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Subject: Capital Improvement Fees in California
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NpB
(Arizona)

Posts:288


05/19/2020 5:20 PM  
Capital Improvement fees paid for by the buyer of a new unit in an HOA are illegal in California, correct?
MarkW18


Posts:1067


05/19/2020 5:28 PM  
NOPE
GeorgeS21
(Florida)

Posts:2681


05/19/2020 5:59 PM  
NpB,

More hypothetical nonsense?

Seriously, with the rep, you need to be clear.

Or, I could answer ... do some research and let us know.
NpB
(Arizona)

Posts:288


05/19/2020 6:00 PM  
Posted By GeorgeS21 on 05/19/2020 5:59 PM
NpB,

More hypothetical nonsense?

Seriously, with the rep, you need to be clear.

Or, I could answer ... do some research and let us know.





Obviously not hypothetical.
GeorgeS21
(Florida)

Posts:2681


05/19/2020 6:06 PM  
OK, my answer would be ... do some research and let us know.
AugustinD


Posts:3364


05/19/2020 6:32 PM  
Posted By NpB on 05/19/2020 5:20 PM
Capital Improvement fees paid for by the buyer of a new unit in an HOA are illegal in California, correct?
What document is dictating that the buyer pay these fees?
NpB
(Arizona)

Posts:288


05/19/2020 8:07 PM  
Posted By AugustinD on 05/19/2020 6:32 PM
Posted By NpB on 05/19/2020 5:20 PM
Capital Improvement fees paid for by the buyer of a new unit in an HOA are illegal in California, correct?
What document is dictating that the buyer pay these fees?





https://www.davis-stirling.com/HOME/Transfer-Fees

Can't charge more than necessary to defray costs for which they are levied.

This would mean that an HOA cannot charge a new owner a $3,000 capital improvement fee to help build the reserve fund.
MarkW18


Posts:1067


05/19/2020 8:46 PM  
WOW, you really need an education! A transfer fee is nothing remotely close to a capital improvement fee. I charge a transfer fee for every resale our company does. Mine is $250.00, Others charge between $100-$400.00.
NpB
(Arizona)

Posts:288


05/19/2020 8:48 PM  
Posted By MarkW18 on 05/19/2020 8:46 PM
WOW, you really need an education! A transfer fee is nothing remotely close to a capital improvement fee. I charge a transfer fee for every resale our company does. Mine is $250.00, Others charge between $100-$400.00.





You might find this educational:

https://www.hoaleader.com/public/Its-Time-Begin-Charging-CondoHOA-Capital-Contribution-or-NewOwner-Fee-or-Not.cfm
AugustinD


Posts:3364


05/19/2020 9:06 PM  
Posted By NpB on 05/19/2020 8:07 PM

https://www.davis-stirling.com/HOME/Transfer-Fees

[A HOA c]an't charge more than necessary to defray costs for which they are levied.
A "transfer fee" is subject to the limitations stated at the link above. A covenant-required contribution to the reserve fund (a.k.a. the fund for capital improvements) by the buyer is lawful. Given how statutes in many states limit "transfer fees," many lenders watch for this distinction.
MarkW18


Posts:1067


05/19/2020 9:13 PM  
That article you provided was useless. I did this for a living.

Right now, well before this pandemic, I collect $10,000 monthly on escrows my former company handles. $500.00 for documents and disclosures and $250.00 for a transfer fee on every transaction. It is in my management company's agreement, as well as most management companies I know of. I average 14 resales per month.

In order to collect a capital improvement fee, it must be included in the CCRs and I have seen a few of them and they do run in the thousands and are quite legal. I am currently working on a roofing project that is going to cost a HOA $800K to complete and they don't have the reserves, so we're working on a loan with a special assessment repaid over 20 years. If an owner sells their unit the special assessment will move onto the new owner which is disclosed in escrow papers.
NpB
(Arizona)

Posts:288


05/19/2020 9:19 PM  
Posted By MarkW18 on 05/19/2020 9:13 PM
That article you provided was useless. I did this for a living.

Right now, well before this pandemic, I collect $10,000 monthly on escrows my former company handles. $500.00 for documents and disclosures and $250.00 for a transfer fee on every transaction. It is in my management company's agreement, as well as most management companies I know of. I average 14 resales per month.

In order to collect a capital improvement fee, it must be included in the CCRs and I have seen a few of them and they do run in the thousands and are quite legal. I am currently working on a roofing project that is going to cost a HOA $800K to complete and they don't have the reserves, so we're working on a loan with a special assessment repaid over 20 years. If an owner sells their unit the special assessment will move onto the new owner which is disclosed in escrow papers.





Why do you disagree with the attorney's position specifically to California mentioned in the article the link I posted?
MarkW18


Posts:1067


05/19/2020 10:00 PM  
You have a serious issue with reality. You also don't know jack sh$T about HOA's and how they are run.
NpB
(Arizona)

Posts:288


05/19/2020 10:19 PM  
Posted By MarkW18 on 05/19/2020 10:00 PM
You have a serious issue with reality. You also don't know jack sh$T about HOA's and how they are run.





Thank you for the erudite rebuttal.
MarkW18


Posts:1067


05/19/2020 10:28 PM  
First, you post a link to a law firm discussing a transfer fee that I collect on a resale of a property. Then you post a link to an article talking something else. The lawyer in the article is saying he is working with his clients, the big bad HOA's, on a way to implement this type of fee for them.

These fees were put into governing documents by the developers or builders of the property, mainly so they themselves wouldn't have to foot the bill for building a reserve account.

Instead of us doing your research, you need to step up and do your own.

By the way, YOU'RE WELCOME!
NpB
(Arizona)

Posts:288


05/19/2020 11:52 PM  
Posted By MarkW18 on 05/19/2020 10:28 PM
First, you post a link to a law firm discussing a transfer fee that I collect on a resale of a property. Then you post a link to an article talking something else. The lawyer in the article is saying he is working with his clients, the big bad HOA's, on a way to implement this type of fee for them.

These fees were put into governing documents by the developers or builders of the property, mainly so they themselves wouldn't have to foot the bill for building a reserve account.

Instead of us doing your research, you need to step up and do your own.

By the way, YOU'RE WELCOME!





I already have and the attorney suggests it is legally impossible to implement a capital improvement fee.
MarkW18


Posts:1067


05/20/2020 12:19 AM  
You asked the question of a bunch of yo-yos here which tells me you never spoke to an attorney.
MelissaP1
(Alabama)

Posts:9306


05/20/2020 5:17 AM  
Probably spoke to an attorney that tells them "I will do what you tell me to..".

A few cities in my state do have an extra charge when you buy a home in that city. It's a few thousand dollars. The fee is to cover some of the city's expenses in infrastructure/roads. It's ONLY cities that are the most desirable for buyers. The ones with the best schools etc...

A city near me was voting on this recently. Developers would be charged 6 - 10K when building homes. So this isn't unheard of but a HOA doing it would be exclusive to that HOA.

Former HOA President
CathyA3
(Ohio)

Posts:953


05/20/2020 6:48 AM  
What you're calling a "capital improvement fee" is something we call a "capital contribution fee". It is NOT, as others have said, a "transfer fee".

My community charges a "capital contribution fee", per our Declaration, to all new buyers in my community, and these fees go directly into our reserve fund.

The transfer fees that Mark discusses covers the managerial costs associated with a transfer of ownership to a new person; hence the name.

They are completely different and serve a different purpose.
CathyA3
(Ohio)

Posts:953


05/20/2020 7:00 AM  
Posted By CathyA3 on 05/20/2020 6:48 AM
What you're calling a "capital improvement fee" is something we call a "capital contribution fee". It is NOT, as others have said, a "transfer fee".

My community charges a "capital contribution fee", per our Declaration, to all new buyers in my community, and these fees go directly into our reserve fund.

The transfer fees that Mark discusses covers the managerial costs associated with a transfer of ownership to a new person; hence the name.

They are completely different and serve a different purpose.





Forgot to add this:

The capital contribution in my community is two months' worth of assessments. Thus the dollar amount varies between buyers, and this is typical from what I've seen of other governing docs. Different owners can contribute different amounts to the reserves, depending on their assessments, and the capital contribution fee reflects that. We have three different monthly assessment amounts which depend on the "par value", or percentage of ownership, of the home. Thus three different capital contribution amounts.

Transfer fees are often flat fees. This is because the tasks associated with a transfer of ownership are generally the same, regardless of the value of the particular home and its assessment amount.

Different purpose, different method of calculating them.
AugustinD


Posts:3364


05/20/2020 8:18 AM  
Posted By NpB on 05/19/2020 8:48 PM
https://www.hoaleader.com/public/Its-Time-Begin-Charging-CondoHOA-Capital-Contribution-or-NewOwner-Fee-or-Not.cfm
The argument against capital improvement fees imposed on buyers is made by California attorney James McCormick as follows:

=== Start Excerpt ===
In California, James R. McCormick Jr., CCAL, a partner at Delphi Law Group in Carlsbad, Calif., who represents associations, is struggling with this issue. But hasn't found a way to justify these fees legally.

"I've got one association that's contemplating charging this type of fee, and we've been working with them on it," he explains. "It's a sticky question in California. Laws here indicate that you can't impose a transfer fee related to the transfer of real property without following a bunch of steps and having it approved years ago. That's because developers were creating these transfer fees that were lumped onto a sale, and developers paid every time a property was sold--forever.

"The question now is whether a transfer fee that meets those definitions is acceptable if the money is coming back to the association for that purpose instead of going to the developer," he states. "California says you can't impose an assessment for more than the amount of the fee that was imposed on the association. Also, you don't know what the capital expenses will be in the future. "So I'm seeing this question arise, and I'd love to find a way to make it work with adequate protection for clients who want to do it," says McCormick. "But I'm not there yet."
=== End Excerpt ==

In particular, attorney McCormick notes: "California says you can't impose an assessment for more than the amount of the fee that was imposed on the association. Also, you don't know what the capital expenses will be in the future." I think he gets this from California Civil Code 5600 (b): "(b) An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied." See https://www.davis-stirling.com/HOME/Statutes/Civil-Code-5600#axzz2uuvwhGX4

California case law that looks to me to be relevant is cited at https://www.davis-stirling.com/HOME/Duty-to-Fund-Reserves#axzz1uVjIHT3o . Specifically, see
Foothills Townhome Assn. v. Christiansen (1998) at https://www.davis-stirling.com/HOME/Case-Law/Foothills-v-Christiansen . Looks to me like the court told Christiansen to stuff it: The reserve funding plan was reasonable. From the appeals court decision:

"Even if we consider as binding the superior court's finding at the de novo trial that the assessment would replenish the fund for non-storm-related expenses as well, nothing about the facts indicate: (1) homeowner association reserve funds are improper; fn. 9 (2) levying assessments to replenish such funds is impermissible; (3) Foothills' usual reserve balance was excessive; or (4) the amount of the assessment pushed the fund above its usual balance.
.
.
.
Fn. 9 Indeed, they would be desirable."


Like CathyA4's HOA, what I have seen is a one-time charge to the buyer of up to two months assessment, with the covenant directing that the two months of assessment be deposited into the Reserve Fund.

I disagree with California attorney McCormick. I think what he's really saying is, "The law is what the court says tomorrow." The latter sounds like the line of an attorney happy to file suit, even one with a very weak basis, as long as it makes him some pocket change.

For the interested reader, note that litigation on related aspects of the Foothills Association case continued until 2010. See https://www.leagle.com/decision/incaco20100716036
JohnC46
(South Carolina)

Posts:9461


05/21/2020 11:32 AM  
In my last HOA (SC) we had 1.5% of sale price put in the Capital Improvement Fund. All perfectly legal
NpB
(Arizona)

Posts:288


05/21/2020 12:06 PM  
When I do an internet search for "Capital Improvement Fees California" no results are obtained for HOA communities that have one, compared to when I type in the names of other states. Perhaps HOAs in CA are reluctant to implement them because they might not withstand court challenges.
MarkW18


Posts:1067


05/21/2020 2:32 PM  
Here is one in your neck of the woods.

https://greenvalleyhomes.com/buyers/closing-costs/
NpB
(Arizona)

Posts:288


05/21/2020 3:05 PM  
Posted By MarkW18 on 05/21/2020 2:32 PM
Here is one in your neck of the woods.

https://greenvalleyhomes.com/buyers/closing-costs/





Thank you. I am very familiar with my neck of the woods and capital contribution fees are very prevalent. I was specifically referring to California.
MarkW18


Posts:1067


05/21/2020 3:27 PM  
California is NO different as long as it's in te documents
NpB
(Arizona)

Posts:288


05/21/2020 4:00 PM  
I think I found the answer. California Cvil Code 1098.6 permits transfer fees as long as they provide a "direct benefit" to the property, as defined under federal regulations.

If an HOA charged a transfer fee, would the Board have to specifically designate where it would be used vs just putting it in the reserve fund?

https://www.jdsupra.com/legalnews/land-trusts-take-note-transfer-fees-in-92411/
GeorgeS21
(Florida)

Posts:2681


05/21/2020 5:14 PM  
I think you found the answer before you asked the question ...same same.
NpB
(Arizona)

Posts:288


05/22/2020 12:19 AM  
Posted By GeorgeS21 on 05/21/2020 5:14 PM
I think you found the answer before you asked the question ...same same.





No, I did not.
SheliaH
(Indiana)

Posts:3224


05/22/2020 10:12 AM  
Have you looked at ANY of the documents you got at closing that explained what this fee was for? Were you aware this would be charged before you decided to buy the home? Did you go to the board and ask them what this is for?

I haven't seen any of that information during this discussion and that usually makes a big difference. This is also why one needs to be careful with the "is this legal questions" when you aren't an attorney . Even the attorneys don't always agree on this stuff so if you object to this fee for what reason, maybe you need to consider taking legal action and see what a judge has to say.
KerryL1
(California)

Posts:7217


05/22/2020 11:37 AM  
Say, Sheila, NpB doesn't seem to live in CA. He's the one who asks a lot of hypothetical questions.
NpB
(Arizona)

Posts:288


05/22/2020 12:44 PM  
Posted By KerryL1 on 05/22/2020 11:37 AM
Say, Sheila, NpB doesn't seem to live in CA. He's the one who asks a lot of hypothetical questions.




Is there a forum rule that mandates I must specifically ask questions corresponding to the state under my user name?
GeorgeS21
(Florida)

Posts:2681


05/22/2020 4:33 PM  
More nonsense from NpB.
SheliaH
(Indiana)

Posts:3224


05/23/2020 12:34 PM  
Posted By NpB on 05/22/2020 12:44 PM
Posted By KerryL1 on 05/22/2020 11:37 AM
Say, Sheila, NpB doesn't seem to live in CA. He's the one who asks a lot of hypothetical questions.




Is there a forum rule that mandates I must specifically ask questions corresponding to the state under my user name?




No,but it can muddy the waters Ayers because you don't live in that state. If you're in Arizona, you need to focus on the rules in that state. I find Davis Stirling can be useful in thinking about how your own community might amend its documents, but you still have to comply with Arizona law or whatever state you're in.

As for hypothetical questions, there is no way you can plan a response for everything in HOA land. People and circumstances change and may require a different approach to what you thought would happen. Instead of giving yourself a headache worrying about that happen, best to address the situation shut it arrives. If it's something that happens a lit, that's when you look for patterns and think about what can be done to prevent or address similar situations in the future.

NpB
(Arizona)

Posts:288


05/23/2020 4:30 PM  
Posted By GeorgeS21 on 05/22/2020 4:33 PM
More nonsense from NpB.





I hope as a Board member, you don't tell homeowners their questions are nonsense.
NpB
(Arizona)

Posts:288


05/23/2020 4:38 PM  
Posted By SheliaH on 05/23/2020 12:34 PM
Posted By NpB on 05/22/2020 12:44 PM
Posted By KerryL1 on 05/22/2020 11:37 AM
Say, Sheila, NpB doesn't seem to live in CA. He's the one who asks a lot of hypothetical questions.




Is there a forum rule that mandates I must specifically ask questions corresponding to the state under my user name?




No,but it can muddy the waters Ayers because you don't live in that state. If you're in Arizona, you need to focus on the rules in that state. I find Davis Stirling can be useful in thinking about how your own community might amend its documents, but you still have to comply with Arizona law or whatever state you're in.

As for hypothetical questions, there is no way you can plan a response for everything in HOA land. People and circumstances change and may require a different approach to what you thought would happen. Instead of giving yourself a headache worrying about that happen, best to address the situation shut it arrives. If it's something that happens a lit, that's when you look for patterns and think about what can be done to prevent or address similar situations in the future.






I understand.. Some of my scenarios are hypothetical (in order to help prepare for the future) and some are real.
GeorgeS21
(Florida)

Posts:2681


05/23/2020 7:25 PM  
My comments regarding your nutty game playing, NpB, are just for you.

If you, as an owner, attended a board meeting for my neighborhood and started with the nonsensical hypothetical nonsense ... I would listen for three minutes, and then move on. If you came to the next board meeting, posing hypothetical nonsense a second time, I would rule you out of order and move on.
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