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San Juan Capistrano, California - The following letter was sent to the California Senate Judiciary Committee about AB 2718, a bill authored by Assemblyman John Laird of Santa Cruz, California..
Senator Marta Escutia
Chair
Senate Judiciary Committee
Sacramento, California
Att: Gene Wong - Chief Counsel
Dear Senator Escutia,
I understand that AB 2718 (Laird) is scheduled for a hearing before the Senate Judiciary Committee on June 29. The American Homeowners Resource Center is a nationwide, grassroots organization dedicated to the preservation of the American home. Its website, ahrc.com, receives over 53,000 hits per day, or about 1.6 million per month.
The unanimous votes that this bill has received in the Assembly and in the Senate Housing Committee may suggest that there is nothing wrong with this bill. While the central aim of the bill - to provide a more complete and simpler statement of the condition of the reserve accounts in homeowner associations - is highly laudable, there are a number of serious problems lurking in the shadows.
1. Civil Code Sec. 1368 (b) states:
"The association may charge a reasonable fee for this service based upon the association's actual cost to procure, prepare and reproduce the requested items."
The initial version of the bill stated that "fees or charges incurred pursuant to, and in compliance with, the requirements of Section 1563 of the Evidence Code shall be presumed to be reasonable." This quickly disappeared at the request of such lobby groups as CAI/CLAC and CACM, and the current language inserted. The reason for this is clear. The Evidence Code, for example, allows only 10c to be charged for copying a page. Many management companies charge at least $1 a page - some even as high as $10 a page.
The practical reality is that the phrases "reasonable" and "actual" costs are meaningless at ground zero. Management companies charge whatever they want, and there is nothing short of an expensive lawsuit that homeowners can do about it.
In 1993, Gene Wong, the current general counsel for your committee, called me and asked how a bill allowing reserves to be used for litigation, could also allow unlimited special assessments in homeowner associations, and sail unanimously through the legislature.
He labelled such a bill "a golden egg". Sec. 1368 (b) is another of those golden eggs for lobbyists. The legislature should not be hatching such eggs. The wording of the original bill should be restored, and modified to make the criteria of the Evidence Code mandatory.
2. Mr. Laird, the author of this bill, claims according to the analysis prepared by Michelle Rubalcava that "some of these management companies charge higher on one end (the prospective purchaser) in order to charge the association less for other services rendered, such as, keeping the books, which costs are shared amongst all current homeowners. Therefore, reducing costs on one end might lead to the increase of costs at the other end."
First, Mr. Laird offers no evidence that this actually happens. It may well be simply the self-serving rationalizations of lobbyists.
Second, it does not make business sense. If in any given year no homes are sold in the association, then the management company is subsidizing the bookkeeping costs to the association out of its own pocket. If it has lowered its bookkeeping charges to the association in anticipation of future transfer costs etc., and these do not materialize, then the management company is out of pocket. This hardly sounds like what a savvy business person would do. Why gamble with an unknown future? No, management companies are simply gouging homeowners, and the legislature should not allow this.
Third, even if management companies were actually doing this, it is simply not fair. The prospective purchaser would in essence be paying more for the bookkeeping costs of the association than the other homeowners. There is no rational justification for this. The only rational approach is for each party to pay the actual cost of each service rendered.
Hence, Mr. Laird's explanation simply does not hold water.
With homeowners being buffeted on all sides with rising fees and costs, this is a very serious issue for homeowners. We have received numerous communications from homeowners around the state, and they are very angry that they are being gouged once again. For seniors, single mothers, the disabled and others, this is especially troubling. Hence we urge amending the bill as specified above.
As I am sure you are aware, the issue of reserves in homeowner associations is looming as a major problem in the state. The fact that homeowner associations can raid the reserves for "short term emergencies" - which means in practice anything - is cause for serious alarm for everybody. For a board to simply notify homeowners that it intends to do so is no comfort. A majority vote of homeowners should be required.
3. Another major concern of homeowners is Civil Code Sec. 1366.2, which became part of the code in 1997 after the passage of AB 1025 (Torlakson). This section allows a homeowner association to record a statement with the county recorder for "transfer fees, and similar charges". In essence, this enables a management company to use the homeowner association to file a lien against a homeowner's property for its own fees. Homeowners protested this back door access to liening being given to management companies. They protest once again now. AB 2718 adds to those recordable charges. Homeowners ask that the phrase "transfer fees, and similar charges" be deleted from 1366.2.
Over the years, homeowners have had a long, uphill battle against lobbyists in Sacramento. This year for the first time, homeowners believe they may have detected some stirrings in the legislature that the voice of the homeowner is beginning to be heard. Removal of the objectionable items in AB 2718 would contribute to the confidence of homeowners in their legislators. Homeowners do not have the resources to spend hundreds of dollars to travel to Sacramento to attend each hearing - and they believe that they should not have to do so. They believe that it is the job of the legislators whom they send to represent them.
Thank you for your attention. |
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