CALIFORNIA PROPERTY OWNERS: SB 670, WHAT YOU NEED TO KNOW

I’ve been disappointed to read in various articles related to SB 670, that the California Association of Realtors (C.A.R.) would so blatantly trample private property rights and the rights of their own clients to enter freely into voluntary contracts with one another under the guise of "protecting" them.
 
I occurs to me that C.A.R.'s clients may be  a lot smarter than C.A.R. seems to give them credit for and can decide for themselves whether or not the price/terms of a given property subject to a 1% future transfer fee, or any other condition for that matter is acceptable to them or not and negotiate prices accordingly.  Just like those same clients are able to decide for themselves whether or not to pay a 6% real estate commission for a service that is supposed to exist, in part, to help buyers and sellers analyze their deals.
 
Throughout the rest of this letter I have attempted to identify for you the philosophical, legal and practical benefits of leaving intact, the rights of private citizens to freely negotiate the price and terms of their real estate transactions.  I hope it helps readers to reconsider their support of SB 670.
 
The First Salvo In An Attack On Private Property Rights In America

It's actually somewhat shocking when you think about it that Realtors, of all people, have chosen to sponsor SB 670 which when you boil it all down really amounts to nothing more than the first salvo in an all-out attack on private property rights in America. 
 
Some proponents of SB 670 ask (rhetorically) "What 'right' does a property owner have to reserve a right to receive a fee from future owners of his/her property?"  This question is always a clear signal to me that the person asking the question has not taken the time to actually read the laws that are already on the books or educate himself/herself as to how a future interest transfer fee actually operates.
 
FACT: A transfer fee operates by a legal instrument called a "covenant that runs with the land" which in order to survive, must be fully disclosed (just like HOA docs) and must be accompanied by a benefit to the land.  In other words, as the owner of private property, you have the right to control your property in any way that does not harm involuntary third parties. 
 
And that's the distinction proponents of SB 670 ignore:  "Voluntary". 
 

• Don't want to live in a community that has restrictive covenants that prohibit you from keeping a large dog?  Don't buy the house.

• So you want to park your commercial vehicle in front of your home but the previous owner of a given property saw fit to prohibit that when she originally sub-divided the land?  Don't buy a house there either.

• You say you want to stop paying part of your HOA dues because you never use the pool anyway?  The covenants you agreed to be bound by when you were given the HOA docs BEFORE YOU BOUGHT THE PROPERTY obligate you to pay the fee because your property still enjoys the benefit of the pool, even if you don't.

 
It is unfortunate that some of the proponents of SB 670 have chosen to mischaracterize the private property rights of Californians as a "tax" instead of engaging in a thorough analysis of the issue and all of the implications of their position.  A tax is not voluntary whereas the private contracts we enter into concerning the purchase & sale of private property are.
 
 
Society Must Respect Rights To Private Contracts

A society that respects private property rights and the rights of its citizens to freely contract their rights and obligations must also recognize and respect the rights of an owner to do what he or she pleases with his or her property as long as it does not interfere with the rights of others. 
 
Of course we have zoning laws to prevent one private property owner from exercising his or her rights in a way that interferes with the rights of other private property owners.  But there is no privity of contract between those two property owners.  A buyer who chooses to buy a property knowing that it is subject to a reservation of rights from a previous owner needs no such governmental protection.  Instead he has a brain and free will to protect him.
 
Communist regimes by comparison, deny their citizenry the right to use their brains or the free will to enter into private contracts.  SB 670 would similarly seek to deny two private citizens the right to enter into a private contract concerning private property on mutually agreeable terms that do not harm anyone else. 
 
I can say that duck is a cow, but at the end of the day if it has webbed feet and swims in the water it's still a duck. SB 670 is nothing more than an attempt by a government official to substitute your right to make your own decisions with his own ideas of what's best for you.
 
 
The Free Market At Work
There seems to be an underlying lack of respect demonstrated by the Bill for Realtors' own clients.  Or perhaps it’s just a lack of enough creativity to recognize all the many ways in which future interest transfer fees - when used responsibly - can make home ownership MORE AFFORDABLE and help the environment by cutting commuting times for thousands of property owners.
 
Future Interest Transfer Fees are an invaluable tool for prospective home owners which enable a seller to voluntarily sell his/her property at a lower price today.  In return there is a voluntary payment by the persons enjoying the benefits of the property in the future.  This arrangement enables a buyer to postpone paying for a portion of the property and all the attendant expenses until they are ready to sell it, while providing the seller with a way to make the deal work for him/her too.
 
That's an example of the free market at work.
 
Accordingly, I would encourage readers (especially Realtors) to reconsider their opinions about the BENEFITS of transfer fees to buyers, sellers and the environment, especially in a declining market where it's getting harder & harder to make a deal.
 
Don't just believe the press releases that gloss over the facts. . . like the FACT that under already-existing law a transfer fee must be tied to a benefit that the property subject to it still enjoys. Like the FACT that under already existing law, all instruments affecting title must be fully disclosed to buyers who may then choose to buy the property or not buy the property. . . or use their brains and negotiate different/more favorable terms.
 
I know that to the sponsors of the Senate Bill it may be a novel idea that responsible adults could actually read and make their own decisions in voluntary real estate transactions, but it works out well for many millions of us around the world.
 
Incidentally, for a more detailed explanation of exactly "why" private property owners have a right to control their property, I would encourage anyone who is sincerely interested, to read the following excellent page on Wikipedia: http://en.wikipedia.org/wiki/Property 
 
 
Proponents Of SB 670 Usually Make Three (flawed) Arguments
 
No Connection Between Benefits & Burdens

One of the main objections proponents of SB 670 usually make to a property owner's right to enter into a voluntary and private agreement with his/her buyer, is the notion that there need be no connection between the agreed-upon fee (taxes are not voluntary) and any benefit to the property.  In fact, a fundamental principal of real estate law that has been around for several hundred years is that in order for a covenant to run with land, that land must enjoy an ongoing benefit.  If in fact there are transfer fees being collected pursuant to a covenant that runs with the land and there are no associated benefits to the land, then the covenant is defective and it should be a relatively easy case for any decent real estate attorney to win.  We don’t outlaw other kinds of real estate contracts just because some of them may turn out to be defective, do we? (rhetorical)
 
Lack Of Control
A second objection proponents of the Bill usually try to make is whether there is adequate control for future buyers over the terms of their deal.  But there IS control.  In fact there is a much better control available to subsequent prospective buyers than any government could ever offer. . . it's called  free will and a brain.  Despite all the brougha-ha there is a very simple fact that proponents of SB 670 continually ignore.  And that's the fact that no-one who does not choose to be subject to a transfer fee has to be subject to a transfer fee.  Just like you can choose not to buy a property if you don't like the terms of the HOA documents that are disclosed to you BEFORE YOU BUY THE PROPERTY, you can choose not to buy a property if you don't want to pay the transfer fee.  Or negotiate the price & terms accordingly to account for the transfer fee you are voluntarily undertaking responsibility for. After all, isn't that part of the reason you're paying your Realtor 6%, to help you negotiate the deal?

Profit
A third objection inherent in most of the arguments in favor of SB 670 seems to be the fact that property owners may collect revenue from future transfer fees over a period of time.  As if there is anything wrong with a person earning money from the fruits of his or her labors.  Or from structuring those payments over a period of time.  Consider the following (rhetorical) questions: Would it be better if sellers simply increased the price of the property by $10,000, 20,000 or 30,000 today in order to compensate themselves for the benefits given to the property?  Or should we simply dictate to sellers how much they can charge for their property?  Maybe we should just establish a set of "standard" terms that all buyers and all sellers must use in their deals and deny them their free will by not allowing them to enter into whatever voluntary agreements they choose?
 
I am aware that some developers used future interest transfer fees as a financing vehicle to reach an agreement with an environmental group.  And I am further aware that a number of private citizens chose to buy properties with future interest transfer fees in place.  What I cannot understand is why some Realtors - not all Realtors - seem to think the government needs to now step-in and dictate private contractual relationships between willing parties, when the terms of those contracts never affect third parties who do not also voluntarily choose to be affected? 
 
If a buyer has a problem with a specific situation where a covenant was not appropriately disclosed and the buyer was surprised by it, then there are already disclosure remedies available which any decent real estate lawyer can enforce against the seller who failed to make disclosure.  If a buyer has a problem with a specific situation where a covenant runs with a piece of property but there is no accompanying benefit, then there are remedies for that too. I suspect however that proponents of SN 670 are allowing a single experience in one unique situation to affect their objective judgment concerning the private property rights of the rest of us.
 
 
Disclosure Benefits Everyone
 
I support AB 980 which would clarify the disclosure requirements of a covenant that runs with land but leave private property rights otherwise intact.