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HOA Transfer Fees May be High, But Law Does Not Limit

Written by on Sunday, 02 December 2007 6:00 pm
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More than a few people have been unpleasantly surprised by the document and transfer fees charged when there is a sale of property that is subject to one or more homeowner associations (HOA). It's not that buyers and sellers don't expect some fees to be charged. Rather, the problem is that they are likely to underestimate the size of the fees.

The typical California real estate purchase agreement provides a section where buyer and seller are to agree who will pay for what costs normally associated with a transfer of property. HOA document and transfer fees are specified there. But the purchase agreement only shows who will pay for such fees. It doesn't specify how much they will be.

Commonly, neither buyer, nor seller, nor agents will know what will be charged for these items. So, when a closing statement shows a transfer fee of $200, $300, or $400 (or higher), people are liable to get upset. They are liable to think that such amounts are excessive for what would seem to be a fairly simple data entry process.

Some think there ought to be a law limiting the amounts of such fees. Others have thought that there is a law. Maybe the former group is right, maybe not. But the latter, according to California's Fourth Appellate District Court of Appeal, are mistaken. There is no such law. This position was reaffirmed in a recent opinion regarding the case of Berryman v. Merit Property Management.

In April of 2004, the Berrymans sold a home that was located within the jurisdiction of two HOAs that were managed by Merit. Merit charged $100 in document fees and $225 transfer fees for each association. These fees were not remitted to the association, but were retained by Merit.

Not quite a year later, the Berrymans filed a lawsuit alleging that the fees were in excess of those permitted by statute, specifically Civil Code Section 1368. Merit filed a demurrer -- essentially, a statement that doesn't dispute the facts, but that says that, even if the facts are as stated, there is no basis for a claim, no violation of law. The Orange County Superior Court agreed with Merit. When the plaintiffs filed an amended complaint, the Superior Court again upheld the demurrer. So the Berrymans appealed.

The Appellate Court agreed with the Superior Court and upheld the ruling in favor of Merit. In doing so, it analyzed an earlier case that had also dealt with Civil Code Section 1368. That section deals with the fees that an association may charge in connection with a transfer of title. With respect to providing the various required HOA documents, the code says, "The association may charge a reasonable fee for this service based upon the association's actual cost to procure, prepare, and reproduce the requested items." With regard to a transfer fee, the code says an association may charge "an amount not to exceed the association's actual costs to change its records… ."

But, the court emphasized, "These limitations … apply to the association, not its managing agent … ." "The costs incurred by the association, for which it levies an assessment or charges a fee, necessarily include the fees and profit the vendor charges for its services. While section 1366.1 prohibits an association from marking up the incurred charge to generate a profit for itself, the vendor is not similarly restricted." [my emphasis] An association can't make a profit for itself, but, of course, its vendors can.

Whether an association's vendor, such as Merit, is making too much profit, whether or not its fees are too high, is something for the marketplace to decide. The Appellate Court wrote, "They [the plaintiffs] may believe those fees are out of line with market forces. Their remedy, then, is to persuade their association's board of directors to find a management company that offers these services for less."

That may not be an easy argument, though. Charging relatively high fees for infrequent services provided to individuals is one way to help keep the overall management contract fee lower. And that benefits all the members. It begins to get complicated.

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  About the author, Bob Hunt

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.
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