When Will Legislators Address the Issue of Excessive HOA Transfer Fees?

I have written before about the excessive fees charged by HOA management companies upon the sale of an HOA member’s home.  The fees really add up.  Here are some of them:

Status letter fee: The management company charges this fee to provide what is essentially a final bill to title company which is handling the transaction. It says whether the seller is current on his HOA dues and whether he/she has any outstanding fines or other financial obligations. I’ve seen $75 charged for this letter.

Documents fee: State law has for several years required a seller to provide a variety of documents to the buyer, including the most recent six months of HOA board meeting minutes, the most recent annual membership meeting minutes; financial statements, including a reserve study; and a current budget.  In my experience, the fee for this service has varied from $75 to $150.

 

Covenant compliance inspection: This newer fee covers the cost of visually determining whether the current owner is violating any covenants, such a landscaping, painting, etc. I’ve seen $75 charged for this service.

 

Record change fee: This fee is for changing the name of the owner on the management company’s records. It is typically in the $100’s, but can be as high as $1,000.

 

Recently, I received a disappointing report from Stan Hrincevich, founder of Colorado HOA Forum, LLC, a grassroots organization representing the interests of HOA members. Excessive transfer fees is one of the signature issues of this organization. 

In his email, Stan reported on his visit to eight different state legislators, hoping to interest them in regulating transfer fees, which are clearly getting out of hand. 

Stan wrote that these legislators “still believe the HOA determines the amount of the fee and retains it. Some believe transfer fees are a tool used by HOAs to keep HOA dues lower.  No one understands why the fee is charged. They also continue to believe that the Community Association Institute (CAI), the trade organization for Community Association Managers, represents homeowners. Then there was discussion of requiring managers to provide a detailed invoice to the homeowner for transfer fees. One legislator asked why would we want them to do that.”

 

Here are the facts of which these legislators are obviously unaware:

 

1) The management company hired by the HOA determines all such fees and retains them in their entirety.

 

2) Because the HOA does not receive any of these fees, the fees do not help keep HOA fees lower.

 

3) The Community Association Institute is a lobbying group for the management companies. This organization does not represents HOAs and certainly doesn’t represent HOA members.

4) CAI lobbies the legislators to prevent regulation of transfer fees. No one (other than Stan) lobbies on behalf of homeowners.

As a result, nothing changes on this common rip-off of HOA members when they wish to sell their homes.

My hope is that exposing the truth will lead to enlightened discussions and eventual legislative action to limit these fees. Forward this article to your legislators!

Published Jan. 19, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers.

HOA Transfer Fees Can Be Excessive & Benefit Management Company, Not the HOA

As an active real estate agent, I am shocked and amazed at the often excessive fees charged by many HOA management companies in the sale of members’ homes. These fees are not regulated in any way by the state. Worst of all, the fees collected don’t benefit the HOA or its members, but are merely a profit center for the management company hired by the  HOA.

Such fees, while they can be excessive, are legal, as long as they are authorized in the contract between the HOA and its management company. Since the state legislature has proven reluctant to institute any controls over fees, thanks to the influence of the Community Association Institute (CAI), your only recourse as an HOA member is making sure that any authorization for such fees is eliminated or modified when your HOA’s management contract is up for renewal.

 

It is entirely possible that the excessive fees being charged by many management companies are not in fact authorized, but they’re getting away with collecting them because they are not being challenged about them. Urge your HOA board to examine its management contract for such authorization and to instruct their management company not only to cease charging unauthorized fees but also to refund fees previously collected.

How excessive can these fees be?  There are three primary fees which I see imposed on a transaction.  The first fee is for a “status letter” which tells the title company whether the seller is current or past due on HOA dues or fines. The title company requires such a letter because unpaid HOA dues or fines can be a lien against the property, and the title company’s job is to provide clear title to the buyer.  Typically the charge for a status letter is around $75, but I have seen fees over $100.

The second fee is for the provision of state-required HOA documents, which include financial statements, reserve studies, board meeting minutes, bylaws, rules & regulations, etc.  Some HOAs post these documents on their public website, where they can be accessed free by any visitor or just by HOA members who have password-protected access to that website.  Recently I saw an HOA website where all these documents contained a prominent watermark stating “This document alone does not constitute Full Resale Disclosure, as required by Colorado Law,” inferring that the requesting party needs to pay the management company’s $155 fee to obtain the full set of documents. In fact, all the documents required in a transaction are on the website, each one bearing the statement that it “alone” does not satisfy the requirement.

 

I used to be under the impression that members were entitled to all HOA documents without charge, and that the document fee was only charged when the request came from a Realtor or title company.  But that’s not true, and it’s not illegal — if those fees are authorized in the HOA’s management contract.

 

The last fee charged by the management company is for transfer of ownership. You would be shocked, as I am, to hear that some management companies charge $400 or more for this clerical change, and I haven’t found any management companies that charge less than $150. Legally, management companies can charge whatever they want, because there is no law restricting them. Again, check to see if it’s authorized in the management contract with your HOA. 

[A fourth fee I have started seeing is called the Covenant Compliance Inspection fee.  For $125 (typically), the management company will tell you whether the subject property is currently in violation of any covenant requirements or HOA rules.]

As I mentioned above, the trade association for the management companies (CAI) lobbies successfully against every legislative bill to restrict the fees charged by their member firms. For example, there was a bill put forth in 2011 on the federal level which said all fees had to benefit the property burdened by the fee.  The CAI convinced Congress to broaden the definition of “benefit” to include administration costs. They could thus argue that any fees collected by the management company go toward administration of the HOA.

 

Back in March 2014, a grassroots organization was created called Colorado HOA Forum LLC, whose mission is to counter the influence of CAI and fight for legislative reform favoring HOA members. The reigning in of transfer fees is one of its signature issues. You can read about that and other HOA topics, with useful information on how to file complaints, at their website, www.ColoradoHOAForum.com. So far, their website has had over 38,000 visitors.

 

Smaller HOAs — ones with under 50 members — are often self-managed, and administration is handled by the board itself. These HOAs typically don’t charge any of these fees when members sell their homes.

Published Sept. 1, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers.