Monday, November 2, 2015

Questionable HOA Fees Costing Home Owners Millions

If you closed on a home in an HOA you most likely noticed a few line items that are, well, just there.  Ask for an explanation of the fee and your Realtor in many cases has no idea what it is for, how the fee was determined, or who is charging and retaining it.  Worse yet you get no receipt or detailed invoice but are simply instructed to pay it or the home sale will not be completed.  Then there is another fee home owners pay and have no particular details about it: a Document Processing Fee.  You might be told it is a cost incurred by the Title company to provide the buyer documents about the HOA.  Still no receipt on who "really" receives the fee and what work was completed to earn it.  This practice robotically continues on tens of thousands of home sales each year not because it is all legal or mandated but "because it can" and our legislators dodge the issue at the cost of millions to home owners
The first fee is an HOA Transfer fee retained by and amount determined by the HOA Property Manager (Community Association Manager (CAM)).  The HOA doesn't require it and in most cases has no idea about this fee.  The fee is in actuality a "double" billing for services already paid for by the home owner via their HOA dues to the CAM: issuing a final bill (Status Letter) to the home owner showing any outstanding/delinquent dues or other obligations: providing copies of HOA governing documents (mostly in electronic form); and charges to change names on administrative records.  The fee is actually illegal based on State law, SB 11-234.  The law states this fee can only be charged to recover unreimbursed expenses by a CAM in the sale of a home.  Thus, why are home owners paying on average $300-350 in Transfer Fees when all the "justification" (based on work performed) for the fee has already been paid for by the home owner?

The Document Processing Fee, charged by the Title Company, makes some sense as it is charged to mostly cover the costs of acquiring from the CAM and providing to the home owner the Status Letter and governing documents.  Title Companies must register this process and fee with the State.  In some cases the CAM charges the Title Company a fee thus hitting the "trifecta" by being paid three times for the same services.

The Colorado legislature, along with the consent of DORA (Dept of Regulatory Agencies), passed a CAM licensing law and HB, 1254 Disclosure of Fees, to rein in this abusive fee.  The sponsors of both laws (highly influenced by CAM lobbyist) and DORA in writing licensing rules avoided requiring CAMs to justify the Transfer Fee.  No requirement to identify exactly what the unreimbursed costs related to the sale of a home were that justified the fee; did not require CAMs to document their services justifying the fee by other than a one liner on a home closing statement with amount; did not provide home owners a means to dispute the cost; allowed for unlimited amounts in the fee to over $1,000 without any means for home owners to contest; and didn't address the deceptive practice of CAMs duplicate and triplicate billing home owners.  In summary, home owners to continue to pay, CAMs continue to be enriched, and our legislators will again be asked to pass legislation to require legal justification of the fee and to limit the amount.

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