The New Term for Homeowner Association Is Common-Interest Development, and There Are 47,000 of Them in California

In California, the old term homeowner association (HOA) has been replaced by a new term: common-interest development (CID). The reason for this change in terminology is that some of the property that is owned in common is not residential. The change is worth noting because nearly 40 percent of all residences in the Golden State are in CIDS.

According to Attorney Kelly G. Richardson, co-founder and managing partner of Richardson Harman Ober and the second presenter in OCAR’s 2014 Distinguished Speaker Series, to have a common-interest development, you must have three things: (1) a recorded declaration, usually in the form of covenants, conditions, and restrictions (CC&Rs); (2) mandatory membership; and (3) separate ownership interest. In California, there are 47,000 common-interest developments encompassing 4.5 million units.

Common-interest developments are classified on the basis of the type of real estate interest their owners have—which is usually defined by the deed (if there is one) or described on the first page of the CC&Rs—and fall into one of four categories: community apartment, stock cooperative, condominium, and planned development.

In a community apartment, each owner receives a deed as a tenant in common on the entire property and an easement, or license, which entitles him to occupy one residence within the project. In a stock cooperative, the association holds title to the entire property, and each home owner receives a share of stock in the cooperative and a license to occupy one residence.

In a condominium, which Richardson declares is a “legal fiction,” the property is split for ownership purposes into two conceptual parts: individual residences, called “units,”—which are, in reality, air spaces—and “common areas.” A condo owner owns a living unit but not a lot. By contrast, in a planned development, property interest is ownership of a lot.

Typically, common-interest developments have five types of governing documents: (1) the articles of incorporation; (2) the condominium plan or subdivision map; (3) the covenants, conditions, and restrictions; (4) the bylaws, and (5) the rules and regulations.

According to Richardson, the covenants, conditions, and restrictions matter even if no one reads them. They are part of the purchase contract, and attorney fees are awardable in the event of a breach. The most important sections to read before purchasing are those having to do with use restrictions and with maintenance and repair.

To learn what criteria REALTORS® should use in evaluating common-interest developments and how to adjust client expectations for living in them, read “Kelly G. Richardson Explains What a Homeowner Association Is, Why You Should Care, and What You Should Do About It,” which begins on page 14 in the April 2014 issue of the Orange County REALTOR®.

By Sherri Butterfield

OCAR Library: How to Search Listings for Broker’s Open House

OCAR Library: How to Search Listings for Broker’s Open House from OCAR on Vimeo.

Mello-Roos Tax to End for 16,000 Mission Viejo and Aliso Viejo Property Owners in 2016

In 1789, Benjamin Franklin wrote, in a letter to Jean-Baptiste Leroy, “ . . . in this world nothing can be said to be certain, except death and taxes.”

And one certain thing about taxes is that, once imposed, they are usually increased, seldom reduced, and almost never go away. But in September 2016, a tax imposed twenty-seven years ago is going away.

In that month, 16,000 property owners in Mission Viejo and Aliso Viejo will stop paying a Mello-Roos tax, something they were scheduled to continue doing at least until 2020 and quite possibly in perpetuity. Their collective savings will be about $10 million annually.

To understand why this tax is going away, one must understand how it originated and how it was used or, some would say, misused.

In 1978, California voters passed Proposition 13, which restricted the ability of local public agencies to raise funds by increasing property taxes. To provide an alternate method of financing public improvements, state Senator Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles) co-authored the Community Facilities Act of 1982.

This Act made it possible first to define a community facilities district (CFD) and then to tax all of the parcels within that district as a means of paying the principal and interest on bonds used to fund facilities—such as parks, roads, and schools—for that district.

Thus, rather than forcing builders to pay upfront for projects to meet the needs their developments created, it was possible for government agencies to borrow hundreds of millions of dollars for those projects and to pay off that debt through Mello-Roos taxes collected over decades.

In 1987, the Mission Viejo Company and the Capistrano Unified School District (CUSD) signed an agreement establishing Mello-Roos Community Facilities District 87-1, the oldest and largest CFD in that school district.

After spending nearly ten years requesting and reviewing pertinent public documents, CFD 87-1 residents were able to argue persuasively that the school district had no list of projects funded, could not account for the bond revenue it had spent, had never appointed the requisite three-member review/appeal board, and had routinely used CFD 87-1 funds for projects outside that CFD—all in apparent violation of the original agreement.

As a result, in January, members of the CUSD Board of Trustees voted unanimously to stop collecting the tax.

To read more about this tax and other real estate–related news, see the “News Bites” on pages 32–33 in the March 2014 issue of the Orange County REALTOR®.

By Sherri Butterfield


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