Sifting Through The Ashes: Who Owns The Assets Of A Former Redevelopment Agency And Related Title Concerns By Brian D. Shaffer*



In California Redevelopment Assn. v. Matosantos, 53 Cal. 4th 231, 135 Cal. Rptr. 3d 683, 267 P.3d 580 (2011) (“Matosantos”), the California Supreme Court confirmed the death of redevelopment agencies (“RDAs”) in California. The decision sent a shockwave throughout the California real estate community, as cities, counties, and agencies scrambled to understand the mechanism by which RDAs were to be dissolved and wound down. RDAs were significantly involved in the development of California real estate. Consequently, dissolving and unwinding the activities of RDAs is an extremely complicated task. Unfortunately, the Matosantos decision and the legislation it upheld leave a host of critical questions unanswered. As RDAs are dismantled and their assets redistributed, developers, investors, cities, and counties are struggling to interpret the legislation in order to preserve development agreements and maintain their assets, while the state is demanding those same assets to plug a multi-billion dollar deficit.

Assembly Bill X1 26 (“AB X1 26”), the law upheld by the Supreme Court that orders dissolution of RDAs, provides a basic mechanism for the dissolution process. However, certain ambiguities in the statute have spawned differing opinions as to how certain RDA assets are treated and the procedures required to effectuate a transfer of those assets to successor agencies and third parties. These ambiguities and differing opinions can create significant roadblocks in transactions dealing with former RDA assets. Given the uncertainty with portions of the statute, parties who are unsure that all required procedures and approvals have been obtained may be reluctant to close deals relating to former RDA assets. Further, title insurers who are asked to issue title insurance policies relating to transactions involving former RDA assets may be reluctant to do so until all potentially required approvals have been obtained, even if the statute arguably does not require them. Finality and certainty are desired traits in complex real estate transactions and, unfortunately, Matosantos and AB X1 26 have created a significant amount of uncertainty and doubt.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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