Capital Improvement Fees in California

Capital Improvement fees paid for by the buyer of a new unit in an HOA are illegal in California, correct?

NpB,

More hypothetical nonsense?

Seriously, with the rep, you need to be clear.

Or, I could answer ... do some research and let us know.

OK, my answer would be ... do some research and let us know.

https://www.davis-stirling.com/HOME/Transfer-Fees

Can't charge more than necessary to defray costs for which they are levied.

This would mean that an HOA cannot charge a new owner a $3,000 capital improvement fee to help build the reserve fund.

You might find this educational:

https://www.hoaleader.com/public/Its-Time-Begin-Charging-CondoHOA-Capital-Contribution-or-NewOwner-Fee-or-Not.cfm

That article you provided was useless. I did this for a living.

Right now, well before this pandemic, I collect $10,000 monthly on escrows my former company handles. $500.00 for documents and disclosures and $250.00 for a transfer fee on every transaction. It is in my management company's agreement, as well as most management companies I know of. I average 14 resales per month.

In order to collect a capital improvement fee, it must be included in the CCRs and I have seen a few of them and they do run in the thousands and are quite legal. I am currently working on a roofing project that is going to cost a HOA $800K to complete and they don't have the reserves, so we're working on a loan with a special assessment repaid over 20 years. If an owner sells their unit the special assessment will move onto the new owner which is disclosed in escrow papers.

You have a serious issue with reality. You also don't know jack sh$T about HOA's and how they are run.

First, you post a link to a law firm discussing a transfer fee that I collect on a resale of a property. Then you post a link to an article talking something else. The lawyer in the article is saying he is working with his clients, the big bad HOA's, on a way to implement this type of fee for them.

These fees were put into governing documents by the developers or builders of the property, mainly so they themselves wouldn't have to foot the bill for building a reserve account.

Instead of us doing your research, you need to step up and do your own.

By the way, YOU'RE WELCOME!

You asked the question of a bunch of yo-yos here which tells me you never spoke to an attorney.

What you're calling a "capital improvement fee" is something we call a "capital contribution fee". It is NOT, as others have said, a "transfer fee".

My community charges a "capital contribution fee", per our Declaration, to all new buyers in my community, and these fees go directly into our reserve fund.

The transfer fees that Mark discusses covers the managerial costs associated with a transfer of ownership to a new person; hence the name.

They are completely different and serve a different purpose.

The argument against capital improvement fees imposed on buyers is made by California attorney James McCormick as follows:

=== Start Excerpt ===
In California, James R. McCormick Jr., CCAL, a partner at Delphi Law Group in Carlsbad, Calif., who represents associations, is struggling with this issue. But hasn't found a way to justify these fees legally.

"I've got one association that's contemplating charging this type of fee, and we've been working with them on it," he explains. "It's a sticky question in California. Laws here indicate that you can't impose a transfer fee related to the transfer of real property without following a bunch of steps and having it approved years ago. That's because developers were creating these transfer fees that were lumped onto a sale, and developers paid every time a property was sold--forever.

"The question now is whether a transfer fee that meets those definitions is acceptable if the money is coming back to the association for that purpose instead of going to the developer," he states. "California says you can't impose an assessment for more than the amount of the fee that was imposed on the association. Also, you don't know what the capital expenses will be in the future. "So I'm seeing this question arise, and I'd love to find a way to make it work with adequate protection for clients who want to do it," says McCormick. "But I'm not there yet."
=== End Excerpt ==

In particular, attorney McCormick notes: "California says you can't impose an assessment for more than the amount of the fee that was imposed on the association. Also, you don't know what the capital expenses will be in the future." I think he gets this from California Civil Code 5600 (b): "(b) An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied." See https://www.davis-stirling.com/HOME/Statutes/Civil-Code-5600#axzz2uuvwhGX4

California case law that looks to me to be relevant is cited at https://www.davis-stirling.com/HOME/Duty-to-Fund-Reserves#axzz1uVjIHT3o . Specifically, see
Foothills Townhome Assn. v. Christiansen (1998) at https://www.davis-stirling.com/HOME/Case-Law/Foothills-v-Christiansen . Looks to me like the court told Christiansen to stuff it: The reserve funding plan was reasonable. From the appeals court decision:

"Even if we consider as binding the superior court's finding at the de novo trial that the assessment would replenish the fund for non-storm-related expenses as well, nothing about the facts indicate: (1) homeowner association reserve funds are improper; fn. 9 (2) levying assessments to replenish such funds is impermissible; (3) Foothills' usual reserve balance was excessive; or (4) the amount of the assessment pushed the fund above its usual balance.
.
.
.
Fn. 9 Indeed, they would be desirable."

Like CathyA4's HOA, what I have seen is a one-time charge to the buyer of up to two months assessment, with the covenant directing that the two months of assessment be deposited into the Reserve Fund.

I disagree with California attorney McCormick. I think what he's really saying is, "The law is what the court says tomorrow." The latter sounds like the line of an attorney happy to file suit, even one with a very weak basis, as long as it makes him some pocket change.

For the interested reader, note that litigation on related aspects of the Foothills Association case continued until 2010. See https://www.leagle.com/decision/incaco20100716036

When I do an internet search for "Capital Improvement Fees California" no results are obtained for HOA communities that have one, compared to when I type in the names of other states. Perhaps HOAs in CA are reluctant to implement them because they might not withstand court challenges.

Thank you. I am very familiar with my neck of the woods and capital contribution fees are very prevalent. I was specifically referring to California.

I think I found the answer. California Cvil Code 1098.6 permits transfer fees as long as they provide a "direct benefit" to the property, as defined under federal regulations.

If an HOA charged a transfer fee, would the Board have to specifically designate where it would be used vs just putting it in the reserve fund?

https://www.jdsupra.com/legalnews/land-trusts-take-note-transfer-fees-in-92411/

No, I did not.

Say, Sheila, NpB doesn't seem to live in CA. He's the one who asks a lot of hypothetical questions.

More nonsense from NpB.

I hope as a Board member, you don't tell homeowners their questions are nonsense.

My comments regarding your nutty game playing, NpB, are just for you.

If you, as an owner, attended a board meeting for my neighborhood and started with the nonsensical hypothetical nonsense ... I would listen for three minutes, and then move on. If you came to the next board meeting, posing hypothetical nonsense a second time, I would rule you out of order and move on.