HOALaws.com

Skip Daum

President

Registered Legislative Advocate

MARCH 2, 2017

2,643 bills have recentlybeen introduced and two dozen effect homeowners associations. Of those, these five areimportant:

  1. Association managers are to disclose referral fees or other financial benefits from third parties for distributing association documents (Assembly Bill 690)
  2. HOAs are to pay a $75 per recorded document up to a $225 cap (Senate Bill 2)
  3. Board candidates are to be automatically elected in uncontested elections provided specific rules are complied with (AB 1426)
  4. HOAs mustnot prohibit owners from communicatingwith other owners and residents about candidates for public or association office, legislation, and association rulemaking (SB 407)
  5. HOA owners shall be allowed an income tax deduction up to $5,000 for homeowners’ association assessments(AB 731)

Here’s some background on each of them. Keep in mind that they will likely be amended during thislaw making session, and other bills will surely emerge, so staying in touch with the changes is critically important.

AB 690 is sponsored by the California Association of Realtors (CAR). Amidst inquiries, complaints and even accusations from homeowners and boards that management fees are hidden and costs are excessive, it’s an issue that CAR believes is best solved by better disclosures. “Transparency” in government and private matters is a favored political buzzword these days. Who could argue against it, right?

Overall, this bill applies existing law regarding an HOA’s fees for procuring sale transaction documents to association managers and specifically addresses the issue of sellers paying for more documents than they need to as they prepare to sell their property. Although existing law allows owners to provide documents in their possession at no cost to buyers, when they request an additional or separate document it’s possible that an entire set of docs is provided by managers and/or their document service suppliers; this is called “bundling”, and costs sellers more money. This then becomes an issue at close of escrow for the seller, and the Realtors are also impacted. The bill would also, when amended, clearly specify that not all relevant documents need to be purchased. The bill will also require a manager/firm to include in its bid to serve an HOA any monetary relationships with, and ownership stakes in, other entities that may be hired to serve the association.

Opponents may assert that privity of contract between a manager and other parties such as document providers is private information. Too, would disclosing this information impair a manager’s bidding rights should other competing management firms become aware of what fees they are charging? Homeowners themselves may find that the disclosures prove their situation to be far better than another association’s which may prompt their manager’s request to charge even more in order toremain competitive.

SB 2 is theauthor’s second attempt in the last two years to raise money for constructing affordable housing, which is an irrefutable need in the current economy. (Indeed, a third bill, by another legislator, was also introduced in 2013 but it was dropped it as he prepared for his congressional election campaign.) It’s estimated that 2 million homes are needed. Nonetheless, the mechanism to raise billions of dollars in “new money” poses very significant questions.

First, the bill charges a $75 per recorded documentfee. This is excessive; dozens of other states use this source of revenue for various programs, but their fees are as low as $4 per entire document. Secondly, the “fee” is deemed by Republicans to be a tax which requires a 2/3 vote. Thirdly, fees for recording various documents that are totally unrelated to real propertyare being bootstrapped into funding homebuilding. Fourth, and ironically, SB 2 exempts most real estate sales transaction documents, a provision reportedly demanded by CAR. One could ask why in the world exempt them when they would probably yield the largest amount of revenue for these purposes, especially as the economy improves and homes sell? The author stated in committee that, in essence, it was the best balance she could achieve in order to keep the bill alive. Fifth, questions arose in the hearing regarding how the money would be disbursed and to which communities.

To date, more than 120 lobbying organizations support the measure, ranging from low income and rural lobbying groups, to bicycle clubs, numerous cities,home builders and trade unions. Testifying in opposition in committee were onlythe county recorders and land title companies. The recorders’representative illustrated an inequity:when million dollar homes are sold the parties could easily afford $225, but they’re exempt. Yet, low income people may have difficulty recording several documents when they buy or sell.

Homeowners associations record several documents every year and they will need to pay these fees. The bill will move ahead despite these issues and will undoubtedly be amended. This report will keep you updated. (There is a companion bill, SB 2, that also raises three billion dollars through a new permanent housing bond.)

AB 1426 is sponsored by the Community Associations Institute’s California Legislative Action Committee. This bill regards uncontested elections and would be a huge cost saver for large HOAs. It would, provided certain rules were followed regarding notices to members and write-in candidates, allow candidates to be automatically installed as board directors when there are fewer candidates than open seats on the board.

CAI’s similar bill last session was stopped by opponents including the California Alliance for Retired Americans, the California Commission on Aging, and the Center for California Homeowner Association Law, an organization that typically opposes bills that are sponsored by associations. Expect opponents to argue that the current boards would still control the election.

SB 407 is supported by theCenter for California Homeowner Association Law. It would prohibit homeowner associations from suppressing freedom of speech or freedom of association when it concerns public candidates, elections, legislation or rule-makings.

“People living in homeowner associations should not be forced to sign away their right to political free speech,” said author Senator Bob Wieckowski (D), a member of the Senate’s Judiciary Committee. “Yet, too many times, boards have applied overly broad rules and policies to squelch the civic participation of their members. Signs, canvassing or guest appearances by candidates invited by members are often prohibited and residents are fined and told to cancel events.”

This bill resembles a bill from last year whichwas sponsored by the Center for California Homeowner Association Law and supported by the Conference of California Bar Associations. It allowed owners to bring non-member attorneys, and others, to board meetings and to speak; that bill was strongly opposed by CAI and it died in its first hearing.

AB 731 is a bill mostHOAowners would like as it can positively effectpersonal income tax. It’s sponsored by the Community Associations Institute.

According to the author, California has the highest home prices in the country, and has a declining rate of homeownership. The median home value in California is $482,600. The median price per square foot in California is $281.

The average homeowner assessments range to $200 to $400. Over the course of thirty years, this could add nearly $150,000 to the cost of owning a home.

As introduced, the bill would, for each taxable year beginning on or after January 1, 2017, allow individuals to claim a tax deduction of up to $5,000 for assessments paid to a qualified community association. If signed, it would take effect immediately.

However, the amount of possible State tax deductions would reach into the millions of dollars, causing a problem for the bill’s future as this money would be deemed “lost revenue” to the State. Expect amendments.

END

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