Effective January 1, new California legislation requires purchasers of condominiums, townhomes, and detached homes in existing common interest developments (CIDs) of 20 or more units be provided a list of construction deficiencies in cases where claims are pending against homebuilders demanding repairs.

The law, AFB 76 (Miller), also requires sellers of existing CID housing units to provide purchasers specific information prior to the close of escrow describing how and when the defects will be remedied in cases where the claims have been resolved through settlement agreements between homeowners associations and builders.

The new statute is of significance given the large number of construction defect claims filed against builders of CID housing units in California. The California Senate Housing and Land Use Committee estimates there are 30,000 existing CIDs comprising some 6 million housing units in the state.

"This legislation is a positive development," says Frederick Pilot, founder and president of the Common Interest Consumer Project, a Sacramento-based 501(c)(3) nonprofit corporation providing consumer-oriented education and research on California CID housing issues.

But Pilot notes that a current disclosure scheme continues to pose significant investment risk for consumers purchasing existing CID housing units, particularly attached units located in condominium and townhome complexes. That's because information about the condition of building components and the finances of the homeowners association that manages the complex is conveyed through two separate parties -- the association and then the seller of the unit -- before it reaches the potential buyer. This creates opportunities for critical information to fall through the cracks, not reaching the prospective purchaser before escrow closes.

Recent California court decisions have held homeowners associations and real estate agents cannot usually be held liable by purchasers for incomplete disclosures in transactions of existing CID units.

Current law also makes it difficult for consumers to recover from sellers the difference between the purchase price and the actual market value had construction or financial problems been fully disclosed and taken into account during purchase negotiations. The law requires consumers show that sellers actually knew of the information even if the homeowners association mailed it to all unit owners in the complex as required.

In addition, the Davis-Stirling Common Interest Development Act, which governs homeowners associations in California, specifically provides that sellers can be held liable only for willful failure to make the disclosures to sellers required under the statute. Proving intentional conduct in court action against a seller can be difficult, leaving consumers without an adequate remedy to obtain damages in cases where the seller negligently failed to make proper disclosure.

Also effective Jan. 1 is AB 1025 (Torlakson), which allows homeowners associations to record in county records the current name of the association, a list of the units within the association, and contact information for the managing agent or treasurer of the association. The law was enacted to facilitate the collection at escrow of outstanding assessment and fees owing in CID unit sales transactions.

The Common Interest Consumer Project recently published a consumer guide, "Caveat Emptor: Before You Buy That California Condo," for prospective purchasers of condominiums. The publication may be obtained by sending a check or money order for $8.95 (shipping and handling included) to the Common Interest Consumer Project, 915 L St., C-281, Sacramento, CA 95814.

Published: January 6, 1998

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