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What AB566 is all about - and how you can help

AB 566:  Help Protect Homeowners

 

This bill brings fairness and choice to mobilehome owners in the condominium conversion process by giving homeowners a seat at the bargaining table when a park owner proposes to convert a rental mobilehome park to condominium. 

 

Background

AB 566 addresses the misuse by parkowners of a provision of the Subdivision Map Act originally enacted to facilitate homeowner initiated conversions of mobilehome parks by limiting the local government’s power to deny the conversion.   In recent years, however, park owners have exploited the statute’s original intent.  It is now being used by park owners in a scheme to force mobilehome owners to purchase their lots at prices that are several hundred percent higher than their market value.

 

Problem

California law recognizes that mobilehome owners purchase a property interest in their parks consisting of their mobilehome and improvements to their space, the right to sell their home in place, and a leasehold interest in their space See e.g. Sandpiper Mobilehome Village v. City of Carpeteria, 10 Cal.App.4th 542 (1992).  The California Supreme Court has concluded that this homeowner investment in their spaces is typically larger than the park owners' investments in their parks (i.e., the homeowner invests $200,000 in their space that the Park owner paid $75,000 for) See Galland v. Clovis, 24 Cal.4th. 1003, 1009-1010 (2001) This homeowner investment is protected by local mobilehome rent control.

 

Some park owners and real estate speculators have been pursuing a new scheme in which, as described in their own promotions, they purchase a park for $75,000 a space and immediately subdivide it and force the homeowners to purchase their $75,000 spaces for $250,000.  Often the homeowners cannot afford that purchase.   Local rent control is replaced by temporary rent control protections that the homeowners lose when they sell their mobilehomes, causing them to also lose their investments (i.e., $200,00 in our example).

 

Solution

AB 566 would prevent this unfair scheme by giving homeowners equal power with the park owner at the bargaining table by clarifying  the role of the current law's resident support surveys.  AB 566 simply clarifies that local government have the authority to consider the result of the resident support surveys in determining whether or not to approve a conversion.  Giving homeowners a say in whether they desire to purchase the lot on which their mobilehome sits allows both parties to bargain for a fair price in exchange for the homeowner surrendering the property interest they have lawfully purchased. Without AB 566, thousands of homeowners will see the investment in their homes evaporate as conversions of parks proceeds undeterred.

William J. Constantine, Attorney
303 Potrero Street, Building # 29,  Suite 104
Santa Cruz, California 95060
WConst1238@aol.com
(831) 420-1238
Fax: (831) 480-5934

 

 

RESPONSE TO AB 566's OPPOSITION’S FACT SHEET’S TEN CLAIMS

 

Opponents of AB 566 have recently distributed to the Legislature a Gilchrist & Rutter Law Firm[1] letter (August 11, 2009) and an AOpposition Fact Sheet@ opposing AB 566 that make ten claims about AB 566 that are simply not true.  A common thread running through all of the claims is that they are contradicted by the very attorneys and lobbyists who are making them in workshops that they have been presenting around the state that promote the very scheme that AB 566 is intended to protect against.  This response exposes that common thread and demonstrates why all ten of those claims are simply not true.  This response will reply to Claim # 4, first, because it best illustrates the common thread that all of the Opposition Fact Sheet=s other claims are based on.

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Claim # 4: AB 566 is intended to give local governments the power to block subdivisions, thereby, depriving lower income tenants of the low income home ownership opportunities that the conversions would have provided to them.

 

Response:

This claim is based on the disingenuous premise that subdividing park owners will offer low-income price housing to mobilehome owners even if those homeowners are denied the power to negotiate those prices (which AB 566 is intended to restore to those homeowners) with the park owners.  Although this is what the Gilchrist and Rutter Law Firm=s letter and the Western Manufactured Housing Association (WMA) are representing to the Legislature, attorneys and lobbyists working for those two organizations give a more honest description of the prices that park owners will actually be forcing the homeowners to purchase their mobilehomes= lots at in workshops promoting conversions including a recent workshop that Gilchrist and Rutter attorney, Richard Close, and WMA lobbyist, Catherine Borg, gave to attorneys and real estate speculators:

 

Richard Close Speaking:        

AA normal price nowadays for a mobilehome park is maybe $75,000, $80,000 because they=re being purchased based upon their cash flow, based upon their net operating income. So, an owner either buys a park or owns a park that=s own‑, that=s worth $75,000 a space.  If they can convert the property to a subdivision and sell the lots, what we=re seeing is, in nice areas, that the spaces are worth between $200,000 and $250,000 a space.

 

So, let=s assume that the average mobilehome park is 200 spaces, so it=s worth say $70,000 a space as a rental park, that=s $14,000,000. Let=s assume it=s worth $200,000 as a subdivided park, times 200, that=s $40,000,000. So, the difference between the $40,000,000 and the $14,000,000 is $26,000,000. So... [audible laugh by Richard Close followed by responsive laughter from the audience]  Do I have your attention? 

...   ...   ...

But, once again, what we=re saying is that, under my example, a $26 million profit by purchasing a mobile home park and converting it to a resident owned, subdivided mobile home park.  And, so that=s one of the reasons that the residents, I=m sorry, the mobile home park owners are interested in the process.@ 

 

Source: The 26th Annual Real Property Retreat,  Mobile Home Park Subdivisions, the Laws, the Politics, the Players, speakers: Richard Close, Gilchrist and Rutter, Catherine Borg, Legislative Advocate for the Western Manufactured Housing Communities Association, From Track Numbers 21‑28

 

Thus, rather than offering home ownership at prices that will be affordable to low and moderate income mobilehome owners, the subdividers,= who purchased these parks for $75,000 per space,  intention is to make profits of more than 300% by forcing the homeowners to pay $250,000 for their mobilehomes= spaces.  Since most of these homeowners already paid $200,000 for their homes, this scheme does not produce any low-income housing opportunities at all (i.e., $450,000 for a mobilehome and a very small lot is not either an affordable or a fair price).  Instead, it eliminates affordable housing under mobilehome rent control and replaces it with overpriced and unaffordable subdivided mobilehome lots.

 

Likewise, AB 566 does not give local authorities any new powers to block these subdivisions against the interests of the low-income homeowners who will be impacted.  Instead, it only gives local authorities the reasonable power to reject a subdivision application if a majority of the park=s residents disapprove of it (i.e., vote against it because they do not want to, or cannot afford to, pay $250,000 for spaces that a real estate speculator just purchased for $75,000). AB 566 will simply force the subdividers to negotiate more reasonable prices that are truly affordable.

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Claim # 5: AB 566 gives residents the ability to Aextract expensive concessions, making conversions economically unfeasible@ and Claim # 7: mobilehome owners facing the forced conversion of their parks have Acontinuously refused to negotiate.@

 

Response:

Since, as explained by Richard Close and Catherine Borg in their workshop, the intent of park owner initiated - forced conversions is to allow real estate speculators and park owners to purchase parks at $75,000 a space and then immediately force the parks= homeowners to purchase their homes= spaces for $250,000 a space, it is obvious that AB 566 does not give homeowners the  chance to Aextract expensive concessions.@  Instead, it does the opposite by giving them the power to negotiate more reasonable prices in exchange for their support via the resident support survey.  Likewise, it is obvious that homeowners who have no power to negotiate over price currently have no reason to negotiate.  Accordingly, rather than hindering Anegotiations@ between the park owners and the homeowners, AB 566 will permit real negotiations to actually occur by giving homeowners the power to negotiate reasonable prices since without AB 566 they have no choice and are forced to have to accept paying $250,000 for $75,000 spaces.

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Claim # 3: Current law protects residents who choose to continue to rent by providing rent control for all low-income residents. 

 

Response:


The subdivided spaces on which the low-income residents mobilehomes are located lose this rent control as soon as the current low-income residents sell their homes and move out of their parks.  Since a majority of mobilehome parks in California are senior parks, this most often occurs when the senior citizen mobilehome owners must move out of the parks and into other living facilities that are able to provide managed care for those homeowners.  In order to afford that managed care, these senior citizens need the money that they invested in their mobilehomes to pay for it.  If, as in the above example, they have invested $200,000 in their mobilehome, and the purchaser of their mobilehome (who, under current law, must purchase their lot at whatever price the park owner dictates) is required to pay $250,000 for their $75,000 lot, these senior citizens will only be able to sell their home at a small fraction of their investment, or not be able to sell their home at all, and they will not be able to recover their investment needed to pay for their managed care facility.  Accordingly, low income residents are currently only protected in the short term.

 

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Claim # 6: The proponents of the bill have failed to produce a single Asham@ conversion or Aany displaced or unhappy residents from converted/subdivided mobilehome parks.@

 

Response:

This claim is a red herring because AB 566 is not intended to prevent Asham conversions.@   Instead, as both the uncodified legislative intent section of 2003's AB 930 (the enacting legislation of the current law=s resident support survey requirement) and the recent Sequoia v. Sonoma County Court of Appeal decision have stated, resident support surveys are intended to prevent Anon-bona fide conversions,@ defined as the Aforced@ conversion of mobilehome parks that do not have the support of the parks= homeowners.   Also, the only Aforced@ subdivision that has been completed is the conversion of El Dorado Mobilehome Park in Palm Springs.  After, a 2003 - court ruling forced the subdivision El Dorado against the wishes of its homeowners, the owners of mobilehomes in 50 of the Park=s spaces were Adisplaced@ when they were forced to either abandon their homes in their spaces or pull them out of the Park.[2]  Prior to this forced conversion there were never any vacant spaces in El Dorado. 

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Claim # 8: AB 566 Awill subject the conversion process to local political pressure@ and Claim # 9: ARequiring majority support will not resolve the issues, such as health and safety, affordability, equity.@

 

Response:                  

AB 566 does not allow any local political influence on a conversion.  It simply allows the homeowners who will be required to purchase the lots to vote on whether or not they should be required to do so.  It also resolves all three of the issues that Claim # 9 lists: 1. Health and Safety: If the park owner wants the homeowners to vote to support the conversion he will make sure that there are no serious health and safety problems that would cause homeowners to vote against the conversion. 2. Affordability: If the park owner wants homeowner support, he will negotiate  reasonable lot prices rather than forcing the homeowners to pay $250,000 for lots that the park owner just purchased for $75,000.  3. Equity: By being able to vote against conversions that are grossly overpriced, the homeowners will preserve the equity in their homes that is dependent upon having reasonably priced lots.

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Claim # 10: Current law affords appropriate balance between the park owners and mobilehome owners in a conversion.

 

Response:

Current law gives all the power to the park owners by allowing them to force homeowners to purchase lots at whatever prices the park owners dictate (i.e., forcing them to purchase lots for $250,000 that the Park owner just purchased for $75,000).  AB 566 provides balance by allowing the homeowners to vote on the fairness of the proposed conversion (i.e., 51% of the residents in a park may be convinced that a fair Acompromise@ price for the lots that the subdivider just purchased for $75,000 is $100,000 or $125,000 rather than $250,000 and then they will vote to approve the conversion).

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Claim # 1: Current conversion laws were initiated by mobilehome park residents in recognition of the advantages of home ownership over renting and Claim # 2: Current law encourages home ownership by restricting local governments from making approval difficult and burdensome.

 

Response:

These claims are true but support the need to adopt AB 566.  Current law was initiated by mobilehome owners to enable mobilehome owner-initiated conversions.  However, starting with the El Dorado conversion, park owners and real estate speculators have hijacked the process through Aforced conversions@ where homeowners can be forced to pay $250,000 for their $75,000 lots.  AB 566 seeks to restore the original intent of California=s mobilehome subdivision conversion law by ensuring that the conversions have at least the support of the majority of the homeowners in the park.  Obviously, the Aresidents who initiated current law@ want to have a say in whether or not the terms of any conversion that they will be required to participate in are fair.  AB 566 also does not give local government any opportunity to frustrate the interests of these residents by making conversion approvals more Adifficult and burdensome.@  Instead, it only allows local jurisdictions to turn down conversions that cannot demonstrate that they have at least the support of a majority of the residents who participate in the resident support surveys.          

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Additional False Claims From the August 11, 2009 - Gilcrest and Rutter Law Firm Letter:

In addition to the ten false claims that the Opposition Fact Sheet has made, the Gilcrest and Rutter Law Firm=s August 11, 2009 - letter also makes several additional unsupported claims.  For example, it falsely claims that AB 566 requires the park owner to get a majority of a park=s entire population to approve of the conversion, rather than just a majority of those participating in a resident support survey, and that this is both difficult and unfair.  This is simply not true, nothing in AB 566 or in its legislative written history states that and courts have not interpreted the resident support survey requirement in that way.  It also claims that AB 566 gives residents unfair Aveto power.@  However, in response to that complaint, AB 566 was amended to make it clear that a local jurisdiction is not required to turn down a conversion in every instance in which the resident support survey fails to demonstrate majority support.  Instead, the local jurisdictions may consider a conversion=s failure to demonstrate majority support as a circumstance that would allow, but not require, them to reject the conversion.  It further claims that Department of Real Estate (DRE) subdivision regulations prohibit park owners from disclosing the lot prices prior to the end of the subdivision process, and after DRE approval, thus, preventing them from negotiating over price. DRE regulations prohibit subdividers from either offering the lots for sale or advertising their prices to the general public prior to DRE approval. However, that does not prevent subdividers from entering into contracts, setting reasonable prices, with  mobilehome owners in exchange for their support of the conversion for the resident support survey vote.

 

Prepared by attorney William J. Constantine


[1] The Gilchrist and Rutter Law Firm, particularly attorney Richard Close, is the primary law firm in California that represents real estate speculators and mobilehome park owners in converting mobilehome parks into subdivisions against the wishes of the homeowners who live in the parks and in pursuing lawsuits against local jurisdictions who resist the conversions. 

[2] This information on these displaced Eldorado homeowners was obtained from the deposition of Anne James, Eldorado Mobile Home Park=s on-site manager (conducted on 8/24/2005).