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Senate Bill 1405: Sponsored and Passed by Senator Ochoa Bogh on Behalf of LACSD.

New powers for LACSD.
New obligations for Arrowhead Woods homeowners.
The Senate Committee was Intensely Skeptical. Questioned the Wisdom.

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Senate Bill 1405 began with LACSD (Lake Arrowhead Community Services District) seeking to expand its authority from being a provider of water and sewer services to also having the ability to acquire AWAC (Arrowhead Woods Architectural Committee) and administering the Arrowhead Woods CCRs. There was no input given by the homeowners and the bill was custom tailored with LACSD in mind.

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The analysis below details all the new powers that LACSD will acquire and all the new obligations that Arrowhead Woods homeowners will be saddled with. Obligations include general assessments, special assessments, fees, charges being placed on the property tax bills, possible property tax liens and indemnification of LACSD.

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Even the Senate Governance and Finance Committee analyst in the California Senate tasked with giving an opinion on the bill had grave reservations about LACSD, a public agency that would be enforcing private CCRs. The working group was intensely skeptical and questioned the wisdom of allowing special districts to enforce private contractual duties.

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New Powers for LACSD and New Obligations for Homeowners.

Below is the bill language and the new burdens it places on the homeowners. 

SB1405:

The property owners within the tracts to finance, in compliance with other state and local law, the enforcement of the covenants, conditions, and restrictions, and the duties of the Arrowhead Woods Architectural Committee through fees, regular or special assessments that may be enforced either pursuant to the authority of the Arrowhead Woods Architectural Committee under its founding documents or applicable law, or pursuant to the authority of the Lake Arrowhead Community Services District, and using any of the procedures set forth in Section 61122 in order to accomplish the purposes authorized herein. Page 6 - (k)(1)(E)(i)

Plain English:

Property owners shall finance LACSD through fees, regular assessments and or special assessments.

SB1405:

The Arrowhead Woods Architectural Committee to indemnify the district for the costs of any litigation, settlements, injuries, damages, or judgments arising from enforcement of the covenants, conditions, and restrictions, imposition of any fees, assessments, or other financing mechanism authorized in clause (i), and the district’s duties on behalf of the Arrowhead Woods Architectural Committee. Page 6 - (k)(1)(E)(ii)

Plain English:

Indemnification is when one party pays the other party's expenses. In this case that would mean the cost of litigation, settlements, injuries, damages and judgments. The Senate Committee stated that AWAC is facing a financial crisis: AWAC can't pay, homeowners are left holding the bag.

SB1405:

The Lake Arrowhead Community Services District may use the procedures in Section 61115 for the enforcement of any fee, charge, or assessment authorized herein. Page 6 - (k)(2) Section 61115 Expanded To provide that if all or part of a bill is not paid, the district may discontinue any or all services. 61115(a)(3)(B) To provide for a basic penalty for the nonpayment of charges of not more than 10 percent, plus an additional penalty of not more than 1 percent per month for the nonpayment of the charges and the basic penalty. 61115(a)(3)(C) The board of directors may provide that any charges and penalties may be collected on the tax roll in the same manner as property taxes. 61115(b) The board of directors may recover any charges and penalties by recording in the office of the county recorder of the county in which the affected parcel is located… From the time of recordation of the certificate, the amount of the charges and penalties constitutes a lien against all real property of the d

Plain English:

LACSD may use Section 61115 for enforcement of any fee, charge, or assessment on homeowners by:
1. Placing liens on said property.
2 Discontinuing any services it provides for non-payment.
3. Charging a 10% late fee.
4. Placing fees due on property tax rolls.
5. Using any remedy available for collection/enforcement.

Reprint of
Senate Bill 1405
Pages 5-6

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The working group within the Senate Committee on Governance and Finance was intensely skeptical and questioned the wisdom of allowing a special district to enforce private contractual duties.
The working group stated in part:

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"The ordinance must require the property owners within the tracts to finance, in compliance with other state and local law, the activities assumed by the CSD through fees, regular or special assessments. However, SB 1405 provides that this requirement shall not restrict the authority of the district to use general public funds. It also allows the CSD to collect these charges on the property tax bill. The ordinance must also require AWAC to indemnify the district for any litigation-related costs incurred in carrying out AWAC’s duties."

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"CCRs are usually enforced by an HOA, which can be done without legislation and upon the consent of each property owner to join. SB 1405 instead creates a shortcut to the same end by allowing Lake Arrowhead to assume enforcement responsibilities with only the consent of AWAC—the board of which is not elected—and after a public hearing. Previous measures granting CSDs similar authority required an election or a petition approved by a majority of property owners for the authority to be transferred from the private entity to the CSD. Without such a provision, it is unclear that greater enforcement is desired by a majority of the property owners in Arrowhead Woods." 

Comments from the Senate Governance and Finance Committee.
Whose job is it anyway? SB 1405 charges the Lake Arrowhead CSD with enforcing the private contractual agreements among homeowners and AWAC. AWAC, under the terms of the CC&Rs, already has enforcement authority. The sponsors state that enforcement can be challenging because it requires private litigation through the courts. However, this arrangement is precisely how CC&Rs are intended to be enforced. Additionally, SB 1405 raises questions about the distribution of responsibilities between AWAC and Lake Arrowhead CSD. Specifically, it is unclear whether AWAC retains the ability to set the specific standards (such as fence heights, paint colors, and other aspects of building design) that the CSD must then enforce, or whether the CSD’s elected board members would have the ability to both set the standards and enforce them. Public enforcement of private contracts may create a fundamental mismatch of authority and responsibility.
3. Public funds for private benefit? SB 1405 provides somewhat contradictory direction on how enforcement activities would be funded. The bill requires the ordinance assuming enforcement responsibilities to require the property owners to fund the activities undertaken on AWAC’s behalf, but then says that this requirement doesn’t prohibit Lake Arrowhead CSD from using general funds. But the CSD serves properties outside of the Arrowhead Woods community, meaning that funds that currently benefit individuals outside of the Arrowhead Woods community could be redirected to enforcement of Arrowhead Woods’s CC&Rs. The Committee may wish to consider amending SB 1405 to delete the provision that allows such cost shifting.
4. Who’s asking? CC&Rs are usually enforced by an HOA, which can be done without legislation and upon the consent of each property owner to join. SB 1405 instead creates a shortcut to the same end by allowing Lake Arrowhead to assume enforcement responsibilities with only the consent of AWAC—the board of which is not elected—and after a public hearing. Previous measures granting CSDs similar authority required an election or a petition approved by a majority of property owners for the authority to be transferred from the private entity to the CSD. Without such a provision, it is unclear that greater enforcement is desired by a majority of the property owners in Arrowhead Woods. The Committee may wish to consider amending SB SB 1405 (Ochoa Bogh) 3/15/22 Page 5 of 5 1405 to require AWAC to submit a petition signed by the majority of property owners to Lake Arrowhead CSD before the CSD can enforce the CC&Rs.
5. History lesson. There is a dark side to the history of CC&Rs. After the United States (U.S.) Supreme Court struck down racial zoning ordinances in Buchanan v. Warley (1917) 245 U.S. 60, champions of segregation turned to private agreements in order to achieve the same end, such that “racially restrictive covenants” came increasingly into use in the 1920s. Accordingly, many CC&Rs contained restrictions that prohibited nonwhite individuals (sometimes with an exemption for servants) from occupying the premises. In 1948, in the companion cases of Shelley v Kramer 334 U.S. 1 and Hurd v Hodge 334 U.S. 24, the U.S. Supreme Court held that state court enforcement of racially restrictive property covenants violated the due process and equal protection clauses of the 14th Amendment to the U.S. Constitution. While private parties could make such agreements without violating the 14th Amendment—which required “state action”—the courts, as state actors, could not enforce such agreements.
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Senate Governance and Finance Committee Opinion
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