Published in the ECHO Journal, September 2007
A common question from purchasers of property in homeowner associations and the realtors who sell them is: “Why are the transfer fee and document costs so high? All you have to do is send over the association documents and they can’t cost that much to copy.”
What Charges Are Legal, Proper and Acceptable?
There have been two cases in the past two years in California, one of which is very recent, providing binding authority that upholds the concept that, although there are some restrictions on homeowner association spending and charges for assessments and other costs, the fees that are charged by a management company for transfer of title and the administrative work performed to assist an association in honoring its obligations under Civil Code Section 1368 are not limited by those statutory restrictions.
What does this mean? It means that management companies may include in the costs that are charged to the association a profit margin and that buyers and sellers (whoever has to pay the transfer fee) must pay when these costs when charged to them.
The two cases on this issue are:
- 2007 – Berryman v. Merit Property Management Inc.
- 2005 – Brown v. Professional Community Management, Inc.
The ability to include a profit margin applies to all services that are provided to the association, and all vendors are so entitled. The judges in the cases made it clear that neither the laws nor the case decisions said the vendors that serve associations are required to operate as nonprofits (even though most associations are nonprofit organizations) with regard to fees charged to associations for services that are provided, including services related to transferring title records and rights from one owner to another. They also opined that the market place and competition would provide a sufficient mechanism to keep these costs effectively under control.
What is a commonly accepted “transfer” fee? I have spoken to a number of professionals at vendors under contract to provide services for associations and have come up with numbers that seem to be fairly common—around $100 for a set of documents and $225 to $250 for the work related to transfer of title and all that entails. Of course, if there are keys, key cards, vehicle registrations and a host of paperwork outside the usual, or a master/sub-association relationship, or litigation requiring extra disclosures, these fees can be higher. The Berryman case confirmed that these ranges are in the ballpark. The Merit Property Management Company was charging $100 for documents and $225 each for the transfer of title work in two associations, a master and a sub-association; the Berrymans’ property was located in both associations. The court did not condemn these amounts nor question the reasonableness of them, and the author believes that has some significance. The standard for self-managed associations is likely to be less because a profit margin would not be allowed according to these cases. In other words, associations are more limited in charges that can be made than vendors who have a right to expect a profit.
Although these cases proved successful for the management companies that were required to defend claims of unreasonable behavior, don’t believe this is the end of such inquiry. For the past several years and currently, the California legislature is reviewing legislation dealing with proposed limitations on transfer fees of various types.
Beth Grimm is a community association attorney in California. She is a member of the East Bay Resource Panel and the Legal Resource Panel and is author of various publications and books about condominium living and the law and a frequent contributor to the ECHO Journal. You can take advantage of free information on her website at www.californiacondoguru.com.