Rockwell publishing real estate law chapter 16

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© 2009 Rockwell Institute

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California Real Estate Law

© Copyright 2007 Rockwell Publishing, Inc.

Lesson 16:Common Interest Developments


Introduction

This lesson will discuss:

l types of common interest developments

l subdivision laws

l homeowners associations


Common Interest Developments

Standard subdivision: typically a group of traditional homes built more or less simultaneously by a single developer

l dates back to 1950s and 1960s

l owners governed by set of rules

l owners don’t share any interest in subdivision property

Types of CIDs

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Changes to subdivisions since 1970s:

l smaller families

l increasing land costs

Now common interest developments are more common.

Types of CIDs



Common interest development (CID): subdivision in which homeowners share title to at least some aspects of the property, such as parking lots, golf courses, parks, etc.

l homes usually built closer together

l more surrounding open space

l shared property known as common elements

Types of CIDs



Four main types of common interest developments:

l condominiums

l planned developments

l community apartments

l cooperatives

Most common interest developments are either condominiums or planned developments.

Types of CIDs

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Types of CIDs

Condominium:

l owner has title to unit from the walls in

l shares ownership of land beneath building

l shares ownership of common elements

Condos and planned developments


Types of CIDs

Planned development:

l owner has title to individual home

l owner has title to land beneath building

l shares ownership of common elements only

l more like standard subdivision

l also known as planned unit development or PUD

Condos and planned developments


Condos and Planned Developments

Units in condominium or planned development can take form of townhouses.

Townhouse: multi-story homes that share common walls with other units (like condominium) but have private yard area (like homes in PUDs)

Townhouses

4



When townhouse development is created as condominium:

l private yard area is classified as limited common area

Limited common area: owned by all owners in development as tenants in common, but possessory rights assigned to individual owners

Townhouses



When townhouse development created as planned development:

l private yard area owned separately (as with regular houses)

Townhouses


Types of CIDs

Two less common forms of CIDs:

l community apartment

l cooperative

Community apartments and cooperatives

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Types of CIDs

Community apartment: all owners own entire development as tenants in common

Each owner receives:

l deed for undivided partial interest in development

l lease to individual unit or lot



Types of CIDs

Most original community apartments have since been converted to condominiums.

l mobile home parks still often organized as community apartments



Types of CIDs

Cooperative: residents don’t receive deeds

Each resident:

l owns stock in corporation that holds title to entire development

l receives lease for individual unit

Co-ops are more common on East Coast.


6

Summary


Types of CIDs

l Common interest development

l Common element

l Condominium

l PUD

l Limited common area

l Community apartment

l Cooperative


Subdivision Laws

Four statutes affect the subdivision and sale of real property in California:

l Subdivision Map Act

l Subdivided Lands Law

l Vacation Ownership and Timeshare Act of 2004

l Interstate Land Sales Full Disclosure Act


Subdivision Laws

Subdivision Map Act: originally passed in 1907, to help standardize subdivision procedures and to keep track of titles to lots

l requires developers to create and record detailed plans or maps of their subdivisions

Subdivision Map Act

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Subdivision Laws

Subdivision maps show:

l lot lines

l roads

l grading

l utility easements

l etc.

Subdivision Map Act


Subdivision Laws

Subdivision Map Act later amended to address problems caused by population growth.

Requires developers to:

l conform subdivisions to city or county land-use goals

l pay fees for use of public services

l prepare environmental impact reports

Subdivision Map Act


Subdivision Laws

Subdivision Map Act is state law, enforced by local governments.

City and county agencies:

l must review subdivision maps

l may require developers to change plans

Subdivision Map Act

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Subdivision Laws

Developer may not enter into any binding purchase agreement with buyers until:

l required map is filed

l local agency requirements are met

Subdivision Map Act


Subdivision Laws

If property is sold but no map is recorded:

l buyer has one year to void purchase

l developer may be subject to criminal penalties

Subdivision Map Act


Subdivision Map Act

Subdivision Map Act applies to every subdivision of a parcel of property.

l even subdivision of one parcel into two parcels

Parcel: under Subdivision Map Act, includes condominium projects

However, some Map Act provisions only apply when land is divided into five or more lots.

Application of the Map Act

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Subdivision Map Act

First step in approval process is filing tentative map.

Tentative map: draft of final map that developer will eventually record

Local agency charged with evaluating subdivision maps circulates tentative map to other city or county departments.

Map approval process


Subdivision Map Act

City and county departments consider:

l flood control

l utility supply

l public amenities

l impact on schools

l traffic demands

Departments make reports to planning department.



Subdivision Map Act

Based on reports, planning department accepts or rejects tentative map.

Usually department grants developer qualified acceptance: acceptance with conditions attached

Example: Qualified acceptance may contain condition that developer dedicate more land to open space.


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Subdivision Map Act

Getting tentative map approved may take years.

l Developer must satisfy all imposed conditions before filing final map.



Subdivision Map Act

Once tentative map is recorded, developer may sign conditional purchase agreements.

l not binding on purchasers until final map filed

Tentative map usually expires within 24 – 36 months, although developers may seek extensions.

l if map expires ? must start process over



Subdivision Map Act

Property owners who are subdividing a parcel into less than 5 lots just need to file a parcel map.

l simplified process

l fewer conditions


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Subdivision Map Act

Developers who want to convert apartments to condominiums must:

l file a subdivision map

l give tenants 180 days’ notice that tenancy is terminating

l give tenants at least 90 days following notice before unit put on market

l give tenants exclusive right for 90 days following notice to buy unit on same or more favorable terms than will be offered to public

Condominium conversions

Summary


Subdivision Map Act

l Subdivision Map Act

l Parcel

l Tentative map

l Final map

l Parcel map

l Condominium conversions


Subdivision Laws

Subdivided Lands Law : requires sellers of subdivided parcels or interests to make detailed disclosures to potential buyers

l enacted in 1943

l applies to sales, financing, and leases

l applies to subdivisions containing at least 5 lots

Subdivided Lands Law

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Subdivision Laws

If subdivision project is covered by Subdivided Lands Law:

l developer must obtain public report from Department of Real Estate (DRE)

l before offering any lot or unit for sale or lease



Subdivision Laws

To obtain public report, developer files application containing:

l notice of intent

l completed questionnaire with information regarding project

l attached documentation



Subdivision Laws

Real Estate Commissioner reviews application.

l checks for misrepresentations

l looks for evidence that buyers get what they pay for


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Subdivision Laws

Developer must demonstrate:

l reliable procedure for removing blanket construction liens

l trust account in place for buyer’s deposits

If application approved, public report issued.




Public report contains developer disclosures, to help consumers make informed decisions.

Disclosures include descriptions of any:

l taxes and assessments

l private restrictions

l unusual charges to buyers

l hazards or environmental issues

l potentially harmful financing terms

Public reports



Subdivided Lands Law prohibits arranging sale of subdivision property before Commissioner has issued either:

l preliminary report

l conditional report

l final report

Public reports

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Public Reports

Preliminary report:

l allows developer to take buyer “reservations”

l frequently referred to as “pink report”

l buyer can back out of reservation

l developers can use for one year

l contains initial versions of disclosures that will be contained in final report

Preliminary report


Public Reports

Conditional report:

l allows developer to enter into conditional sales contracts

l developer must prove project will be completed as promised

l developer must prove that buyers’ deposits will be handled correctly

Conditional report


Public Reports

Conditional sales contracts:

l binding only for certain time (6 – 30 months)

l during that period, developer must obtain final report

Conditional report

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Public Reports

Final report:

l issued when Commissioner determines project meets requirements of Subdivided Lands Law

l once distributed to buyer and map recorded, home sales can be finalized

l prospective buyers must receive copy before signing purchase agreement

l seller needs to keep copy for at least 3 years

l valid for 5 years

Final report


Public Reports

New report needed if subdivision undergoes material change.

Material changes include:

l addition of new streets

l alteration of lot sizes

l restructuring of sales (financing or method of conveyance)

l buyer taking title to five or more lots

Final report



Public report not required if

l size or type of subdivision exempt

l resale of property

Public report not required

16


Public Report Not Required

Subdivided Lands Law doesn’t apply to:

l developments involving fewer than 5 lots

l subdivisions with big lots (160 acres or larger)

l commercial subdivisions

Exemptions for size or type


Public Report Not Required

When private homeowner sells subdivision property:

l no public report required

l but similar content required on transfer disclosure statement

Resale of properties



If subdivision is located outside California, but developer is marketing project in California:

l no public report required

l but developer must obtain permits from Real Estate Commissioner

l permit process and disclosures similar to public report

Out-of-state subdivision sales

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Summary



l Subdivided Lands Law

l Public report

l Preliminary report

l Conditional report

l Final report

l Material changes


Subdivision Laws

Timeshare: buyer purchases right to occupy property (usually condo in vacation area) for one or more periods every year

Timeshares:

l used to be treated as subdivisions

l complaints led to Vacation Ownership and Timeshare Act of 2004

Vacation Ownership and Timeshare Act


Subdivision Laws

Act requires:

l disclosures about property

l seven-day right of rescission for buyers

l notice of buyer’s rescission right on purchase agreement


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Summary



l Timeshare

l Vacation Ownership and Timeshare Act


Subdivision Laws

Interstate Land Sales Full Disclosure Act (ILSFDA): applies to interstate sale and advertising of unimproved residential lots in medium- or larger-sized subdivisions (at least 25 lots)

l intended to prevent fraud and deceptive practices

l enforced by Department of Housing and Urban Development (HUD)

Interstate Land Sales Full Disclosure Act


Subdivision Laws

If development is covered by ILSFDA:

l must be registered with HUD

l developer must prepare property report


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Subdivision Laws

Property report contains disclosures about project.

l buyer must get copy before signing sales agreement

l buyer has 7 days to withdraw from sale after receiving disclosure


Summary



l Interstate Land Sales Full Disclosure Act

l Property report


Homeowners Associations

Davis-Stirling Common Interest Development Act: requires every common interest development (CID) in California to have homeowners association

Homeowners association: manages the subdivision and handles disputes between neighbors; creation and operation governed by Davis-Stirling Act

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Every homeowner in CID automatically becomes member of CID’s homeowners association.

l association must hold regular meetings

l members vote on issues

l one vote per unit

Association membership



Homeowners association is responsible for maintenance, repair, improvements of CID’s common areas and structures.

l funds raised through member assessments

Association membership


Association Membership

Homeowner dues: regular fees levied on members, (usually on monthly basis) to cover routine expenses such as maintenance of hallways, grounds, and other common elements

Assessments

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Special assessments: levied on members for major repairs to roofs, sewers, and other common elements; or improvements, such as tennis court or playground

Assessments



Association may impose additional fees on individual owners for certain services.

l example: conveyance fee

l fees can’t exceed actual cost of task (example: making copies of governing documents for potential buyer)

Assessments



Board of directors: elected from within homeowners association members

l makes most management decisions

l holds regular public meetings

l holds some closed sessions to handle private matters

Board of directors

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Homeowners Associations governed by set of documents that includes:

l declaration (recorded document containing rules of subdivision)

l articles of incorporation

l bylaws

Governing documents


Governing Documents

Association must:

l keep minutes of all meetings (both board and general)

l maintain financial books and other records

Recordkeeping and inspection rights


Governing Documents

All members have right to inspect these records.

l exception: board’s executive session minutes

Recordkeeping and inspection rights

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Summary



l Homeowner dues

l Special assessments

l Board of directors

l Governing documents

Legal Aspects of Real Estate Lesson 16 Cumulative Quiz

1. Common elements in a subdivision would most likely include:

A. airspace of a condominium unit B. a mobile home C. individual lots in a planned development D. parking lots

2. Many mobile home parks are set up as:

A. community apartments B. condominiums C. cooperatives D. townhouses

3. Which of the following laws related to subdivisions is a federal law?

A. Interstate Land Sales Full Disclosure Act B. Subdivided Lands Law C. Subdivision Map Act D. Vacation Ownership and Timeshare Act

4. If a subdivision has fewer than five lots, the developer only needs to file a:

A. conditional map B. final map C. parcel map D. tentative map

5. Townhouses may be set up as either:

A. cooperatives or timeshares B. condominiums or planned developments C. community apartments or cooperatives D. planned developments or community apartments

6. Amy owns shares of stock in the corporation that holds title to the building she lives in, and she has a long-term lease on her unit. Amy lives in a:

A. community apartment complex (CAC) B. condominium C. cooperative D. planned unit development (PUD)

© 2009 Rockwell Publishing 1

7. What law applies to the subdivision of any parcel of property in California?

A. Interstate Land Sales Full Disclosure Act B. Subdivided Lands Law C. Subdivision Map Act D. Vacation Ownership and Timeshare Act

8. Which of the following is one of the governing documents of a homeowners association?

A. Declaration B. Final map C. Public report D. Transfer disclosure statement

9. Which kind of report is valid for five years under the Subdivided Lands Law unless the subdivision undergoes material changes?

A. Conditional report B. Final report C. Preliminary report D. Tentative report

10. A homeowners association is required for which types of subdivision?

A. Community apartment B. Condominium C. Planned development D. All of the above

11. Which of the following is covered by the Subdivided Lands Law?

A. An industrial park B. Resale of a property in a subdivision by a private owner C. A subdivision of five half-acre lots D. Sale to California residents of a subdivided property located outside of California

12. An owner in a subdivision receives a deed for an undivided partial interest in the entire development as a tenant in common. This describes a:

A. community apartment B. condominium C. cooperative D. planned development


13. A developer may not advertise that a subdivision will include a swimming pool when it isn't available for use, unless:

A. completion is assured through bonding B. the buyer has put down a deposit C. the buyer acknowledges receipt of a conditional report D. a tentative map has been accepted

14. The records of a homeowners association must be available for inspection by:

A. adjacent property owners B. all members of the association C. the board of directors only D. other subdivision developers

15. A homeowners association may impose which of the following fees?

A. Association dues B. Special assessments for roof repairs C. Conveyance fees D. All of the above

16. Which of the following does a condominium owner have exclusive ownership over, not as a common element?

A. Walls between her unit and her neighbor's B. A reserved parking space C. The enclosed space within her unit D. The roof over her unit

17. A subdivision map must include:

A. private restrictions that will apply to the subdivision B. utility easements C. taxes and assessments on the property D. prices of individual lots

18. A developer converting an apartment building into a condominium must give tenants:

A. 30 days' notice B. 180 days' notice and an exclusive right to buy on the terms that will be offered the public C. financial assistance in obtaining a new residence D. the right to extend their lease after conversion


19. Buyers have a seven-day right of rescission when they agree to purchase a/an:

A. condominium B. mobile home C. timeshare D. townhouse

20. At a homeowners association meeting, when an issue is put to a vote the owner of each unit gets:

A. one vote B. one vote for each resident of the unit C. a number of votes equal to the number of years he has owned the unit D. a number of votes based on his share of association dues
