3. Who Charges, Determines the Amount of, and Retains the Transfer Fee:

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1 Page1 HOA Transfer Fee Overview, Definition, and Justification for Ending or Limiting the Amount of Transfer Fee The HOA Transfer Fee Unnecessarily Costs HOA, mobile home park, and time share home owners over $20 million a year* 1. What is a Transfer Fee (TF)?... 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. (SB ). In other words, management companies are permitted to charge a fee related to work in relation to the conveyance of a unit. TF s are assessed upon the sale of a home in a mandatory membership organization including homeowners associations (HOA), common interest ownership, and time share communities. The fee applies to single family homes, townhomes, mobile homes, and condominiums. The TF is paid by the home seller (or buyer) and retained by either the HOA property management company (also known as a Community Association Manager (CAM)) or an HOA (when selfmanaged) depending upon who initiated the transaction. 2. What is the purpose or justification for the transfer fee? The law intended the fee to allow for reimbursement of unique, extraordinary, and one-time expenses incurred by either a CAM or HOA related to the sale of a home. Therefore, expenses aren t paid for homeowner HOA dues or through CAM s contract with the HOA. 3. Who Charges, Determines the Amount of, and Retains the Transfer Fee: The transfer fee can be levied upon the home sale by either the CAM or HOA. The HOA levy s the fee only if they are self-managed and complete the administrative and/or financial operations in-house (not through the use of a CAM). The amount assessed is determined by the CAM/HOA and is not limited or capped by any law or mandate in HOA governing documents. The fee is retained by the CAM in situations where the HOA is not self-managed. 4. What costs can be included in the TF: Must be extraordinary and not considered routine, common, or similar to that being performed under the current contract between the CAM and HOA. If an HOA initiates the TF the same criteria applies. Costs must have resulted in a measurable increase in labor and/or materials. Cost are unique and only occur upon the sale of a home and not similar to routine work performed in HOA records maintenance or services to the community Governmental/county filing fees and expenses that are paid for by the CAM Costs to complete the status letter that documents the home seller s financial status with the HOA including HOA dues account, special assessment financial information, and any other encumbrances or outstanding covenant violations provided such costs are measurable and material. Amounts related to the buyer s obligation for monthly HOA dues that will bring the account current upon closing.

2 Page2 Mailing and delivery costs such as certified mail, overnight deliver requests, and other processes requested to meet special needs. 5. What costs don t qualify for reimbursement under the TF? Work completed by other entities in the real estate transaction such as realtors, Title companies, and financial institutions including title search, verification of property ownership, and identifying any liens or encumbrances on the property that have been legally filed. Costs to copy HOA governing documents when other means are available to direct charge the requesting party Pre-payment of HOA dues HOA lump sum buy-ins to the community specifically identified in the governing documents HOA club membership fees Contributions to capital improvement projects Contributions to the HOA reserve fund 6. Restrictions on the use of the transfer fee: The transfer fee is strictly related to reimbursement of expenses to either the CAM or HOA related to the conveyance of property in the sale of a home: SB Thus the fee is prohibited from 1) being used by the HOA as a supplemental source of income to suppress the amount of HOA dues, to pay for current operational costs, or to fund special projects or reserves or 2) used by CAM s in developing their bid proposals as an expected and needed flow of income for contract execution success that allows for low bidding on contracts versus those CAM s either not including transfer fee income or only minimal transfer fee charges to sellers when computing contract bids. This practice makes both the HOA and CAM vulnerable to a failure in contract execution should expected transfer fee income fall short and subjects residents to shortfalls in expected maintenance and services with the CAM. Any such intended use of the transfer fee by a CAM must be well defined and quantified in a contract bid including transfer fee charges and projected expected income from the fee 7. Legal Authorization of Transfer Fee. State Law: SF authorizes the transfer fee assessment. HOA governing documents can specifically authorize the fee on the sale of a home but the use and amount can t conflict with State law. 8. Is the Transfer Fee Required by Law? The transfer fee is authorized but not required by law or mandated under SB SB only permits assessing the fee. The fee was made illegal on all other residential home sales except those in community associations with mandatory membership fees. The application of the transfer fee is a de facto process vs a legal requirement. In practice, if the seller (or buyer depending upon agreement of the parties) doesn t pay the transfer fee the real estate transaction will not be completed.

3 Page3 9. Justification for Continuing the Transfer Fee: 1. It reimburses the CAM/HOA for extraordinary costs incurred due to the sale of a home. 2. The issuance of the Status Letter is a costly and laborious task not reimbursed through either HOA dues or included in the CAM s contract with the HOA. 3. The cost to research home ownership, liens and encumbrances on the property by the CAM/HOA is a costly process. 4. The cost to prepare and send out a welcome packet to the new owner is costly. 5. Any unreimbursed costs related to the sale of the property results in others paying for such extraordinary costs only used by home sellers. 6. Limiting or ending the transfer fee would result in higher HOA dues 7. Limiting or ending the transfer fee would result in higher contract costs between the HOA and CAM since the CAM relies on this income for contract success. 8. Transfer fee amounts in excess of $50 and and no less than $200 - $400 are needed to ensure accurate information on the Status Letter and to pay for additional liability insurance related to this task and to cover any personal loss in the event this information is incorrect. 9. There is no other process or procedure to bill for TF other than through home closing. 10. CAM s charging high fees claim the integrity of their work is better and more thorough than those charging lesser fees thus justifying the price. 10. Is there a standard charge and defined set of tasks related to the transfer fee: There are no legal or industry standards on the amount of the transfer fee or the work involved in completing the task. The Status Letter, the most significant and costly task in the transfer fee, is provided to requestors in some HOA s free of charge as it is considered a base line service to homeowners. Some CAM s/hoa s charge a flat fee of $50 for all transfer fee related services. The transfer fee can range from $50 to over $400. The works tasks associated with the transfer fee can vary among CAM s/hoa s but the core requirements are the same for all: issue a Status Letter and update the HOA s records related to the conveyance of property. 11. Can the amount of transfer fee be negotiated with the CAM or HOA or can the seller (or buyer) shop the market place for a better rate? The transfer fee rights/income belong to and are controlled by the HOA/CAM. The transfer fee charges can t be negotiated. Unlike the ability of home sellers and buyers to shop the market place for realtor commissions or the best rate for title insurance, the transfer fee charges are determined, fixed, and unchangeable and require mandatory payment.

4 Page4 Justification for Ending or Limiting the Transfer Fee 1. The work involved in completing transfer fee tasks (including the Status Letter) are not extraordinary, costly, or laborious but routine clerical paid for by HOA dues and contracts between the HOA and CAM. A limit on the fee of $50 appears fair for those expenses that can be documented as extraordinary. 2. Status Letter work is contended to be a costly and unique work effort but is neither. Some HOA s provided the letter without any fee with multiple requests resulting in no fees. The SL mainly involves completing a form letter or questionnaire with readily available information. 3. The intent of the law authorizing the transfer fee was not to create income streams by HOA s to finance operations or suppress HOA dues increases nor for CAM s to increase their income and net profit. There is little to no evidence that the authorization and use of the TF is executed according to the intended purpose in the law. Thus ending or limiting the fee to $50 of documented extraordinary expense would not result in financial harm to either the HOA or CAM when the fee is used as intended; would foster competition among CAM s for HOA business without any or minimal increases in HOA contractual services; reward efficiently operated CAM s that don t depend on the fee for a profit; end the practice that promotes low bidding in contracts with the expectation that TF will supplement income; and save home buyers an estimated $20 million for every 100,000 home sales. 4. The fee has become a de facto mandatory and not negotiable financial cost to homeowners that is unsupported by services performed. Thus, the opportunity for abuse and excessive fees is rampant requiring oversight and legislative rules. 5. The contention that the higher fee rates are required for profitability is not supported by the experience of many CAM s and HOA s in the industry. Many charge $50 without hardship. 6. The assertion that welcome packets are costly and that the transfer fee is needed so other homeowners don t pay for this special task is unsupported. Welcome packets are normally handled by unpaid, volunteers in the community; the content is normally comprised of existing HOA material and extra copies of circulars such as directory; and many times coupons and advertising in the packet raise money from businesses and thus this process is income producing not costly. 7. The main reason offered in support of the TF by its industry representative is that it is applied to ensure other home owners are not paying for special needs of others. This illustrates a fundamental misunderstanding of what an HOA is. It is a community association serving the community. Homeowners pay dues to maintain the community they don t pay based on what community services they use. If one uses the pool, billiard tables, or community computer center and others don t, there are not individual user fees. HOA dues support many services for the good all, use what you want or don t use any. In this case, the home seller is paying HOA dues for expected administrative support services and doesn t expect to be assessed for a name change from a divorce, marriage, or death in the household or reissuance of a security key/card all of which are the same work for changing records on a home sale. Therefore, the basic concept of a transfer fee is contrary to the principles of an HOA. However, in cases, such as completing a Status Letter and other tasks associated with a home sale, it may be warranted to request reimbursement if the expenses can be deemed extraordinary and unique costs and

5 Page5 such reimbursement is limited to $50 that is has been proven to be reasonable by practice with CAM s and HOA s. 8. CAM s charging the high end of the transfer fee claim it is needed to guarantee the integrity and accuracy of their work on the Status Letter. There is no evidence that the CAM completing a Status Letter, charging $50, using a data base containing official HOA records is any less accurate in completing a Status Letter than the high fee CAM using the same procedure. The contention that liability insurance is higher because a CAM completes a Status Letter is not valid and there is no relationship between completing a Status Letter and insurance rates. 9. The transfer fee can lead to anti-competitive practices when a CAM uses the fee to under bid a contract with an HOA by counting on the fee to pay expenses and turn a profit. Assigning rights to all income generated from transfer fees to a CAM in a contract should be prohibited and all work related to completing this task limited in charges to $50 to prevent abuse. HOA s completing transfer fee work should also be limited in the amount charged. 10. The transfer fee as it exists adds more value to those pocketing the fee than completing its intended purpose and use under the law. 11. To end or limit the transfer fee will require changes to legislation: SB DORA s ability to change the law to limit or end the transfer fee is non-existent. DORA can t make or change laws. DORA s future involvement with licensing of CAM s can t do more than recommend that transfer fees be reasonable. This is ineffectual and open to abuse and not definitive. DORA also can t be effective nor has authority to limit the behavior on transfer fees assessed by HOA s. *$20 million based on 100,000 home sales in a year with a transfer fee of $250 and assuming a limit of $50. A survey of the CAM industry indicates the average TF is more than $250.