APPROVED BILLS AND AFFECTED STATUTES
AB 3182 – Limitations on Rental Restrictions
Effective January 1, 2021
Amends Civil Code §4740 and Government Code §65852.2. Enacts new Civil Code §4741.
AB 3182 imposes restrictions on common interest developments from enforcing provisions within their governing documents that unreasonably limit and/or effectively prohibit rentals. The legislative intent behind the bill, as expressed by its author, Assembly Member Phil Ting, is to “address the housing and homelessness crisis [in California].” Specifically, AB 3182 would prohibit HOAs from adopting and enforcing rental restrictions that: (1) prohibit short-term rentals that are in excess of thirty (30) days (e.g., a provision that requires a lease term of more than 30 days), and (2) cap the number of rental properties within a community to less than twenty-five percent (25%).
AB 3182 expressly excludes accessory dwelling units (“ADU”) and junior accessory dwelling units (“JADU”) from being counted as a “separate interest,” meaning ADU’s and JADU’s are not subject to the rental cap or the 30-day rental minimum, stripping associations of any authority to regulate and/or control the number of occupants in a residence that contains an ADU/JADU. Additionally, the bill excludes any separate interest in which the record owner is also an occupant; in other words, properties with individual rooms serving as rentals do not count as a “rental property” that is subject to the aforementioned restrictions if the owner lives in the property also.
Lastly, AB 3182 requires HOAs to amend their governing documents and remove any rental restriction that conflicts with these requirements by no later than December 31, 2021. HOAs that fail to comply with AB 3182 are subject to a civil penalty up to $1,000 and for actual damages (e.g., lost rental income).
SB 908 – Debt Collection Licensing Act
Effective January 1, 2022
Amends Civil Code §§1788.11 and 1788.52. Enacts Division 25 to the Financial Code (beginning with §100000).
SB 908, otherwise known as the Debt Collection Licensing Act (“Act”), adds an extra layer of consumer protection against debt collectors and debt buyers (collectively, “Collectors”). Similar to the protections currently in place—such as the Fair Debt Collection Practices Act at the federal level, and the Rosenthal Fair Debt Collection Practices Act at the California state level—the Act imposes restrictions on Collectors as to its mannerism and procedures in its collection efforts (e.g., time cut-off’s when a Collector is prohibited from contacting a debtor), and further imposes mandatory disclosures in its initial contact to debtors. More importantly, the Act requires Collectors to go through a myriad of processes to legally operate as a debt collector within the State of California; this includes, among other things, the requirement of Collectors to obtain a State license to act as a debt collector, maintenance of a surety bond, and submission to a criminal background check performed by the Department of Justice.
The new regulations imposed by the Act are to be regulated and enforced by the California Department of Business Oversight (“DBO”); specifically, the Debt Collection Advisory Committee (“Committee”), consisting of seven (7) members that are to be appointed by the DBO’S commissioner. The Act requires the DBO to begin taking all steps necessary to effectuate the Act (e.g., appointment of Committee members, adoption of regulations, etc.) by no later than January 1, 2021 in preparation for the Act’s implementation, effective January 1, 2022.
SB 1079 – Looming Cloud Over Foreclosure Sales
Effective January 1, 2021 – January 1, 2026
Amends Civil Code §§2929.3, 2924f, 2924g, and 2924h. Enacts new Civil Code §§2924m and 2924n.
SB 1079 was introduced to reduce the number of vacant, unmaintained housing units in California (specifically, to prevent corporations from “bulk purchasing” residential properties and leaving them vacant and unmaintained) while aiming to provide affordable housing for those in need. Accordingly, effective January 1, 2021 to January 1, 2026, foreclosures of properties containing one to four single-family homes will look substantially different. Primarily, the bill offers the right of first refusal to “eligible bidders,” which includes but is not limited to, the following:
- An “eligible tenant buyer” defined as a natural person who, at the time of the trustee’s sale (1) occupies the property as his/her primary residence, (2) has an arm’s length lease agreement with the borrower that is dated before the Notice of Default was recorded, and (3) is not the borrower or the borrower’s family member;
- A “prospective owner-occupant” defined as a natural person who gives an affidavit to the trustee stating that he/she (1) will occupy the property as the person’s primary residence within 60 days after the trustee’s deed is recorded, (2) will live in the property for at least one year, (3) is not the borrower or the borrower’s family member, and (4) is not acting as the agent of any other person or entity in buying the property;
- A nonprofit association or corporation, or a cooperative corporation, in which an eligible tenant buyer or a prospective owner-occupant is a voting member or director; and
- In general, an entity in which its managing director/member is a nonprofit California corporation whose primary purpose is the development and preservation of affordable housing, including rental housing.
The bill provides 15 days for an eligible bidder to submit a written notice of intent (to place a bid) with the trustee after the trustee’s sale, and 45 days from the date of sale to submit a bid to the trustee. Thus, the winning bidder at a foreclosure sale will effectively need to wait 45 days after the foreclosure sale to solidify his or her purchase of the property. It is important to note that there are caveats with some eligible bidders. For instance, an eligible tenant buyer must submit a bid that is at a minimum, equal to the full amount of the last and highest bid at the trustee’s sale.
Under the new law, a new notice to tenants will need to be included in the Notice of Sale, informing tenants of their right to purchase the property after the sale as provided for above. Trustee’s will also need to maintain a website and telephone number to make available information regarding the sale, including the date of sale, amount of the last and highest bid, and the trustee’s mailing address. Lastly, the bill increases fines that are assessed to homeowners (on a per diem basis) that fail to maintain their property as follows:
- Up to $2,000 per day for the first 30 days, and
- Up to $5,000 per day for each day afterwards.
STATE AND FEDERAL COURT DECISIONS
Jeppson v. Ley
(2020) 44 Cal.App.5th 845
(Neighbor-to-Neighbor Dispute; Anti-SLAPP Motion)
FACTS: This case involved a dispute between neighboring owners over the killing of Plaintiff’s cat, committed by the Defendant’s dog. The parties ultimately entered into a settlement agreement that included a non-disparagement clause. Despite the clause, Defendant posted hostile messages on Nextdoor.com, including true statements that Plaintiff has a restraining order issued against him by another neighbor, and that Plaintiff likes to resolve disputes “with guns”. Plaintiff sued Defendant for breach of contract, defamation, and intentional infliction of emotional distress. Defendant filed an Anti-SLAPP motion (a special motion to strike on the basis of protected speech and public interest) that was denied by the court; Defendant appealed.
RESULT: The Appellate Court affirmed the lower court’s decision in denying Defendant’s motion as there was no “public interest” involved, therefore failing to establish a “protected activity” as under the Anti-SLAPP statute. Specifically, the Court found that neither party was in the public eye, none of their actions directly affected a large number of people, and the post on the website was just part of a feud between the two neighbors. Accordingly, Defendant failed to meet the burden and legal sufficiency required to succeed in his Anti-SLAPP motion.
Davis v. Echo Valley Condos
(2019) 945 F.3d 483
(Reasonable Accommodations; Smoking Ban)
FACTS: Plaintiff, a homeowner with asthma, had a neighbor that regularly smoked, emanating smoke into her unit and aggravating her respiratory condition. Unsatisfied with the association not granting her request to completely ban smoking within the association’s development, Plaintiff sued the association for, among other things, discrimination and violations of the Fair Housing Amendments Act (“FHAA”) by not providing a “reasonable accommodation” to her by way of a smoking ban.
RESULT: The Appellate Court affirmed the lower court’s ruling in granting Defendant’s motion for summary judgment. In doing so, the Court found that a smoking ban was not a “reasonable accommodation” as defined by the FHAA (defined as a moderate adjustment to a challenged policy, not a fundamental change in the policy). Simply put, requesting a complete smoking ban in the community was more than just a moderate adjustment. Moreover, the Court noted that an injunction ordering the association to completely ban smoking was found to be an infringement on other members’ rights to the full use and enjoyment of their units, and that nothing in the association’s governing documents required the association to ban smoking. Accordingly, judgment was affirmed in favor of the association.
Coley v. Eskaton
(2020) 51 Cal.App.5th 943
(Breach of Fiduciary Duty)
FACTS: This case involves an HOA with a five-member board, of which three of the five members are employees/officers of corporate entities (collectively, “Eskaton Entities”) that develop and support common interest developments. The Plaintiff lives in the HOA of which: (1) the three directors are board members of, and (2) the Eskaton Entities support and manage. Furthermore, the Eskaton Entities own more than half of the units in the community, establishing majority vote in every election that is run through the association. The salaries earned by the three employee-board members from the Eskaton Entities are dependent on the performance of the properties managed by same. Accordingly, every decision made on behalf of the association was, in reality, made in the best interests of the Eskaton Entities and the three board members’ financial interests at the expense of the association members. For example, the three directors voted to approve certain assessment increases against “patio-type” units and decrease assessments for “lodge-type” units for the payment of security services. Importantly, the Eskaton Entities owned all of the lodge-type units, and also shared privileged communication between the association and its counsel with the directors’ personal counsels for their defense in this suit, among other lawsuits brought against them by association members.
Plaintiff sued the Eskaton Entities and two of the three employee-board members for, among other things, breach of fiduciary duty. The trial court agreed that the Defendants were in breach of their fiduciary duties to the association, but did not hold the individual board members personally liable.
RESULT: On appeal, the judgment was affirmed in part and reversed in part. The Appellate Court affirmed that the Defendants were in breach of their fiduciary duties to the association, but also found the two directors personally liable as the business judgment rule was inapplicable due to the directors’ “irreconcilable conflict of interest.” The Court held that the directors abused their positions on the association’s board of directors by maintaining majority control, and making decisions that provided direct, financial benefit to them at the expense of the association.