by Sandra M. Bonato, Esq.

Despite the noise over a lot of legislation affecting common interest developments in 2008, once the state's budget impasse was resolved the governor ended up signing only five CID bills. In the tradition of our year-end legislative round-up, this article focuses on the legislation that was signed and that will go into effect on January 1, 2009.

The first two new laws will address solar energy systems installed by owners in CIDs. With the burgeoning interest in both the state and our nation in alternative energy sources, reducing our dependence on foreign oil, and using clean energy sources, these two bills reflect an insistence that community associations come aboard and welcome this technology. While much can still be regulated through well-designed solar policies and rules, the most important aspect of the solar bills will surely be a new CC&R-override by which applications will be “deemed approved” by law if not acted on within 60 days.

AB 1892 (Smyth)
Solar Energy Systems / CC&Rs

Current law (Civil Code §714) provides that any restriction on an interest in real property that effectively prohibits or restricts the installation or use of a solar energy system (as defined) is void and unenforceable.

Effective January 1, 2009, this statute will be expanded to make it clear that existing law applies to “any governing document” as defined in the Davis-Stirling Common Interest Development Act, to which property within common interest developments in California is made subject. This essentially clarifies that unrecorded architectural rules are included among the restrictions on use of separate interests in CIDs in terms of solar energy systems. While there was no dispute that that is what the law already says, AB 1892 will eliminate any confusion, in an effort to promote the use of alternative energy in private communities that have the authority to exercise architectural control.

This particular statute, and the one that immediately follows it (Civil Code §714.1), do continue to allow associations to assert reasonable regulation over such installations, including for aesthetic reasons.

AB 2180 (Lieu)
Solar Energy Systems / Architectural Control

AB 2180 is a more specific new law affecting the same statute (Civil Code §714). It beneficially confirms (for every solar installer to see) the principle that owners wishing to install solar energy systems in CIDs must first comply with the architectural application processes in the CC&Rs and architectural rules. However, this new law will also override more liberal approval periods in existing CC&Rs and rules, providing that an owner's application will be deemed approved unless it has been denied in writing within 60 days from the date the association receives the application. Certain exceptions are built into the new law, including where a delay in deciding is the result of a reasonable request for additional information.

Application reviews cannot be willfully avoided or delayed, and associations that willfully violate the section will be liable to the applicant or “other party” (an unknown element) for actual damages that result and for a civil penalty of up to $1,000.

We think in practice there will be few legal claims against associations. Instead, what will happen is prompt installation of not-yet-approved devices if the 60-day deadline is exceeded.

Associations that operate without well-planned solar policies will, under this new law, find themselves scrambling to get competent advice on regulating solar energy systems within the new, required 60-day period. Not only are many associations generally not equipped to turn such sophisticated and often controversial applications around this quickly, the chance for undesired installations are greatly increased when a pro-active policy to guide the board, architectural committee and the owners is not in place.1

AB 2846 (Feuer)
Disputed Charges, Fines and Penalties / Payment Under Protest / Small Claims Court Actions

AB 2846 is the only signed bill that will directly amend the Davis-Stirling Act in 2009. Newly added Civil Code section 1367.6 will allow owners (in addition to their existing right to request to meet and confer with their board or a board representative over disputed assessments) to pay disputed assessments, fines and penalties “under protest.” If they pay under protest, owners will be entitled to try to recover up to $7,500 of the amount in dispute by filing a complaint in small claims court.

This new section of law, unfortunately, will simply create a new procedural hurdle for owners, who could lose their currently unrestricted right to sue in small claims court if they pay but do not expressly pay “under protest.” If there is any benefit to AB 2846, it might be its discussion of paying disputed amounts, including fines which are often ignored.

SB 1511 (Ducheny)
Right to Notice of New Owner Following Lender Foreclosures

Considered an extremely beneficial new law, SB 1511 will amend the state's non judicial foreclosure statutes to allow an association to record a formal request for notice from a foreclosing lender or its trustee of the name and address of the property owner following the lender's foreclosure sale.

Beginning January 1, 2009, associations will be allowed to record a standing request for notice involving all property within the development. Such request for notice would have to be recorded at least 5 days before a foreclosure sale in order to be effective as to that sale and would need to be updated periodically to reflect changes in contact information for a board or management company.

If such a request for notice is of record, lenders or their trustees will be obligated by law to send information about the name and address of the new owner within 15 days following recordation of the trustee's deed upon sale.

Such requests affect title and, for that reason, should be prepared very carefully and, we believe, using knowledgeable legal professionals experienced in preparing legal descriptions for separate interests in a community. The recorded request for notice will be required to contain that information in order for a lender to find it in pulling title information about a property to be foreclosed.2

SB 1137 (Perata)
Foreclosure Relief / HUD-Certified Housing Counseling Agencies / Maintenance of Foreclosed Property

Not specifically a CID-related bill, we think SB 1137 (Perata) might help associations indirectly cope with rampant lender foreclosures. By possibly helping owners stay in their homes, SB 1137 might encourage assessment payments and help the incredible numbers of associations currently reeling under assessment bad debt to again generate the funds to operate.

Effective immediately when the governor signed this legislation on July 8, 2008, AB 1137 responds in some measure to the foreclosure distress hitting the state. The Perata legislation requires foreclosing lenders of loans made during a specified time to make additional efforts to contact owners of residential properties to discuss options for borrowers to avoid foreclosure. It requires lenders to provide borrowers with information about HUD-certified housing counseling agencies that can advise owners and who work with both lenders and borrowers to help owners keep their homes.

While finding solutions is voluntary, the dialogue is hopefully opening up chances that might not otherwise have existed. If more owners can keep their homes, the number of lender foreclosures will decrease, in turn helping associations stay afloat when otherwise their own ability to collect assessments is severely impacted by owners walking away from their homes and obligations.

Until January 1, 2013, SB 1137 requires the legal owner to maintain vacant residential property purchased at a lender's foreclosure sale or retained by the lender through a foreclosure under a mortgage or deed of trust. The new law authorizes local government to impose civil fines and penalties of up to $1,000 per day for the owner's/lender's failure to maintain that property. This part of the new law is intended to address property blight and resulting vandalism and criminal activity being experienced in communities worst-hit by the foreclosure crisis. Homes in CIDs are certainly not immune to this phenomenon.

While the new law unfortunately does not contain as much enforcement authority as local governments are saying they need (many are instead deploying code enforcement officers and using penalty assessments on the tax bill as the collection means, with increasing success), the publicity given to the Perata bill throughout the lending community has raised consciousness about the post-foreclosure obligations of lenders when property reverts. Much more vigorous re-sales activity and retention of local property management services by nationwide lenders post-foreclosure seem to be on the rise.

FOR FURTHER STUDY

AB 1921 (Saldana)
California Law Revision Commission Re-Codification of CID Law

This much-discussed effort of the California Law Revision Commission to simplify and clarify the Davis-Stirling CID Act, in part by re-codifying it in the 4000, 5000 and 6000 sections of the Civil Code, was pulled by its author for further study. A continuing stream of comments and concerns had been expressed, sufficient to indicate that providing good and workable law for the millions of Californians who live in CIDs was going to need more time.

The Commission's final recommendation to the legislature which resulted in this bill will be studied over the next several months by a subcommittee of the California State Bar.

VETOED BY THE GOVERNOR

AB 2259 (Mullin)
CC&R Override / Rental Restrictions / Mandatory Grandfathering of Current Owners

AB 2259 would have mandated that any restriction on rentals in CC&Rs recorded on or after January 1, 2009 would not be enforceable against any owner who took title to their separate interest before the recording date of the restriction but would apply after title to the property transfers. However, many types of property transfers would have also been exempted, including transfers from parents to children and vice versa, transfers in probate, transfers to beneficiaries under the terms of trusts, and similar exceptions that would have effectively extended the ability of many owners in communities to rent long after a rental restriction was approved.

This bill nominally sought to help sellers have a larger pool of potential buyers in a down market. However, it ignored the right blessed in the courts to amend CC&Rs in ways that benefit the community as a whole. Where large numbers of lots or units are held as rental property by investor owners, it is believed the quality of a community can decline, as local volunteer governance is diluted and the interest of residents in keeping property well maintained can decline. Loans can be more expensive in communities with significant percentages of rentals, and particularly difficult to obtain in condominium projects (renowned as entry-level property and the most affordable form of for-sale property in the state) for mortgages that require private mortgage insurance (generally, those where less than 20% of the purchase price is paid in cash).

The efforts of many people successfully encouraged the governor to veto this ill-thought measure on the bases that it was incredibly poorly timed, not needed, not based in public policy, overly protective of investor owners to the detriment of resident owners, and an unjustified incursion into local community decision-making.

AB 567 (Saldana)
Establishment of CID Bureau

The second effort in the last two years, AB 567 would have established a Common Interest Development Bureau in the California Department of Consumer Affairs, to provide assistance to owners, directors, managers and others with respect to association operations and application of California's complex statutory scheme regulating CIDs. The Bureau would have offered information about educational programs to help disseminate accurate information about the Davis-Stirling CID Act, to investigate certain types of alleged disputes, and to explain applicable provisions of the Civil Code, Corporations Code and other California state laws to those contacting the Bureau staff.

The Bureau would also have been assigned the task of gathering factual data about CIDs and their associations, beneficial in part since so much CID legislation is based on simple anecdote. The Bureau would have been self-funded through the combined contributions of all associations in California, at a per-door charge every other year.

AB 567 would not have given the Bureau authority to cite or penalize parties. Rather, its emphasis would have been on education and imparting accurate information.

AB 2806 (Karnette)
Board Member Education / Disclosure

AB 2806 would have built upon the existing statute in the Davis-Stirling CID Act that authorizes the state's Department of Consumer Affairs or the Department of Real Estate, to the extent funds are available, to develop an online education course for the board of directors of an association. This course would include the role, duties, laws and responsibilities of board members and prospective board members.

This bill would have, as of July 1, 2010, required each current director of an association that is comprised solely of residential lots or units, and each candidate for election to the board, to provide a statement to the board indicating whether he or she has completed an educational course on the law of common interest developments and, if so, when that course was completed. The bill would have required the association to include those statements, for each candidate, in the ballot materials in the election of directors.

The bill would have exempted developers while they control a majority of seats on the board. Industrial, commercial and, inexplicably, mixed-use developments would also have been exempt from these requirements.

SB 127 (Kuehl)
Transfers / Disclosures

Existing law provides that specified disclosures about their property and their association be made by sellers to buyers as soon as practicable before transfer of title or the signing of a sales contract. Upon written request, associations currently have 10 days from receipt of a written request from a selling owner to provide that owner with numerous documents, statements and disclosures for the seller to provide in the sales transaction. These requirements can be found in the Davis-Stirling Act, at Civil Code section 1368.

This bill would have required that sellers provide the necessary disclosures to buyers as soon as practicable but no later than 20 calendar days after the purchase agreement is signed or the opening of escrow, whichever is later. The bill would have also allowed the seller and buyer to voluntarily agree to defer certain disclosure requirements, subject to a written agreement.

SB 127 would not have affected the 10-day timeframe within which an association must provide requested materials to the selling owner. However, if the bill had actually worked and was not simply made subject to written deferrals, buyers would have had much more time to review the submitted materials about the association than he or she currently has, when the information is typically provided only at or near close of escrow, in the escrow process.

AB 952 (Mullin)
Mandatory Payment Plans

Once a bill to allow owners of below-market rate units to vote separately on special assessments (and to effectively block such assessments from being approved), late-proposed amendments to AB 952 would have required associations to evaluate the financial ability of any unit owner who supplied documentation and, if a need was determined, to offer a mandatory payment plan to that owner.

Understandably, there was significant resistance to this bill from association advocates, as associations are simply not equipped to undertake such financial reviews, nor was it believed that providing such information to volunteer directors (i.e., one's neighbors) was likely to encourage unit owners to come forward with such information.

Moreover, this bill could have easily haunted associations at a time when assessment collection has never been more difficult and when lender foreclosures are directly causing distressed association budgets all over the state. This bill would have still allowed liens to be recorded but would have also required associations to halt the lien enforcement process, meaning associations could have been compelled to accept minimal sums from owners for up to three years while watching the owners' lenders foreclose.

AB 1955 (Plescia)
Assessment Allocation / Assessed Valuation

AB 1955 (originally a crimes bill) was amended with only two weeks left in the session to provide that associations that are authorized to assess their members by assessed valuation before January 1, 2009 could continue to do so, but no others could.

Committee analysis showed this bill was promoted at the request of Rancho Santa Fe, a large community in unincorporated San Diego County, which almost uniquely allocates assessments to its members based on its 1920s-vintage CC&Rs and the County's assessed valuation. Those opposed believed that the Davis-Stirling Act shouldn't be used by one association to achieve its internal political goals.

1  Berding | Weil can help:

Our firm has been preparing solar energy system policies for our clients for a number of years, creating them both for associations that wish to strictly regulate installations and those that wish to encourage them. The law permits relatively generous room for associations to work with owners wishing to install solar devices, including an association's ability to decide in advance on "preferred" types of systems and locations on privately owned lots and that maximize careful regulation if within the cost-efficiency parameters allowed to associations by law.

We would be pleased to provide a proposal for a comprehensive solar energy system policy consistent with your association's governing documents and state law, upon request. Please contact Barbara Martelyi at 925 838-2090 or bmartelyi@berding-weil.com.

2  Berding | Weil can help:

We regularly prepare legal descriptions in our governing document revision work and know how complicated the process can be in some communities, particularly when the project or development was originally phased. We would be happy to provide a proposal to your association, on request, to prepare a recordable notice that complies with this important and beneficial new law.

If we can help, please contact Barbara Martelyi at 925 838-2090 or bmartelyi@berding-weil.com.

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