California State Auditor Report Number : 2015-134

Residential Building Records
The Cities of San Rafael, Novato, and Pasadena Need to Strengthen the Implementation of Their Resale Record Program

Introduction

Background

Since 1969 state law has authorized California cities to implement and administer a residential building record (resale record) program. The California Government Code states that a city may adopt a local ordinance specifying that before the sale of any residential building, the owner or authorized agent shall obtain from the city a report of the resale record showing a variety of information, such as the regularly authorized use, occupancy, and zoning classifications of the property. The intent of the law is to provide consumer protection to home purchasers and to enhance the enforcement of zoning and health and safety regulations before the property’s ownership is transferred.

To identify the health and safety violations, the cities enforce the regulations of the California Building Standards Code (code) and other municipal codes. The code identifies a wide range of building requirements, from regulating electrical work to requiring that handrails be a specific height. In addition, as presented in the text box, the code requires that the property owner obtain permits for any additions or modifications to existing structures. If a city identifies during a resale record inspection that a property had unpermitted work, the city may require the property owner to obtain the appropriate permits after the fact. In addition, cities may choose to include reviewing compliance with aspects of their municipal codes as part of the inspections. For example, Pasadena includes checking for defects or lack of weather protection for exterior wall coverings as one of its inspection items.

Not all cities have resale record ordinances and the requirements of the ordinances of those that do vary as do the programs’ administration and requirements. For example, some cities issue a resale record report (report) that identifies the permits associated with a property, but some of these cities do not conduct physical inspections of those properties. In other cities, staff inspect only the exterior of the property. Although no comprehensive list of cities with a resale record ordinance exists, we identified at least 43 cities with such an ordinance, representing a minimum of 9 percent of the cities in California. As of January 2015 these 43 cities represented an aggregate population of 6.7 million people, which is equivalent to 17 percent of the State’s population. These cities are primarily located in counties that are clustered in the Bay Area and in Southern California. For example, each of the 11 cities in the county of Marin has a resale record ordinance, and at least 19 of the 88 cities in the county of Los Angeles have such an ordinance.

Overview of State Resale Record Ordinances and Programs

The audit request asked the California State Auditor to review the resale record program in San Rafael and two other cities. We selected Novato and Pasadena for review because the primary characteristics of these cities’ resale record programs align closely to the issues addressed in the audit objectives. Specifically, the audit asked us to evaluate aspects of the programs that involve inspections, including the qualifications of the inspection staff and the timeliness of the cities’ issuance of a report after an inspection. All three cities perform interior and exterior inspections, which require different staff qualifications than those for a city that performs only one of those types of inspections. Further, the audit objectives asked us to evaluate the consistency of the resale record reports and the objectivity of the complaint process. We determined that the housing in Novato and Pasadena shares similar characteristics to San Rafael’s housing, which would provide context for the nature and resolution of the complaints.

Although the three cities’ resale record programs are similar, their ordinances apply to different types of properties. The ordinances of San Rafael and Novato require that property owners of single‑family dwellings and multifamily dwellings obtain an inspection of the property from the city and that the city prepare a report and make it available to prospective buyers before they sell the property. In contrast, Pasadena’s ordinance requires inspections of single‑family dwellings or duplexes when the units are reoccupied, sold, rented, leased, or exchanged. This inspection requirement does not apply to dwellings of three or more units, which includes boarding or rooming houses. Table 1 presents a summary of the three cities’ resale record program administration and compares those programs.

Table 1
Summary of the Three Cities and Their Residential Building Record Programs

	SAN RAFAEL	NOVATO	PASADENA*
Year the city adopted the resale record ordinance	1973	1987	1973
City population as of January 1, 2015	59,214	53,575	141,510
Age of housing stock	Approximately 77 percent of the properties were built before 1980; 62 percent were built before 1970.	Approximately 68 percent of the properties were built before 1980; 39 percent were built before 1970.	Approximately 77 percent of the properties were built before 1980; 65 percent were built before 1970.
Staffing levels and responsibilities	The primary residential building record (resale record) inspector is a seasonal, part‑time employee. The administrative assistant researches the property permits and prepares the report template for the inspector with the preliminary property information.	The primary resale record inspector is a full‑time employee. The inspector conducts all the property history research, including reviewing prior resale record inspection reports.	There are three full‑time employees who perform resale record inspections in addition to other city program inspections, such as the quadrennial inspections of multifamily dwellings. The staff assistant processes the resale record applications and prints out property permit history for the inspector to review.
Number of resale record inspections in calendar year 2015†	687	751	1,797

In addition, these three cities have developed similar processes for each stage of the resale record program. Figure 1 illustrates the overview of their processes. One difference is that Pasadena issues a Certificate of Inspection (inspection certificate) to the property owner when violations do not exist or have been corrected. The inspection certificate authorizes occupancy of the property. In contrast, in San Rafael and Novato, if the inspection identifies violations, the property can be occupied but the cities expect the seller or buyer will assume responsibility for correcting the violations.

Figure 1
Overview of the Process for Residential Building Record Inspections, Reports, and Enforcement

To communicate the results of the resale record inspections, the cities use report templates to provide consistency in the contents of the reports. The reports include health and safety and municipal code violations and specify whether those violations require permits. For example, the three cities all require smoke detectors to be installed in dwellings, but they do not require property owners to obtain permits for them. In contrast, most construction and alteration activities require a permit before the construction begins.

If the city misses unpermitted construction or remodel work when conducting a resale record inspection but it identifies the violation during the inspection for a subsequent resale, the current homeowner may be responsible for bringing the property into compliance. San Rafael and Novato do not charge the owner permit fees or penalty fees for that unpermitted construction or remodel work if the city acknowledges that the violation should have been noted in a prior report. In contrast, Pasadena does charge permit fees in such circumstances.

Bringing a property into compliance can include performing the construction work needed to bring the property up to the code’s requirements and obtaining permits for this work. Seeking a permit and performing compliance work can be costly for the owner, especially if he or she needs to obtain architectural drawings. According to San Rafael’s community development director, whether the city requires architectural plans depends on several factors including structural concerns, elevation concerns, or concerns about potential hazards. For example, a deck built 20 years earlier without permits might appear to be structurally sound, but the city might require architectural plans to evaluate the safety of the structure. If performing repair work and obtaining a permit cannot remedy the violation, the property owner will need to remove or tear down the construction or remodel the work that was done. For example, a basement that a property owner converted into living space cannot be remedied if it does not have a fire exit. In this situation, if the owner is unable to provide the exit, he or she will have to remove all modifications that were made.

Scope and Methodology

The Joint Legislative Audit Committee (audit committee) directed the California State Auditor to perform an audit of different aspects of three cities’ resale record programs, including the qualifications of resale record inspection staff, reasonableness of fees, compliance of policies and procedures with applicable laws and regulations, consistency of resale record reports, and method of resolving complaints. Table 2 includes the audit objectives the audit committee approved and the methods we used to address them.

Table 2
Audit Objectives and the Methods Used to Address Them

Audit Objective		Method
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed relevant state laws and regulations.
2	Assess the qualifications, experience, and training of San Rafael staff and staff in the selected cities (Novato and Pasadena) conducting inspections for the reports.	For the individuals who primarily performed residential building record (resale record) inspections in the time period from 2010 through 2015, we completed the following: Interviewed relevant city staff. Obtained and reviewed the inspectors’ personnel records and the minimum qualifications for their positions. Compared the inspectors’ personnel records to the minimum qualifications for their positions to determine whether the inspectors had met the minimum qualifications for their positions. Obtained and reviewed trainings inspectors attended from July  2014 through November 2015. Reviewed trainings related to the California Building Standards Code (code) that are available from the California Building Officials Training Institute, California Building Standards Commission, and California Association of Code Enforcement Officials to determine classes available that could enhance the inspectors’ knowledge of the code.
3	Determine the reasonableness of report fees by reviewing the costs San Rafael and the selected cities (Novato and Pasadena) incur to issue the reports.	Obtained and reviewed the cities’ fee studies and supporting documentation. Interviewed relevant city staff to determine what tasks they perform for the resale record program and the time spent on those tasks. Obtained and reviewed hourly rate information for staff who are responsible for processing resale records. The rate information included salaries, benefits, and, if available, overhead costs. Calculated and evaluated the cities’ costs against the fees the cities charge for their resale record programs.
4	For a selection of reports San Rafael and the selected cities (Novato and Pasadena) issued for residential buildings, assess the effectiveness of each city’s applicable policies, procedures, and processes by performing the following:	Judgmentally selected 20 resale record reports (reports) that the property owners of each of the three cities initiated from July 2014 through October 2015 for review to perform the following steps:
	a. Review and evaluate the contents of reports to determine whether they comply with applicable laws, regulations, and policies.	Reviewed the cities’ ordinances relevant to resale records, and reviewed the code established in 2013. Evaluated these reports to determine whether the permit violations the cities identified complied with the code and the cities’ ordinances and policies. We determined that the three cities’ reports identified violations that were consistent with the requirements of the code. Our discussion of the extent to which the cities did not comply with their ordinances and policies and procedures is presented in the Audit Results. Interviewed relevant city staff.
	b. Determine the length of time from submission of the report application to inspection and report issuance to assess San Rafael and the selected cities’ (Novato and Pasadena) compliance with the timelines contained in each city’s respective policies.	Reviewed the cities’ policies and procedures related to their timeline goals from application to inspection and inspection to issuance of a report. Evaluated these 20 resale records against the cities’ timeline goals to determine how well the cities complied with their stated timeline goals. Interviewed relevant city staff.
5	For a selection of residential buildings resold more than once, evaluate San Rafael’s and the selected cities’ (Novato and Pasadena) compliance with relevant laws, regulations, and policies by performing the following:	Obtained and reviewed all of the reports for the 20 property addresses we judgmentally selected for review for each city. Obtained the reports from each city’s database records and archive files, including microfiche records to perform the following steps:
	a. Comparatively analyze reports issued for sales of the same buildings to evaluate consistency.	Identified the corrections, violations, and unpermitted work the cities noted in the reports. We then evaluated the reports for consistency of information among the reports. We determined that the three cities’ reports issued for the same properties did not have material inconsistencies. Interviewed relevant city staff.
	b. Based on a review of any complaints related to the selected buildings and a selection of complaints related to other buildings, evaluate San Rafael’s and the selected cities’ (Novato and Pasadena) process for resolving such complaints and assess whether their resolutions were based on an objective evaluation of facts.	Obtained and reviewed a list of complaints that occurred between 2002 and 2015 from each of the cities and from the local realtor associations. We did not identify complaints related to the items selected as part of Objective 5a. Judgmentally selected five complaints per city to evaluate how the cities resolved the complaints and to determine if the cities resolved the complaints objectively. Reviewed the cities’ policies and procedures relevant to resolving report complaints. Reviewed and evaluated the reports and any documents attached to the reports within the cities’ databases. Interviewed relevant city staff.
6	Review and assess any other issues that are significant to the audit.	Obtained and reviewed the cities’ policies for code enforcement relevant to the resale record program to determine the steps the cities take in response to violations the city identifies in reports that require property owners to take further action to resolve. Evaluated compliance with the cities’ code enforcement policies and procedures for 12 to 15 reports from each city by reviewing the cities’ database records for evidence of staff follow‑up. Our review focused on the reports that identified violations that required the property owners to take further actions to resolve. Reviewed reports we selected from Objective 4a that had violations that required permits or reinspection, and also judgmentally selected additional reports, including some dated before 2014. Evaluated whether the cities were following their code enforcement policies for the selected reports. Interviewed relevant city staff.

Sources: The California State Auditor’s analysis of Joint Legislative Audit Committee audit request 2015‑134 and information and documentation identified in the table column titled Method.

Assessment of Data Reliability

In performing this audit, we relied upon reports generated from the information systems listed in Table 3. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that is used to support our findings, conclusions, or recommendations. Table 3 shows the results of this analysis.

Table 3
Methods Used to Assess Data Reliability

INFORMATION SYSTEM	PURPOSE	METHODS AND RESULTS	CONCLUSION
San Rafael’s CRW Trakit (Trakit) database— Resale record report data for residential building record (resale record) reports data for the period January 2003 through September 2015 Novato’s Trakit database— Resale record report data for the period March 2003 through September 2015 Pasadena’s Tidemark database— Resale record report data for the period July 2000 through October 2015	To make a judgmental selection of resale record reports.	This purpose did not require a data reliability assessment. Instead, we needed to gain assurance that the population of resale record inspections from which we made our selection was complete. We performed data-set verification procedures and electronic testing of key data elements and found no material errors. We were unable to verify completeness because these systems were primarily paperless and no other source of this information exists. Alternatively, we could have reviewed the adequacy of selected information systems controls that include general and application controls, but we determined that this level of review was cost prohibitive.	We were unable to determine whether the universe from which we made our selection was complete.
San Rafael’s Trakit database	To determine the date the city received a request for a resale record inspection and the date the resale record inspection occurred. To determine when the city created a code enforcement case for resale record inspections with unresolved violations.	We performed data-set verification procedures and electronic testing of key data elements and found no material errors. We were unable to conduct accuracy and completeness testing because these systems are primarily paperless and no other source of this information exists. Alternatively, we could have reviewed the adequacy of selected information systems controls that include general and application controls, but we determined that this level of review was cost prohibitive.	Undetermined reliability for the purposes of this audit. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations.
Novato’s Trakit database	To determine the date the city issued the resale record reports. To determine whether the city tracked correspondence in resale record case files.
Pasadena’s Tidemark database	To determine the date the city received a request for a resale record inspection To determine whether the city conducted a reinspection for resale record reports with unresolved violations.

California State Auditor’s analysis of documents, interviews, and data obtained from the entities listed above.

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