Community Enhancement Fee

Do you or the seller have to pay a transfer fee and an enhancement fee, or just one of these fees? They may be one in the same.

1.) Since you say that the fee is 1/25 of the sales price, this fee normally runs with the covenants or deed restrictions.

2.) A fee of a few hundred dollars for the transfer of documentation associated with the HOA are common. This fee is for the copies.

If you have to pay for both fees, the first would commonly be called an enhancement fee. The second, a transfer fee. If you only have to pay for one or the other, the HOA may call it by either name.

You need a definition of what you or the seller are paying for. Ask the closing agent, he has to provide you with this information. Either fee or both may be paid for by the seller or the buyer, this is an agreement that the two of you will have to make.

The only documentation we've received is a bill from the HOA to the sellers that has the CEF and says "The CEF is negotiable between the buyer and seller." There are about four pages of documents, and one contains the following statement "...communities having a transfer fee, commonly known as a Community Enhancement Fee or Lifestyle Fee...".

I do not know if there is a seperate HOA Transfer Fee that is distinct from the CEF. This fee does work out to a little over $1,000 and it apparently goes into the HOA's community improvements fund.

Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) is a federal law whose primary purpose is to help consumers become better shoppers for settlement services. RESPA requires that borrowers receive various disclosures regarding the proposed loan transaction. Some disclosures spell out the costs and expenses associated with the settlement or closing of the loan transaction. Others describe lender servicing and escrow account practices. RESPA also requires that borrowers receive disclosures about business relationships that may exist among lenders/creditors and settlement service providers. RESPA disclosures include:

• Good Faith Estimate of Settlement Costs. RESPA requires that the lender and the real estate broker acting as a mortgage broker (if present) each provide to the borrower their own good faith estimate of settlement service charges or of anticipated closing costs. In the case of a mortgage broker, the good faith estimate is to be issued with the mortgage loan disclosure statement (MLDS/GFE) previously described in Section III , Subsection C – California Required Disclosures to Borrowers. This estimate is to be given at the time of the lender’s or mortgage broker’s receipt of the borrower’s loan application, and the estimate is to be mailed or otherwise delivered within the next three business days. The amounts listed on the Good Faith Estimate are only estimates and not a guarantee — actual fees, costs, and expenses may vary. However, as the name implies, the lender and mortgage broker must prepare and offer the estimates of the expected fees, costs, and expenses in good faith.

"the seller would pay the HOA transfer fee"
"seller heard back from the HOA about a community enhancement fee that is .25%"
I do not know if there is a seperate HOA Transfer Fee that is distinct from the CEF.

and they only found out about this the day before you were to sign? Weren't you supposed to get a preliminary statement of closing costs?
If there is no transfer fee, then why would seller agree to pay something that does not exist?

CG1,

The Enhancement Fee is common to some HOA'. This fee runs with the covenant's of the home and community. They are allowed under the US Civil Code, relating to real property.

The developers of communities started this fee to cover any legal, corrective to community, or civil wrongdoings they may have, in the past or future transfers of the associations. They attached them to the covenants knowing that, if they, the builder, did not use them, they would be a perpertual fact for the community.

Check your covenants, this money does not have to benefit the HOA or the reserves. It can be used for any purpose the HOA chooses, unless it is specifically stated in the doc's. If these covenants are not changed they are perpitual for the 20-25 years of the CC&R's in effect. If your home is sold 5 times in that 25 years, they collect this fee 5 times.

The Enhancement fees are in the covenants from the developer. You cannot just decide or even vote to take money from a sale of a home. No, you cannot amend your doc's to do this.

Developers were allowed to enter this fee in the covenants because there was a real need to protect themselves from any lawsuits or corrections to the community. Years ago and even now, developers made a lot of mistakes when they transformed a plot of land into a community. It may be the sewer lines, the pond retention, inadequate roads, or anything relating to the land. These days most developers cover themselves with bonds.

Most developments, when they were sold out, the developers pulled this provision. Or when it was turned over to the first owners, the HOA, they changed it. Why have the future pay for something that has already been paid once. But some associations discovered this as found money. Is it legal, yes. Moral, no.

That is why many states have banned this fee and developers use bonds. This fee may be banned if action by a CA Senator has his way. He has proposed (July 2007)that this is an imposition on most homeowners. The new homeowner pays all kind of fees, closing costs, title search, insurance and the association fees, why this fee when there is no need after the builder has left.

So would the CEF be included in the CC&Rs? The HOA I am joining has their governing documents in pdf format, but I can't find anything.

I'm in California and the community is 6 years old however, they are just finishing the final development in the HOA.

I just spoke to the HOA manager... apparently this fee is not collected by the HOA, it is collected by a seperate entity called "VG Community Services" which is controlled by the developer. Apparently, once they reach buildout, the VGCS will come under the control of the HOA, but not until the developer consents.

Senate Bill AB980 seeks to add a disclosure statement in addition to the regular transfer disclosure statement. Links to the analysis and bill are below -

http://www.leginfo.ca.gov/pub/07-08/bill/asm/ab_0951-1000/ab_980_cfa_20070908_153004_sen_floor.html

http://www.leginfo.ca.gov/pub/07-08/bill/asm/ab_0951-1000/ab_980_bill_20070907_amended_sen_v91.html

I believe that SB 670 was killed in committee.

http://www.biaoc.com/committees/government-affairs/

Ours required it on the first sale of the home, resale's were exempt.

There seems to be a widespread misunderstanding (or just a lack of knowledge) about the "Community Enhancement Fee", sometimes referred to as a "Lifestyle Fee". The biggest mistake is in the belief that it is a transfer fee. It is not. Nor does the money go to the HOA of a community. Rather, this is a fee that is payable by either buyer or seller prior to closing the escrow on a property transfer. It is collected by a separate entity in the community known as a Community Service Organization, though they don't all go by that exact name. This separate entity is incorporated as a 501(c)(4) non-profit public benefit corporation and was set up in some communities by the developers to provide and maintain a certain "lifestyle" in the community. The fee is used to support the costs of providing resident events, programs, and activities and may also include, but is not limited to, the financial support of community Boy and Girl Scout Troops, managing a community website for residents, or publishing a resident newsletter. These services may be expanded to other areas of resident amenities provided by the CSO as long as the service provided benefits the residents of the community it services.

CSOs are not common, but do operate throughout the US. In the development stages of the community, a Community Enhancement Fee Agreement is recorded against each property in the community. This document gives the CSO the legal authority to collect the fee each time a property in the community is transferred, although there are certain types of transfers that are exempt from paying the fee. The Agreement is not, as some think, a part of the community's Covenants. It is, however, a legally recorded document on the property and is legally enforceable. Your escrow agent should be able to get you a copy of the agreement recorded against your property from either the management company or the CSO itself if you request it.

Bottom line is, it is the responsibility of your escrow officer and sales agent to disclose this fee prior to closing. If they do not, be prepared to receive a demand letter from the CSO, at which time you may want to contact either of them to find out why they didn't.

Hope this clears things up for you.

CG

Transfer fees (or whatever called) are quite common. Not really liked, but quite common. Now as to who pays them, could be up for discussion/negotiation.

You had "in your words" an "agent". If it was your "Buyers Agent", I would go as far as saying they did not do their job in looking out for you so I would ask (demand) they pay such. An excuse like I did not know, does not work for me.