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City revisits policies, issues over condo conversions

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The city of San Diego is reconsidering its policies with regard to condominium conversions.

On March 9, the Land Use and Housing Committee and the San Diego Housing Commission held a workshop on residential condominium conversion regulations. City staff, the Planning Commission and members of the public all expressed concern about the record number of apartment complexes being converted into condominiums.

In particular, concerns were raised about the impact conversions are having on the city's rental stock, the impact on affordable housing and the quality of the units being converted.

Many commentators, including some city officials, supported a moratorium on all condominium conversions. One planning commissioner proposed a multi point plan that included expanding relocation benefit requirements; imposing building, parking, utility, landscaping and other standards for converted buildings; requiring inclusionary housing be provided on-site; restricting conversions based on vacancy rate, the availability of affordable rental housing or some other factor; and imposing owner occupancy requirements for converted units.

The Planning Commission will consider possible condominium conversion regulations May 26. City staff hope to have a proposal before the City Council in about two or three months.

General issues regarding condominium conversions

SB 800 -- The "fix-it" law does not apply to condominium conversions.

Disclosures -- The California Department of Real Estate (DRE) now requires converters to include a California Civil Code Section 1102 Real Estate Transfer Disclosure Statement in their DRE applications for all converted condominiums being sold "as is."

FHA condominium conversion requirements -- An FHA rule requires that the CC&Rs for a converted condominium project be recorded for one year before the project will qualify for FHA financing.

Extent of renovations to units -- Condominium converters should weigh the benefits of repairing defects and renovating older apartment projects against the uncertain risk of incurring liability for negligence in the design and actual repairs made to the units and the common area.

Disclosure and property inspections -- Converters must disclose material facts concerning the project that are known to the converter and not likely to be observed by the prospective buyer prior to purchase. Converters may order property inspections from a third party consultant. Even converters who have owned an apartment project for a number of years, or perhaps originally developed the property, should consider obtaining new property inspection reports when converting apartments to condominiums.

Destructive testing -- When property inspections are performed on a condominium project, some converters should consider performing destructive testing, such as opening up walls in various locations to check for mold.

Civil Code Section 1134 -- Civil Code Section 1134 requires the condominium converter to provide a prospective buyer with a written statement listing all substantial defects or malfunctions in the major systems in the unit and common areas of the property. "Major systems" include roofs, walls, floors, recreation facilities, plumbing, electrical, heating, and air conditioning systems.

Review of inspection reports by buyers -- Any property inspection reports should be provided to buyers or made available to buyers in the seller's sales office. The DRE requires inspection reports for the following items: foundation, structural, plumbing, electrical, mechanical components, roof, structural pest control inspection report, paving and swimming pools. A condominium converter can elect not to furnish property inspection reports and cost estimates, but the DRE will insert a special note in the public report dealing with the seriousness of such lack of material information. How condominium converters disclose inspection reports should be decided on a case-by-case basis.

Fish and LaFond are real estate attorneys, and Mills is a real estate attorney, specializing in DRE matters, in Luce Forward, Hamilton & Scripps, LLP's San Diego office. For more information, log on to www.luce.com.>

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