Saturday, January 25, 2014

The Transfer Fee Fact Sheet that Prompted CAI National Attention

Access the HOA Transfer Fee Fact Sheet that prompted the CAI to bring out its' national lobbyists to the Colorado legislature in an attempt to kill a Bill that would limit the abusive, costly, and unwarranted fee on HOA home sales.  The transfer fee can range from $50 to over $1,000, has no relationship to the work performed or the authorized use of the fee and costs Colorado HOA home sellers $15 million a year. 

CAI playing Whack-a-Mole with Home Buyer’s Money

A Bill to limit the unjustified and costly HOA transfer fee is being introduced to the Colorado legislature this year.  Expect the Community Association Institute (CAI), the trade group for HOA property managers (PM), to play the “whack-a-mole justification” game with legislators in opposing this Bill: one empty explanation after another.  However, this is no game for HOA home sellers who shell out $15 million a year in transfer fees to PM companies for services already and almost always paid for through their HOA dues.  The fee is authorized by law (not required by law) and assessed by property managers on HOA, mobile home park, and timeshare property sales.  The fee is intended to reimburse PM’s for work in the conveyance (home sale) of property for which they are not compensated for by the HOA.  The fee can range from $50 to over $1.000, has little to do with work performed, and/or is not used in accordance with the law.  The fee seems mostly used to supplement PM income allowing for low bids on HOA contracts in anticipation of receiving high transfer fees later.  Worse yet, there are no limits on the fee, it is not negotiable, can’t be shopped for in the market place, and if you don’t pay the fee you can’t sell your home.   

Defending this fee has included the contention that HOA’s mandate it, determine it, and retain it.  Wrong, PM’s do all this.  Then is it justified because PM’s incur extraordinary, costly, and uncompensated expenses when a home is sold.  Really?  This costly work involves: 1) completing a Status Letter (basically a form letter indicating the home seller’s financial status with the HOA).   It is now known that many HOA’s don’t charge for this task and the work takes minutes not hours .   2) costs to change HOA records.  Truth told this requires no more work than when someone gets married, divorced, or upon a resident’s death all which require no extraordinary work or special charges to homeowners.  Both these tasks are already paid for by HOA dues and to payments from the HOA to the PM.  Also note, transfer fee costs are not for providing HOA governing documents, researching property ownership, or researching liens and encumbrances, period.  These are paid for via Title insurance, direct payment to the HOA from the seller/buyer, and or involve no cost.
What’s next in the CAI defensive play book on this fee?  Appears they are trying to convince lawmakers to allow DORA to address this abuse through ambiguous and unrestrictive “guidelines” when licensing property managers in 2015 vs modifying the law authorizing the fee which is the proper means to rein in the abuse and high fees.  Note, SB 11-234 and HB 12-1277 authorizing the transfer fee and licensing respectively, have nothing to do with each other.  Neither Bill even remotely mentions the other.  DORA is not directed to address transfer fees in either Bill.  Note, DORA can’t make or change the law or limit fees!  Thus, this last ditch effort to defend this fee lacks merit, fact, enforcement, and is unsupportive of any good business practice. 
Playing whack-a-mole justification has worked for the CAI on this issue in the past.  This fee has yet to be even remotely defended based on CAM expenses incurred and not reimbursed or that it is used as intended under the law or why there is such a disparity in fee amounts.   The concept of the transfer is not complicated.  You can expect more diversions and deflections from the CAI on repackaging and redefining the transfer fee.  However, it all comes down to reining in a fee that never could be justified by other than the fact that it exists and continues “because it can” and should end “because it can”

Transfer Fee or Taxes: I’ll Take a Tax Any Day of the Week

If you are against excessive and unjustified taxes, fees, and assessments and would be infuriated to see this power extended to a private company please consider my comments below when the HOA Transfer Fee Bill is considered this legislative session:
Governments at all levels can legally levy taxes, fees, and assessments on citizens, services, and things.  All such actions must be defined legislatively as to application and purpose and how the levy is computed.  Taxes and fees must be applied without bias, consistently, and their use well defined.  Penalties for non-compliance are defined.  This powerful tool of government must be selectively, cautiously, and judiciously used and periodically reviewed for relevance, need and continuance.  This authority over commerce and citizens should be limited to government entities and not extended to private companies.
SB 11-234 makes it legal for a property management company (also known as a Community Association Manager (CAM)) with a contract with a Homeowners Association (HOA) to charge the home seller a TF upon the sale of their home.  It doesn't make the TF a legal requirement nor does it extend a legal right for the CAM to force this fee upon a home seller without their acceptance and to impose penalties upon the seller if the amount is not paid (by precluding sale of the home).
The real estate home closing environment, however, enables a CAM to act as a tax agent exercising a self-assigned authority to compute and collect a TF with mandated payment and penalties for non-payment and with no ability for the home owner to challenge the assessment.  This is done by the CAM with: 1) no oversight, rules, limits on amounts assessed, or consistency in levying the fee, 2)  no statutory/legal authority to impose a TF without acceptance by the consumer and 3) no authority to impose a penalty on the seller if they object to the TF (if they don't pay the sale is suspended). 
Why does a CAM essentially have taxing authority over HOA home sales?  The legislature found this de facto taxing authority illegal on all residential home sales  in SBF 11-234 except for community association properties (HOAs).  This exceptional and questionable power extended to CAMs is and has been open to abuse and misuse.  Mandatory TFs range from $50 to over $1,000 with charges having little if anything to do with the described use of the TF in the law and work completed. 
It is time to limit the ability of CAMs to act in the capacity of taxing agents and rein in the use and abuse of TF's.  If I had to choose between a tax and a transfer fee, give me the tax as at least I know the rules to play and can understand the why's, what's, and amounts involved in the financial obligation:  NOT SO WITH TRANSFER FEES. 
I urge you to support limits on HOA TFs (that also includes mobile home and timeshare sales) to save Colorado home sellers/buyers $15 million a year in unwarranted fees and assessments.

Sunday, January 5, 2014

Read About HOA Transfer Fees

The Colorado HOA Forum posts its' explanation of HOA transfer fees and why legislation should be changed to end or limit this fee.

Highlands Ranch, Colorado, HOA Transfer Fee Penalizes Home Sellers $250,000 a Year

So you want to sell your home (single family, townhome, condominium) in Highlands Ranch (HR) or in any HOA in the State.  You are going nowhere unless you pay a” transfer fee”.  You never knew about it, it wasn’t in your HOA governing documents, it is not a legal requirement to close a home sale, and you first learned about it at time of closing.  The HR fee is $130 but if you live in an HR sub-community the fee can double to $260++.  The fee in other HOA’s ranges from $50 to over $400.

The law, SB 11-234, made this fee illegal on residential home sales except in HOA’s.  The law defines this fee as “. . . a one-time fee paid to a . . . management company for an association of unit owners . . . for services rendered in connection with the conveyance for which the fee is earned . . .” In other words, management companies (and self-managed HOA’s) are permitted to charge a fee related to work performed by the management company in relation to the conveyance of a unit.  What work? 

The home owner’s advocacy organization, Colorado HOA Forum, , with the cooperation of legislators has submitted a Bill to end or limit this abusive fee that has mostly been justified “because it can”. 

The transfer fee (TF) is defended by representatives of the property management (PM) and HOA industries by indicating:   1) HOA’s mandate, determine the amount, and retain the fee 2) charged to recover expenses in producing the costly status letter that indicates the sellers financial status in the HOA 3) to recover extraordinary costs associated with changing names on administrative records  4) this allows cost recovery for the special expenses incurred by a home seller that otherwise would be paid for through other homeowners dues  5) ending the fee will drive up maintenance contract amounts and HOA dues because the income from TF’s is depended upon by PM’s when submitting low bid proposals to ensure a profit and HRCA uses this “exit fee” to defray operating costs and contain HOA dues  6) it is mandated by law and 7) cost recovery to research liens on the property and verify home ownership.

The problem with this justification is that it is not supported by financial and labor costs or any legal requirement.  None of it!  In fact one or more status letters can be obtained in HR at no cost.  The cost to change administrative records takes 15 min even using an abacas.  The TF is not legally required to close on the home.  TF work is already paid for via HOA dues and Title insurance companies are paid to research ownership and liens on the property.  No evidence exists that high TF’s keep maintenance contracts and HOA dues to a minimum.  In summary, any fee above $50 (which many PM’s charge) is excessive, unwarranted, and can’t be related to tasks for conveyance of property.

If the fee isn’t justified to recover extraordinary costs, then the HR TF is a penalty and opportunistic charge imposed on HOA home sellers to finance operations and contain HOA dues.  When a TF is charged and retained by a PM in a sub-community the main purpose is to enhance income and make up for the low bid under which they obtained their contract.  This practice costs sellers in HR nearly $250,000 a year. 

This opportunistic fee holds sellers hostage in completing their sale (even if sold yourself) until the fee is paid.  The home owner can’t negotiate or shop the market for a better fee as they do with realtor commissions and title insurance. 

There is no evidence that the TF charge matches expenses.  The fee exists “because it can”.  PM’s and/or HOA’s charging $50 are successful.  In reality, the fee is used as a back door process to enhance revenue on the backs of home sellers.  It is time to end the transfer fee “because we can”.