New Law Regarding HOA Documents (AB 771) may have saved us $1,500.00 and maybe my short sale transaction!

By
Real Estate Broker/Owner with Maui Life Homes / Metro Life Homes RS-78439 / BRE #01708344
https://activerain.com/droplet/rfz

New Law Regarding HOA Documents (AB 771) may have saved us $1,500.00 and maybe my short sale transaction!

My law school studies are certainly keeping me on my toes.  Having to do legal research is something that I can almost do in my sleep!

I have a short sale that I've been hired to facilitate, and things have gone well.  I was able to get the short sale written approval in 34 days after the purchase agreement was signed between buyer and seller.

Things are/were going great.

Then the attempted hijacking happened.

This is for a very nice condominium that is selling for just under $500,000.  The cost of the HOA docs from the HOA is $495.00.

Oh, but wait, the HOA sent my escrow officer a statement showing that there are approximatley $1,500 in "fees" that go along with that in addition to the $495.00.

What?!!  There is NO way the bank is going to pay for that and we can't work that into the HUD, NO WAY!

Well, in my opinion, this is nothing but extortion, so I did some research and found that there was a new law just passed on January 1st of this year that makes this practice illegal.  It is Assembly Bill 771.

 

-- AB 771, a C.A.R.-sponsored bill, which requires a homeowner association (HOA), upon written request, to give an estimate of the fee for providing a prospective buyer with the governing documents of the common interest development and other required HOA disclosures.  The bill also specifies that only fees for the required documents may be charged when such documents are provided, effectively prohibiting any “bundling” of fees for other documents with these fees.  In compliance with the bill, C.A.R. has released a revised C.A.R. standard form (Homeowner Association Information Request) detailing which documents are required, and requiring the provider to disclose the fees that will be charged for the documents before they are provided. The seller of a CID must complete this form and transmit it to the prospective purchaser along with the required documents.  This will eliminate any uncertainty for the prospective purchaser as to exactly which documents are being provided and the precise fees being charged for those documents.


We will be presenting the HOA with this new law and hopefully they will comply and adjust their demand for an additional $1,500 in fees (that is just outrageous!)

If you'd like to read the bill in it's entirety, you can do so by clicking here:

http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0751-0800/ab_771_bill_20110523_amended_asm_v95.html

By the way, I have a great new group here on ActiveRain that examines both actual and hypothetical legal issues each week in a fun "What-If" scenario.  If you'd like to join the group and participate, you can click on the group below.  Some GREAT discussions going on here and a really good way to keep your real estate legal chops up!

http://activerain.com/groups/legalscenarios


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Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-953-8818

It is a good thing you are up on the new laws regarding HOA 's . Your new group sounds very interesting.I will have to check it out.  Good luck with your short sale

Helpfulhannah

Jan 14, 2012 03:11 AM #1
Rainmaker
637,278
Maria Morton
Chartwell Kansas City Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

Good job on catching the HOA in their attempted extortion plot, Ralph!

Jan 14, 2012 03:13 AM #2
Rainmaker
820,770
Juli Vosmik
Dominion Fine Properties - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

Ralph, Arizona recently passed a law limiting the fees as well.  Now, are these $1500 in fees unpaid HOA fees? Or, are they community enhancement fees which all buyers must pay?  We have a few communities like that here.  But, if they're just "administrative fees" or some such other garbleygook, then the new laws should certainly put the squash on that.  

Here's a note to all agent taking a listing in ANY community with an HOA - it is PRUDENT to call or have the title company call the HOA at the time of taking the listing to find out what fees are involved and put that into MLS UPFRONT so every one knows.  We a few associations collecting 1/2 of 1% in community enhancement fees and these are in multi-million dollar subdivisions.  So, on a three million dollar home, that's another $15,000 UPFRONT the buyers typically have to pay or which need to be negotiated in the contract.  

Jan 14, 2012 04:12 AM #3
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

Juli,

No, these are just B.S. fees for the most part.

No past due on this.

Jan 14, 2012 04:34 AM #4
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

That's great news...thank you for putting this out. I'm filing it to watch for this in the future.

Jan 14, 2012 07:06 AM #5
Anonymous
Heather Lordlow

Ralph,

I wouldn't get too excited about AB 771 yet.  After seeing your post, I read the bill myself and I can see how this could easily do more harm than good. Not every document that escrow usually asks for is covered in the bill. The change in the law narrows down the documents that can be charged for but there are sometimes lender documents that are not mentioned in the bill. Charging specifically for certs for example doesn't seem to be included in the list of covered documents. Read the list and you will see what I am talking about. 

Plus, there is another weak link in it. If a management company decided to prepare an absolutely detailed list of each and every expense they must show in order to justify their charges, the fees for documents and other things could actually increase. Very little attention is paid to the actual operating costs of any business - not just a management company. My real estate partner got concerned about this and did a cost analysis this afternoon.  She determined that hoa docs will eventually increase because of the wording of the bill. Did you notice in paragraph 2 that it says they can collect a reasonable fee for what they do? Who determines what is reasonable, and what if they were to create a line item report of their actual costs?

Last year I had the same problem with a condo that was managed by a lawyer. When time came to begin my short sale, the lawyer charged $850.00 for docs and then called them attorney fees. To me, $850 is high, but he told me lawyers fees and costs are included in the CC&Rs. I agree it sometimes feels like a gouge but I'm not convinced this bill was the answer. They could have made it all inclusive, but they didn't.      

Jan 15, 2012 11:50 AM #6
Rainer
243,750
Brenda Whitman, Live in Laramie Real Estate
Live in Laramie Real Estate, Laramie, Wyoming - Laramie, WY
Broker/Co-Owner, Laramie, Wyoming

What a very interesting issue, indeed!  I'll have to subscribe to your other group so I can stay educated...... Thanks for the post!

Jan 15, 2012 11:54 AM #7
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

Heather,

We're not talking about docs from escrow or lenders fees, just docs and fees from the Homeowner's Association.

Jan 19, 2012 05:13 PM #8
Rainer
3,838
Garth Clark
RE/MAX MASTERS Realty - Covina, CA

I have to agree this law has too much room for comfort. Let's see, a ream of paper is about $2.50, ink, printer, employees, building, insurance, utilities, internet, computers, expenses, phones, cell phones, gardener, window washers, janitors, etc are all part of business. All of this will go into the "cost to produce".  Problem is, all of those expenses are not specific to making copies or scans of their documents. Home owners pay their HOA fee's that cover all of this and when time comes to transfer, ONE LAST JAB.

Case in point, PCM in Irvine bundles two required docs. All of the HOA's other documents are on their website and free. But, to get those other two docuemnts, they require sellers to get the bundle for around $400. So, two documents are $400, all the rest is just overlap. Then, they can't act fast enough so they have structured a "rush" job that has hours of the day in which they will act. There are three versions, regular, rush and super rush. Fee's get higher for each rush. Then, if a seller pays via credit card, there's a fee for credit card purchases. (no online etailers do that, not one).

In the end, my client paid $550 for two needed documents. Any management company the size of PCM would have all their documents scanned and updated on their computers regularly so that in a moments time, all the documents could be emailed to escrow or buyer for next to nothing in cost. No different than an agent using zip forms to a client. Sure, there could be a processing fee, maybe $50 or so. All of the docuemnts are mandatory and paid for by the HOA monthly fee's so making "copies" available is next to nothing. PCM has one HOA that has 3,200 homes and of those, about 50 homes are transfered each month. $550 x 50 equals $27,500 total revenue and thats from just one HOA. A total scam and had all of them been printed on paper and delivered to escrow, cost would have been maybe $20 with postage or nothing via email.

The law should just spell out the maximum per document allowed. They'll all charge the maximum amount anyway so that number should take into consideration HOA's and their documents stand at attention at the cost of the monthly HOA fee's, $600,000 in the above example, so documents are already there, getting them to a buyer is the only cost.

Jan 16, 2013 12:55 AM #9
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Hawaii and California Real Estate (310) 497-9407
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