For the last several years, the California Legislature has been primarily focused on dealing with challenges presented to California by the “great recession.” These challenges have ranged from how to eliminate massive state budget deficits and at the same time create new jobs by stimulating the State’s economy, to how to counteract the foreclosure crisis that continues to plague so many of the State’s homeowners. Although the budget crisis abated a bit in 2012, the primary driving force behind many of the real property related laws enacted during the 2012 legislative session continued to be the need to deal with the lingering effects of the great recession. Perhaps the best example of this continuing focus was the enactment in 2012 of the Homeowner Bill of Rights (“HOBR”) which continued and expanded the Legislature’s multi-year efforts to deal with the residential foreclosure crisis. Given the extended nature of this crisis, it should not be surprising that a significant component of the HOBR was the removal of a number of sunset dates that had come due on parts of previously enacted foreclosure related legislation initially intended to be only short-term measures. This focus on recession related challenges was also evident in the area of landlord-tenant law where the termination of residential tenancies, particularly with respect to properties subject to foreclosure, received renewed attention.
One significant piece of new legislation enacted in 2012 not related to the recession was a comprehensive revision and reorganization of the Davis-Stirling Common Interest Development Act. This reorganization was in the works at the California Law Revision Commission for four years and is intended to be a technical and non-substantive recasting of the existing law. Nevertheless, we can expect this reorganization to create significant implementation issues for practitioners in this area.
Another significant non-recession related reform effort successfully enacted into law in 2012 was the much publicized bipartisan legislation reforming California’s disabled access laws. This new law includes a variety of measures intended to both curb lawsuit abuse in this area of law and promote increased compliance with disabled accessibility building codes. Building owners, occupants, and their counsel will want to familiarize themselves with this new law and its requirements.
There were two other real property-related reform efforts that were unsuccessful in 2012. The first concerned a series of proposals that were intended to ameliorate the economic effects of the recent demise of redevelopment agencies in California. The second was a last-minute effort to reform CEQA to reduce its detrimental effects on development projects in California. Several of the redevelopment related proposals actually made it to the Governor’s desk, only to be vetoed. The comprehensive CEQA reform proposal barely saw the light of day. Nevertheless, we can expect that both these reform efforts will be renewed in 2013, especially if job creation remains an important issue.
We can also anticipate that various efforts to increase property taxes on commercial property will be renewed. Already in 2013 this property tax issue has re-surfaced in the form of a proposal for a parcel tax amendment that would do away with the law requiring uniform rates on parcel taxes. One can only speculate on how the new Democratic supermajority in the Legislature will affect the continuing political debate on these issues.
The following legislative review selectively focuses on those new laws enacted in 2012 that the author believes are of most significance for real property law practitioners. It does not, therefore, cover every real property related law enacted in 2012. This article also provides only summary references to the text of the bills selected for comment. Copies of the actual chaptered versions that include specific references to the statutory provisions that are modified, deleted or added should always be reviewed for details and are available from the Legislative Counsel at http://www.leginfo.ca.gov under “Session 2011-2012.” Unless otherwise noted, all bills covered in this review are operative January 1, 2013.
Homeowner Bill of Rights
The Legislature’s efforts to ameliorate the devastating economic impacts of the wave of residential property foreclosures began in 2008 with the Perata Mortgage Relief Act (SB 1137) and were supplemented in 2009 by the California Foreclosure Prevention Act (ABX2 7/SBX2 7). In 2012 these efforts were continued and increased with the passage of a package of new bills entitled the California Homeowner Bill of Rights (the “HOBR”) that either extended or expanded the previous actions. The HOBR also marks the third step in Attorney General Kamala Harris’s efforts to address the state’s foreclosure crisis. The first step was the creation of the Mortgage Fraud Strike Force in May 2011 to investigate and prosecute misconduct at all stages of the mortgage process. The second step was to obtain in February 2012, as part of the National Mortgage Servicing Settlement, a three-year commitment from the nation’s five largest banks for up to $18 billon for relief for California borrowers. The HOBR, which became law on January 1, 2013, is designed to guarantee basic fairness, accountability, and transparency for homeowners in the state’s foreclosure process and to ensure that qualifying homeowners who are in the foreclosure process are considered for and given a meaningful opportunity to participate in available foreclosure prevention alternative programs. The HOBR consists of a series of related bills that segue into the national settlement and includes two identical bills (SB 900 and AB 278) which contain the central components of the new legislation that continue until January 1, 2018.
SB 900 (Leno) / AB 278 (Eng) Mortgages and Deeds of Trust: Foreclosure
This new law is essentially focused on addressing abuses identified as contributing to the subprime residential foreclosure crisis. Therefore, the scope of its application is primarily limited to “first lien mortgages or deeds of trust that are secured by owner-occupied residential real property containing no more than four dwelling units”1 and to borrowers who satisfy the requirements of being a natural person who is the trustor under the subject deed of trust and potentially eligible for foreclosure prevention alternative programs offered by a mortgage servicer. It does not apply to entity borrowers, investment properties, borrowers already in bankruptcy or who have already surrendered their property to the lender, or interestingly, to borrowers who have contracted with a person or entity whose primary business is advising people on foreclosure avoidance.
Starting January 1, 2013, the HOBR extends and expands the provisions of the Perata Mortgage Relief Act to ensure that qualified first mortgage borrowers are afforded the right to explore available foreclosure alternatives, typically a loan modification or forbearance agreement, with their mortgage servicer before a California nonjudicial foreclosure can be commenced or completed. The new law distinguishes between regulated/licensed lenders who conduct 175 or fewer residential mortgage foreclosures in California (“Smaller Residential Mortgage Lenders”), and other lenders that exceed that limit (“Larger Residential Mortgage Lenders”), and prescribes much more detailed procedures which must be followed by Larger Residential Mortgage Lenders. Unlike the Perata Mortgage Relief Act, which was limited in its application to just those mortgage loans made between January 1, 2003, and December 31, 2007, the HOBR has no such loan date restrictions. The new law also provides that residential loan mortgage servicers for lenders are expressly subject to the new foreclosure protections, it places the burden of compliance on them, and it gives borrowers the right to sue them for injunctive relief, actual damages and treble damages for violation of the provisions of the HOBR. However, it should be noted that while borrowers are afforded the opportunity to explore with their mortgage servicer any available foreclosure prevention alternatives, HOBR does not provide them with the right to receive one.
The provisions of the new law are covered in 16 separate sections of the Civil Code and are much too complex to cover comprehensively in this article. The following is an outline of some of the more important new features of the HOBR.
Additional Pre-Foreclosure Procedures
Larger Residential Mortgage Lenders have added detailed procedural requirements that must be followed both before and during the foreclosure process. They must also make new disclosures to borrowers in the outreach process even before a notice of default is recorded.
Prohibition on “Dual Tracking”
Mortgage servicers are, under specified conditions, restricted from recording a notice of default or a notice of sale or from conducting a trustee’s sale while a complete first lien loan modification is pending. When a homeowner completes an application for a loan modification, the foreclosure process is essentially paused until the complete application has been fully reviewed, thereby eliminating the common practice of “dual tracking” both the foreclosure process and the loan modification process.
Guaranteed Single Point of Contact
Larger Residential Mortgage Lenders are required, upon receipt of a borrower’s request for a foreclosure prevention alternative, to establish a single point of contact with specified responsibilities and provide the borrower with one or more direct means of communication with the single point of contact.
Robo-Signing/Verification of Documents
All documents filed or recorded in connection with a notice of default, notice of sale, trust deed assignment, or substitution of trustee are required to be “accurate and complete and supported by competent and reliable evidence,” and mortgage servicers are required, before recording or filing such documents, to ensure that they have reviewed such evidence to substantiate the borrower’s default and the right to foreclose. Mortgage servicers that engage in multiple and repeated uncorrected violations of these requirements are subject to a civil penalty of up to $7,500 per loan in an action brought by a civil prosecutor. Violators are also subject to enforcement by licensing agencies, including the Department of Corporations, the Department of Real Estate and the Department of Financial Institutions.
Enhancement of Borrower Remedies
Borrowers are given authority to seek redress of “material” violations of the new foreclosure process protections. Borrowers may seek injunctive relief prior to the completion of the foreclosure sale, as well as attorney fees. The new law affords to the violator, a right to cure violations prior to the recordation of a trustee’s deed upon sale and dissolve the injunction and avoid liability for the corrected violation. After the foreclosure sale is completed, borrowers can seek recovery of actual economic damages suffered as a result of a material violation that was not corrected prior to the foreclosure sale, plus attorneys’ fees. In the event the court finds willful, reckless, or intentional material violations committed by a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent, the court may award the borrower the greater of treble actual damages or statutory damages of $50,000. Violations of these new foreclosure process protections can also result in applicable agency administrative enforcement for persons licensed by the Department of Corporations, Department of Financial Institutions, or Department of Real Estate.
The immediate effect of this new law has been increased caution on the part of lenders, mortgage servicers, and trustees while they try to digest and adapt to the new complex requirements. There will likely be only a temporary slowdown in foreclosure activity and an increase in borrower-initiated litigation as foreclosure activity picks up.
AB 1950 (Davis) Prohibited Business Practices: Enforcement
AB 1950 was one of the series of supplemental bills enacted into law as part of the HOBR. This bill modifies provisions related to mortgage fraud enforcement. It specifically (i) requires mortgage loan originators obtain a specified license endorsement, (ii) removes the sunset date on prohibitions against unlawful mortgage loan modification or loan forbearance activities such as the receipt of pre-performance compensation that were enacted in 2009, and (iii) extends statute of limitations for misdemeanor crimes related to mortgage fraud, from one year to three years after discovery of the offense, or within three years after the completion of the offense, whichever is later. This extension allows the Attorney General’s office greater time to investigate and prosecute complex mortgage fraud crimes.
SB 1474 (Hancock) Grand Jury Proceedings: Attorney General: Powers and Duties
SB 1474 was also enacted as part of the HOBR to provide additional tools to prosecute mortgage fraud. In particular, SB 1474 addresses the problem that has been encountered with the use of the existing county grand jury system to investigate mortgage fraud cases. These cases often involve multiple jurisdictions and thus are often beyond the scope of single-county grand juries. SB 1474 provides the Attorney General’s Office with the option of creating a limited Statewide Grand Jury to investigate multi-jurisdictional financial crimes in a more efficient and effective manner.
AB 2610 (Skinner) Tenants: Foreclosure and Unlawful Detainer
AB 2610, as part of the HOBR package, extends and expands the protections for tenants occupying foreclosed residential properties enacted in 2008 as part of the Perata Mortgage Relief Act. These protections were set to expire on January 1, 2013. The Perata Mortgage Relief Act, among other things, required a mortgagee, trustee, beneficiary or authorized agent provide a resident of a property upon which a notice of sale has been posted with a specified notice advising the resident of its rights including the right to receive a new lease or an extended eviction notice. It also required that a party bringing an unlawful detainer action provide a tenant or subtenant in possession of a rental housing unit under a month-to-month lease at the time that property is sold in foreclosure with 60 days’ written notice to quit before the tenant or subtenant may be removed from the property.
In addition to extending the sunset date for these protections until December 31, 2019, AB 2610 (i) increases the time period for the notice to quit to the tenant or subtenant under a month-to-month lease from 60 days to 90 days, which is the notice period specified under existing federal law,2 (ii) adds that tenants or subtenants, holding possession of a rental housing unit under a fixed-term residential lease entered into before transfer of title at the foreclosure sale, have the right similar to the right under existing federal law to possession until the end of the lease term, except in specified circumstances related to the intended occupancy of the property by the new owner as a primary residence or in other limited circumstances, and (iii) revises certain portions of the resident advisory notice to reflect the extended time period for the notice to quit and to better advise the tenant or subtenant of their extended rights to continue to occupy the property. The changes to this notice become operative on March 1, 2013, or 60 days following posting of a dated notice incorporating those amendments on the Department of Consumer Affairs Internet Web site, whichever date is later.
AB 2314 (Carter) Real property: Blight
AB 2314 was also enacted as part of the HOBR package. It removes the sunset date of January 1, 2013 on the statute enacted in 2008 as part of the Perata Mortgage Relief Act that permits local governments to fine property owners for failure to maintain vacant residential property purchased or acquired at foreclosure, thereby making the statute permanent. AB 2314 also makes three relatively modest changes to the manner by which local code enforcement agencies address the problem of foreclosure related blight. The first is to give a new owner of previously cited residential property additional time beyond the standard 30 days (at least until 60 days after a person takes title to the property, except in special circumstances) to correct substandard building conditions, provided the property had been foreclosed on or after January 1, 2008 and the person is in the process of diligently abating any violations. The expectation is that this will encourage the transfer of blighted properties to responsible parties. The second is to add the requirement for a lien holder who releases a lien on any property on which an enforcement agency has recorded a lis pendens to notify the applicable enforcement agency within 30 days of the release. The third change allows for the recovery of certain costs associated with an appointed health and safety receivership to ensure that the costs associated with rehabilitating a property are borne by the responsible party, i.e., the recalcitrant owner who refuses to correct substandard building conditions.
OTHER MORTGAGE-RELATED LEGISLATION
AB 1599 (Feuer) Mortgages and Deeds of Trust: Foreclosure
AB 1599 expands the existing requirement with respect to residential real property containing no more than 4 dwelling units that, under specified circumstances, a summary of mortgage terms be provided to the borrower in one of 5 specified languages. In particular, it requires a mortgagee, trustee, beneficiary, or authorized agent to provide to the mortgagor or trustor attached to a copy of the recorded notice of default and a copy of the notice of sale, a summary of the information required to be contained in those notices in English and 5 specified languages. It also requires the notice of default and notice of sale to include within them a statement, in English and 5 specified languages, that a summary of the key provisions of the respective notice in English and 5 specified languages is attached The attached summaries are not required to be recorded or published. These requirements become operative on April 1, 2013, or 90 days following the issuance of summary translations by the Department of Corporations, whichever occurs later.
AB 2010 (Bonilla) Reverse Mortgages: Counseling
AB 2010 adds the requirement that the certification to be provided by a prospective borrower regarding receipt of prescribed reverse mortgage counseling indicate that the counseling was conducted in person, unless the borrower elected to receive the counseling in another manner.
SB 980 (Vargas) Mortgage Loan Modifications
SB 980 extends until January 1, 2017, the measures first enacted in 2009 prohibiting the demanding or receiving of advance fees or pre-performance compensation from borrowers in connection with the negotiation or arrangement of residential mortgage loan modifications for mortgages and deeds of trust secured by real property containing 4 or fewer dwelling units. These measures were otherwise scheduled to sunset on January 1, 2013.
SB 1069 (Corbett) Deficiency Judgments
SB 1069 addresses concerns about the prevalence of refinancing in the housing market and the negative effect under existing law such refinancing has on the traditional borrower anti-deficiency protections otherwise available to homeowners who have borrowed to acquire their residence. To reduce this effect, SB 1069 extends existing borrower protection from deficiency judgments for purchase money loans on a dwelling for not more than four families to also include refinanced mortgages for the same property which would otherwise lose such protection as a result of the refinancing. Specifically, SB 1069 provides that no deficiency judgment shall lie in any event on any loan, refinance, or other credit transaction which is used to refinance a purchase money loan, except to the extent that in such transaction, the lender or creditor advances new principal which is not applied to any obligation owed or to be owed under the purchase money loan, or to fees, costs, or related expenses of the transaction. SB 1069 further provides that payments of principal on the new loan shall be deemed to be applied first to the principal balance of the loan and then to the principal balance of any new advance, with interest payments to be applied to any interest due and owing. Because a similar bill to this was previously vetoed by then Governor Schwarzenegger in part because of concern about its effects on existing contracts, SB 1069 includes a limitation on the protection from deficiency judgments for refinanced mortgages which apply only to transactions occurring on or after January 1, 2013. Consequently, borrowers who refinanced in recent years will not be protected by the application of this new law.
See also AB 2273 (Wieckowski) discussed under the Common Interest Developments section below which includes new mortgage related legislation concerning notices that must be provided by owners acquiring property in a CID under a foreclosure.
In the area of landlord-tenant law, the Legislature was primarily focused on addressing issues that were identified as arising in connection with the termination of residential tenancies such as eviction notices and the handling of tenant’s abandoned personal property and security deposit and with supporting the protections afforded tenants occupying residential properties subject to foreclosure.
AB 1124 (Skinner) Landlord-Tenant: Energy Savings Programs
AB 1124 addresses the problem encountered in qualifying multifamily buildings for energy savings assistance programs for repair or replacement of heating or hot water systems. These systems were previously found by the Public Utilities Commission to be a responsibility of landlords under statutorily prescribed habitability requirements that should not be subsidized by the taxpayers. AB 1124 clarifies that these habitability requirements shall not be interpreted to prohibit a tenant or owner from qualifying for such energy savings programs.
AB 1679 (Bonilla) Landlord-Tenant: Security Deposits
AB 1679 makes changes to the existing law regulating the return of security deposits for residential rental properties to accommodate electronic transfers and communication advancements. Specifically, AB 1679 permits the landlord and tenant to mutually agree, after either the landlord or the tenant has provided notice to terminate the tenancy, (i) to have the landlord deposit any remaining portion of the tenant’s security deposit electronically into a bank account or other financial institution designated by the tenant, and (ii) to have the landlord provide a copy of the required itemized statement of the disposition of the security deposit along with the copies of documents showing charges incurred and deducted by the landlord to repair or clean the premises to an email account provided by the tenant. It is important to note that this agreement regarding electronic transfer and communication can only be entered into after the termination notice has been provided. It cannot, therefore, be part of the lease or rental agreement. This restriction was intended to assure that landlords could not unilaterally insist on electronic delivery as a condition of the lease.
AB 1865 (Alejo) Residential Tenancies: Eviction Notices
AB 1865 expands the mandatory court notice sent to each defendant in an unlawful detainer action to provide information about lawyer referral programs operated by nonprofit local bar associations. In particular, AB 1865 requires this notice contain, in addition to name and phone number of the county bar association, both (i) the name and telephone number of any entity that requests inclusion on the notice and has demonstrated to the satisfaction of the court that it has been certified by the State Bar as a lawyer referral service and maintains a panel of attorneys qualified in the practice of landlord-tenant law in accordance with the minimum standards for a lawyer referral service, as established by the State Bar and Business and Professions Code Section 6155, and (ii) a specified statement providing the telephone number and Web site address of the State Bar. It does not, however, provide authorization for an entity to mount a formal legal challenge or appeal to any court notice that does not include its specific contact information in the mandatory notice.
AB 1953 (Ammiano) Rental Housing: Tenant Notices
AB 1953 also addresses problems related to eviction notices, in this case those being served by a successor owner or manager of a dwelling, where they have failed to timely provide the tenant with the information required under Civil Code Section 1962. This information, among other things, includes the name, telephone number, and address of the person or entity to whom rent payments are to be made. AB 1953 prohibits such non-complying successor owner or manager from serving a three-day notice to pay rent or quit, or otherwise evicting the tenant for the nonpayment of rent that accrued during the period of noncompliance with the information delivery requirement. AB 1953 does not otherwise relieve the tenant of any liability for the unpaid rent which may be pursued once the noncompliance is corrected.
AB 2521 (Blumenfield) Landlord-Tenant: Personal Property Remaining on Premises after Termination of Tenancy
AB 2521 makes the revisions to the statutory procedures governing the disposition of unclaimed personal property left behind on the premises by the former tenant after termination of the tenancy. It is intended to reduce some of the associated storage and sale costs that landlords contended were an inefficient burden placed on them by the prior existing law and to increase the rate that tenants reclaim and are reunited with their personal property. In particular, SB 2521:
Increases, from $300 to $700, the minimum value that determines under existing law whether a landlord has the option to keep or dispose of a former tenant’s unclaimed personal property, rather than being required by law to hold a public auction sale. The expected effect of this threshold increase, which reflects an adjustment for inflation from 1983 when the original amount was set, is to decrease the frequency of required public sales and thereby to reduce landlord costs associated with such sales;
Expands the modes of delivery of the written notice a landlord is required to provide to the former tenant describing the personal property left behind and recovery procedures, to include email, but only if the former tenant had provided the landlord with his or her email address;
Revises the statutorily prescribed notices landlords are required to provide to former tenants and other persons who the landlord reasonably believes to be the owner of personal property left behind after termination of the tenancy to include a specified notice regarding the former tenant’s ability to reclaim personal property left by the tenant vacating the property; and
Provides that the landlord shall release the unclaimed personal property to the former tenant and shall not require the former tenant to pay the cost of storage if such property remained in the dwelling and is reclaimed by the former tenant within two days of having vacated the dwelling. It also requires the inclusions of language regarding this new two day “grace period” in specified prescribed notices to former tenants. It is expected that these measures will increase the rate that tenants reclaim their personal property.
SB 1055 (Lieu) Landlord-Tenant: Rent Payments
SB 1055 is intended to address a recent development in the Los Angeles rental housing market of landlords requiring tenants to make rental payments online as part of a “green initiative.” SB 1055 bans the practice of online-only rental payments and protects tenants from being forced to obtain internet connections and/or PayPal accounts. Specifically, SB 1055 provides that, except as specified, a landlord or landlord’s agent shall allow a tenant to pay rent and deposit of security by at least one form of payment that is neither cash nor electronic funds transfer, as defined.
SB 1191 (Simitian) Landlord-Tenant Relations: Disclosure of Notice of Default
SB 1191 requires, until January 1, 2018, that every landlord who offers a single-family dwelling, or a multifamily dwelling not exceeding 4 units for rent, and who has received a notice of default that has not been rescinded with respect to a mortgage or deed of trust secured by that property, to provide written notice of the notice of default in a specified form to any prospective tenant prior to executing a lease agreement for the property. It also provides that a violation of this requirement allows the tenant to void the lease and recover one month’s rent or twice the amount of actual damages from the landlord, and all prepaid rent when the tenant vacates the property in addition to any other remedies that are available. In the alternative, SB 1191 provides that if the tenant elects not to void the lease and the foreclosure sale has not yet occurred, the tenant may deduct a total amount equal to one month’s rent from future rent obligations owed the landlord who received the notice of default. Property managers are exempted from liability for failing to provide the written disclosure notice unless the landlord notified the property manager of the notice of default and directed him or her in writing to deliver the written disclosure. The provisions of SB 1191 will sunset on January 1, 2018.
SB 1394 (Lowenthal) Dwelling Safety: Carbon Monoxide and Smoke Detectors
SB 1394 implements some of the recommendations of the State Fire Marshal’s recent Smoke Alarm Task Force to enhance the effective utilization of smoke alarms in single and multi-family dwellings. These revisions are too detailed for a full discussion here. The following are some of its provisions that are of particular interest:
After January 1, 2014, a building permit issuer is prohibited from signing off on the completion of work until the permittee demonstrates that all required smoke alarms meet specified standards;
Makes owners of certain defined multiple-dwelling complexes responsible for testing and maintaining alarms and, after January 1, 2014, requires the owners of a single-family dwelling that are rented or leased to have a similar responsibility;
Deletes the requirement that smoke detectors be installed in the common stairwells of apartment complexes and other multiple-dwelling complexes;
Requires after January 1, 2013 that upon the owner’s application for a permit for alterations, repairs, or additions for a dwelling unit, all smoke alarms required for the dwelling unit shall meet upgraded standards and specifications; and
Postpones the required installation of carbon monoxide devices in existing hotels and motels until January 1, 2016 and provides for the development of specific standards for these types of properties.
See also AB 2610 discussed under the Mortgages section above which also addresses the rights of tenants occupying residential properties subject to foreclosure.
See also SB 1186 discussed under Disability Access section below which includes the new requirement that commercial leases indicate whether or not there has been a CASp inspection of the property.
COMMON INTEREST DEVELOPMENTS
Two significant companion bills that comprehensively reorganize and recodify the Davis-Stirling Common Interest Development Act were signed into law in 2012. These two bills are the outcome of four years of study and review by the California Law Revision Commission and are intended to address an identified need to simplify the laws governing residential common interest developments to make them more user-friendly for the two-thirds of common interest developments that are fifty units or less self-managed associations that do not employ professional community managers.
AB 805 (Torres) Common Interest Developments (“CIDs”)
AB 805 is the primary bill of the pair. As of its effective date, which was delayed until January 1, 2014, AB 805 repeals the existing Davis-Stirling Common Interest Development Act (Title 6 of Part 4 of Division 2 of the Civil Code commencing with Section 1350) and replaces it with a new Part 5 to Division 4 of the Civil Code (commencing with Section 4000) that reorganizes and restates the prior existing common interest development law into a more logically organized form. As such, the new law is intended to be a technical and non-substantive recasting of existing law that, among other things, establishes consistent terminology, corrects cross-referencing errors, and restates excessively long and complex sections into simpler and shorter sections. It also, however, goes beyond a mere restatement in several areas. For example, AB 805 provides new guidance on two fundamental aspects of CID governance not clearly addressed in the prior law. In particular, it establishes the general supremacy of the law over a CID’s governing documents and the relative authority of different types of governing documents. It also standardizes association governance procedures, revises provisions related to elections and voting, revises and recasts the provisions regarding notices and their delivery, and establishes a single procedure for amendment of a common interest declaration that adds the requirement that the text of a proposed amendment be provided to the members before holding an election for its approval. In addition, AB 805 establishes standards for the retention of records and broadens the requirement that liens recorded by the association in error be released. Other substantive changes include the extension to all owners of separate interests in CIDs the right, previously only enjoyed by an owner of a separate interest condominium project, to make changes in that separate interest, as specified, and the introduction of an express list of conflicts of interest that may disqualify members of a board of directors of an association that manages a common interest development from voting on certain matters. Because of the extensive nature or the revisions undertaken by the new law and the interweaving of substantive changes within this new law, it will be important that practitioners in this area familiarize themselves with AB 805 before it becomes effective next year.
AB 806 (Torres) Common Interest Developments
Because AB 805 reorganizes and renumbers the entirety of the Davis-Stirling Act, it was also necessary for the California Law Revision Commission to correct all statutory cross-references to the former provisions. AB 806 is the companion bill to AB 805 that accomplishes that task. Effective January 1, 2014, it makes various technical changes to delete statutory cross-references to the prior existing sections of the Davis-Stirling Common Interest Development Act in other code sections and to replace them with cross references to the new code sections enacted under AB 805.
Commercial and Industrial Common Interest Development Act
A significant portion of the new common interest development law enacted under AB 805 is explicitly restricted to application to residential common interest developments, and the new Section 4202 expressly provides which specified provisions of the new law do not apply to a common interest development that is limited to industrial or commercial uses. The California Law Revision Commission on the same day the governor signed AB 805 and 806 into law approved and issued a proposed non-residential common interest development act entitled the “Commercial and Industrial Common Interest Development Act” which would add Part 5.5 to Division 4 of the California Civil Code. We can expect this new legislation to be introduced as a bill in 2013. Those of us who practice in the area of commercial and industrial common interest developments can appreciate the importance of providing better guidance for these types of developments.
Other Clean Up Legislation Needed to Address Chaptering Out
Three other bills amending sections of the existing Davis-Stirling Common Interest Development Act discussed below were also enacted in 2012 and signed into law after AB 805. These bills enact changes to the existing Davis-Stirling Act that conflict with the changes enacted under AB 805. When two bills both amend and repeal the same code section, the applicable rule is that the bill that is signed by the Governor last (and is, therefore, given the higher “chapter” number) prevails, i.e., the second bill “chapters out” the first. Since these bills were signed by the Governor after AB 805, the newly reorganized Davis-Stirling Act does not include the changes made by these two bills. Further action will need to be taken in 2013 to fully integrate these two bills into the new law before it becomes effective.
AB 1838 (Calderon) Common Interest Developments: Association Records
AB 1838 is the first of the three bills that chaptered out parts of AB 805. This bill follows up on AB 771 (Butler) that was passed in 2011 to address the problems identified with the existing requirements that an owner of a separate interest in a CID provide a prospective buyer with specified documents (commonly called “1368 documents” for the Civil Code Section that requires them) and that the applicable home owners’ association (HOA), upon request, provide these documents to the owner or as authorized by the owner and charge a reasonable fee therefor. AB 771 addresses specific problems created when the HOA utilized a third party management company to provide the 1368 documents relating to the amount and method of disclosure of fees that could be charged for this service. AB 1838 makes two minor clean-up changes to AB 771. Among other things, AB 1838 requires that the disclosure form be printed in at least 10-point font, prohibits an HOA from charging a cancellation fee if the cancellation is timely provided, and requires the HOA to refund the share of fees collected for the preparation and delivery of documents that represents the portion of the work not performed on the order. This bill became effective on January 1, 2013.
AB 2273 (Wieckowski) Common Interest Developments: Required Documents
AB 2273 likewise follows up on earlier legislation passed to address problems being encountered by HOAs that where compounded by the housing foreclosure crisis. In particular, AB 2273 returns to the issues initially addressed by SB 1511 enacted in 2008 regarding the problems HOAs were encountering in obtaining information regarding new owners of properties in the CID who acquired their interests through the foreclosure process. This prior law provided that if the HOA had filed a proper request to the county recorder with respect to the separate interest governed by the HOA, the mortgagee or trustee is required to mail specified information about the foreclosure (i.e., a copy of the trustee’s deed) to the HOA within 15 business days following the date the trustee’s deed is recorded. The problem with this prior formulation was that there was no requirement for a foreclosing lender to record a trustee’s deed when taking back property as a credit bidder in a trustee’s sale. Without this information there was no way for the HOA to determine who was responsible to pay the assessments levied on the subject property and within the context of the housing crisis this inability to collect assessments threatened the viability of many HOAs. This situation was compounded by the continuing housing crisis. AB 2273 addresses this problem by requiring that the sale of a property in a CID executed under a power of sale contained in a deed of trust or mortgage must be recorded in the recorder’s office of the county where the property is located no later than 30 days after the date of the sale. This bill also corrects the loophole regarding the required date for a mortgagee, trustee, or other person authorized to mail a copy of the trustee’s deed to the HOA by changing it from “15 business days following the date the trustee's deed is recorded” to “within 15 business days following the date of the trustee’s sale.”
AB 2697 (Committee on Housing and Community Development) Housing Omnibus Act
AB 2697 covers several different laws relating to housing. Among these are two sections that address CIDs. The first concerns the provision for teleconference meetings under Common Interest Development Open Meeting Act and clarifies that written consent of all the board members is required for an electronic emergency meeting, not to hold an emergency meeting generally. It also provides that a board member need not be present at the assigned physical location for a teleconference meeting as long as there is a person designated by the board at that location. The second concerns the requirement that the owner of a separate interest in a CID among other things provide to a prospective purchaser a statement describing any prohibition contained in the governing documents against the rental or leasing of any separate interest in the CID and removes the provision that required the owner to also describe the applicability of such provision.
SB 1186 (Steinberg) Disability Access
SB 1186 is the culmination of a multi-year, bipartisan effort to address the growing problem of what have been characterized as abusive practices related to disability access litigation.3 Although The Americans with Disabilities Act of 1990 is the primary applicable federal law in this area, California has its own state-specific anti-discrimination and disabled access laws and accessibility code. Both bodies of law and related codes are extensive and technical, and have been subject to various revisions such that property owners have been challenged to fully comply or stay in compliance with their requirements. Over time, there has been an increasing growth in the number of accessibility lawsuits, especially in California, which has a disproportionate share of these cases. This prevalence of accessibility lawsuits in California may in large part have been due to the particular ability of plaintiffs under California law to recover per violation up to three times the actual damages suffered or $4,000, whichever is greater, plus attorneys’ fees. This is a much more favorable award structure than what is available at the federal level. Because under prior California law there was no adjustment in the size of the minimum statutory damages related to the magnitude of the violation, a technical violation such as a bathroom fixture being an inch too high could result in a significant award if not immediately settled. In addition, there was no prohibition on plaintiffs’ filing multiple claims based on repeatedly visiting the same property, referred to as “stacking claims.” SB 1186 is an effort to combat these problems that contribute to abusive disability access lawsuits by enacting a set of measures that addresses specific aspects of the problem. Among other things, SB 1186:
Prohibits a pre-litigation demand letter from including a request or demand for money or an offer or agreement to accept money to avoid a lawsuit. These types of letters had become a common practice and frequently resulted in payoffs without any corrections being made. It also requires that a specified written advisory be included with each demand letter and that a copy of any demand letter alleging a construction-related accessibility violation be sent to the State Bar and the California Commission on Disabled Accessibility for review:
Requires any demand letter of complaint asserting a construction-related accessibility claim to contain facts sufficient to allow the defendant to identify the basis for the claim, including an explanation of the specific access barrier the claimant encountered and the date(s) of the violation(s). It also requires the plaintiff to verify the complaint under penalty of perjury against a place of public accommodation;
Provides for judicial scrutiny of multiple claims for the same construction-related accessibility on different particular occasions to discourage claim stacking; and
Provides for the reduction of the minimum statutory damages for construction-related accessibility claims against a place of public accommodations in the following specified circumstances:
if the structure or area of the violation has been previously inspected by a “certified access specialist” (“CASp”)4 and determined to meet applicable standards or the structure was constructed after January 1, 2008 and was approved by and passed inspection by the local building department, and the defendant corrects the violation within 60 days of being served with the complaint, the minimum statutory damages are reduced from $4,000 to $1,000;
if the business is a small business defined as having 25 or fewer employees and an average annual gross receipts of less than $3,500,000, and a CASp inspection of the structure or area of the violation has not been conducted, that business’s minimum statutory damages will be reduced from $4,000 to $2,000 if the violation is corrected within 30 days of receiving the complaint.
Finally, SB 1186 includes the requirement incorporated in Civil Code Section 1938 that a commercial property owner or lessor state on every lease form or rental agreement executed after July 1, 2013, whether the property being leased or rented has been inspected by a CASp and, if so, whether it has or has not been determined to meet all applicable construction-related accessibility standards.
Although SB 1186 does not go as far as some proponents would have preferred, property owners and small businesses can be cautiously optimistic that it will provide some relief from abusive construction related accessibility claims. However, it should be noted that nothing in this legislation excuses or exempts owners or businesses from compliance with the disabled access laws. California still, despite these reforms, has higher potential recovery awards and the reforms do not apply to intentional violations. Consequently, it should not be expected that these reforms will eliminate all of these types of lawsuits or future challenges based on the position that all violations are intentional. What clearly emerges from this legislation is the importance of CASp inspections as a means of reducing potential exposure to future abusive lawsuits.
New California Disabled Accessibility Standards
Even though it is not actually new “legislation,” it should be noted that in an effort to complement SB 1186, the Division of the State Architect has rewritten California’s Disabled Accessibility Standards for commercial and governmental buildings and for public housing. In order to bring more consistency between the federal and state standards, the Division used the federal Department of Justice regulations as the basis, but with appropriate amendments to maintain the California code where it was previously more stringent. This reformatted regulatory package was adopted by the California Building Standards Commission and will take effect January 1, 2014.
During the last two weeks of the 2012 legislative session, there was a concerted effort led by Senator Michael Rubio (D-East Bakersfield) to overhaul the California Environmental Quality Act (“CEQA”) under the guise of “modernization.” This last-minute effort, which was embodied in SB 317 (Rubio), among other things, sought to exempt from CEQA certain projects that comply with a city general plan or other planning document for which an environmental review already has been done. In the face of stiff opposition, this reform effort had a very short life and was quashed by legislative leadership, including Senate President Pro Tem Darrell Steinberg, just a few short hours after being unveiled. There were, however, promises made to revisit the issue in a more orderly manner in 2013.
Despite the failure of the Legislature to undertake comprehensive CEQA modernization legislation, several less ambitious piecemeal reform measures did pass through the Legislature and were signed into law by the Governor including:
AB 890 (Olsen) which exempts from CEQA, the repair, maintenance, and minor alterations of existing roadways that meet specified criteria;
AB 1486 (Lara) which exempts from CEQA, the design, site acquisition, construction, operation, or maintenance of certain elements of the Los Angeles Regional Interoperable Communications System if the project does not have a substantial adverse impact on identified sensitive areas or exceeds specified exposure standards;
AB 1665 (Galgiani) which provides that CEQA does not apply to the closure of a railroad grade crossing for safety purposes;
AB 2245 (Smyth) which exempts from CEQA, certain bike lane projects that satisfy specified criteria; and
AB 2564 (Ma) which expands the existing exemption for pipelines as specified.
Two other non-controversial measures making modifications to the CEQA process were also enacted in 2012:
AB 2669 (Natural Resources Committee) which repeals non-controversial obsolete or duplicative provisions from CEQA, and authorizes the Secretary of the Natural Resources Agency to update the protocol for reviewing the prospective application of certified regulatory programs to evaluate their consistency with the requirements of CEQA.
SB 972 (Simitian) which recasts and expands notification requirements for scoping meetings and notices of completion in minor ways to make them more effective.
These types of cleanup measures are far from the comprehensive type of CEQA reform desired by the coalition of business interests that supported the efforts of State Senator Rubio.
One of the most significant legislative developments in 2011 was the enactment of legislation that brought about the dissolution of redevelopment agencies in California. In 2012, there were several unsuccessful efforts made in the Legislature to delay or deflect the implementation of this dissolution legislation. Among these efforts were five related reform bills that were able to attain passage in the Legislature in 2012, only then to be vetoed by the Governor. These bills had in common some version of tax-increment financing that was intended to provide an alternative tool for redevelopment. Included in this group of bills was AB 345 (Torres), that would have made changes regarding low income housing, SB 214 (Wolk), AB 2144 (Perez), and AB 2551 (Hueso), that in differing forms would have modified the cumbersome rules affecting infrastructure financing districts to enhance their feasibility as a development tool, and SB 1156 (Steinberg) that would have reauthorized redevelopment under the auspices of “sustainable community investment authorities.”
All of these bills were vetoed by Governor Brown who, in his veto messages, indicated that these types of efforts to devise new tools to facilitate redevelopment were premature and would likely cause cities to lose focus on the winding down of redevelopment which was necessary to achieve the general fund savings that had been assumed in the current budget. He did, however, leave the door open for a reconsideration of these types of proposals in the future. He also signed two redevelopment-related cleanup bills intended to address immediate problems identified in the winding down process.
AB 1484 (Budget Committee) Community Redevelopment
AB 1484 was one of the redevelopment-related cleanup bills passed by the Legislature in 2012 that was signed by Governor Brown. This lengthy and complicated budget trailer bill makes a series of statutory changes that were identified as needed to facilitate the dissolution and winding down process in order to achieve the projected budget savings that were supposed to be derived from the dissolution of the redevelopment agencies. One key provision of AB 1484 concerns the disposition of real estate assets previously held by redevelopment agencies. Specifically, AB 1484 suspends the “forced disposition” provisions included in the original dissolution legislation (AB1X 26) that required the disposition of redevelopment agency real property assets be undertaken “expeditiously and in a manner aimed at maximizing value.” AB 1484 instead provides that a successor agency shall develop a long-range property management plan that governs the disposition and use of former redevelopment agency properties including their possible retention, and that when such a plan is approved by the Department of Finance it supersedes the forced disposition rules. This new process leaves unanswered whether successor agencies who undertake the development of such a plan can complete any sales of these types of properties until the plan has been fully adopted and approved.
AB 1585 (Perez) Community Development
AB 1585 is the second cleanup bill that was enacted in 2012. It clarifies that the provisions of the Community Redevelopment Law governing administrative and planning costs for the Low and Moderate Income Housing Fund apply to any funds retained by a housing successor agency that assumes the responsibilities of a former redevelopment agency. It also provides for the appropriation of $50,000,000 of specific bond funds for infill incentive grants and transit-oriented grants and loans.
AB 1927 (Jones) Easements: Maintenance: Arbitration
AB 1927 seeks to address the problem identified in existing law regarding the enforcement of the proportional responsibility for maintenance of a private right of way easement held by multiple parties particularly where there is no written agreement governing the sharing of costs. The procedures under prior existing law provided for application to superior court for the appointment of an arbitrator to determine the parties’ proportional responsibilities by non-binding arbitration that could be subsequently challenged. Because the amount involved in these disputes is often relatively small, the costs of following the procedures prescribed under existing law were often disproportionate to the relief being sought. AB 1927 provides an alternative to this procedure that in appropriate cases allows for an owner or owners to seek a judgment directly from a small claims court which can more efficiently and economically decide cases involving amounts in dispute that are within the jurisdiction of the small claims court.
EXECUTION AND RECORDING OF DOCUMENTS
AB 2326 (Wagner) Notary
AB 2326 seeks to create an additional barrier to real estate fraud by (i) expanding the requirement that a party signing a document to be notarized place his or her fingerprint in the journal that the attending notary public is required to maintain under existing law to include not only deeds, quitclaim deeds, deeds of trust, and power of attorney documents, but also any other document affecting real property, and (ii) by extending the limitation on the ability of subscribing witnesses to appear before a notary public on behalf of the principal signer to prove the execution of a document by the absent principal to apply not only to power of attorney documents, grant deeds, mortgages, deeds of trust, quitclaim deeds, or security agreements, but also to any instrument affecting real property, except for proof of the execution of a trustee’s deed or deed of reconveyance which is still permitted.
SB 1342 (Emmerson) Recording: Real Estate Instruments
SB 1342 was also enacted to combat the growing problem of real estate fraud by providing a source of additional revenue for the applicable county’s Real Estate Fraud Prosecution Trust Fund via an increase in the maximum fee from $3 to $10 that a county may place on recording of specified real estate instruments. SB 1342 not only increases the recording fee but also expands the existing definition, “real estate instrument,” that included a deed of trust, an assignment of trust, a reconveyance, a request for notice, a notice of default, a substitution of trustee, a notice of trustee sale, and a notice of rescission of declaration of default to also include, an amended deed of trust, an abstract of judgment, an affidavit, an assignment of rents, an assignment of a lease, a construction trust deed, covenants, conditions, and restrictions, a declaration of homestead, an easement, a lease, a lien, a lot line adjustment, a mechanics lien, a modification for deed of trust, a notice of completion, a quitclaim deed, a subordination agreement, a trustee's deed upon sale, and any Uniform Commercial Code amendment, assignment, continuation, statement, or termination. It also specifies that “real estate instrument” does not include any deed, instrument, or writing recorded in connection with a transfer that is subject to a documentary transfer tax.
PURCHASE AND SALE AGREEMENT DISCLOSURES
AB 1511 (Bradford) Contracts for Sale of Real Property: Disclosures: Transmission Pipelines
AB 1511 requires all contracts for the sale of residential real property entered into on or after July 1, 2013, to contain a specified notice pertaining to gas and hazardous liquid transmission pipelines. The motivation for this new requirement was the pipeline explosion in San Bruno which impacted homeowners who were unaware of any pipelines near their property.
AB 1700 (Butler) Property Taxation: Change in Ownership: Cotenancy Interests
AB 1700 provides that a transfer from one cotenant to the other cotenant of a cotenancy interest in real property that is the principal residence of two individual cotenants who hold 100% interest in the property for the one-year period immediately preceding the transfer that takes effect upon the death of the transferor cotenant and that occurs on or after January 1, 2013, does not constitute a change of ownership and is therefore excluded from property tax reassessment on the basis of that transfer. In order to qualify for this exclusion, the transferee cotenant is required to sign an affidavit, as specified, under penalty of perjury. The intent of this legislation is to provide unmarried persons, living together, the same protections as married couples.
A more comprehensive list of all of the legislation tracked each year by the Legislation Committee of the State Bar Real Property Law Section may be found at the Section’s website at http://calbar.ca.gov/rpsection. From there, you can link to some additional sites for keeping up with legislation, including the California Legislative Counsel’s Official California Legislative Information at http://leginfo.ca.gov.
* Robert M. McCormick is of counsel at Downey Brand LLP and a member of the Real Estate Practice Management Group. He is also the current Co-Chairman of the Commercial Leasing Subsection (north) of the Real Property Law Section of the State Bar of California. His practice is focused on commercial real estate transactions, including office and retail leasing, acquisitions, real estate secured financing, and the formation of common interest developments.
1 There are two areas of the HOBR where this residential limitation does not appear to apply. The first is the newly added Civil Code Section 2924.17 that provides requirements for mortgage servicers to ensure they have reviewed evidence that substantiates the borrower’s default and the right to foreclose and imposes penalties for mortgage servicers that engage in multiple and repeated uncorrected violations of these requirements. The second is Civil Code Section 2924(a)(6) that applies to nonjudicial foreclosures, which has been amended to provide that no entity shall record a notice of default or initiate a nonjudicial foreclosure process unless it is the beneficiary under the mortgage/deed of trust, or the original or substituted trustee thereunder, or the designated agent of the beneficiary. This ambiguity will likely require future clarification by the legislature.
2 “Protecting Tenants at Foreclosure Act of 2009,” Public Law 111-22.
3 In 2008, the legislature passed SB 1608 (Corbett) which had little effect on reducing the problem.
4 See Govt. Code Section 4459.5 for more detail.
First published in the California Real Property Journal, a quarterly publication of the Real Property Law Section of the State Bar of California