We have "illegally?" collected $250K in Working Capital Fees

I am a new member on the HOA...

We are a 3,000 home HOA ran community (Still with Developer - Has not been turned over yet) and have collected a $400 Working Capital Fee on any new lot/home purchase....no problem...

However, we have also been collecting the same $400 Working Capital Fee on resales over the past 2 1/2 year totaling $250,000. We do/did not specifically amend the Governing Docs to make mention of a Working Capital Fee requirement on "resales".

You guessed it....someone is calling us out of the fee, said they are not paying it as it's not stated in the Governing Docs...

Obviously, this is the first time someone has challenged us on this...

He is only asking us to waive his $400 fee. Don't think he really wants to cause an issue with us and other's who have paid fee in past....

Do we need a lawyer?

I agree. But do you think we have a right collecting the $400 Working Capital Fee on resales even though it does not specifically mention it in the governing docs or amended docs?

Should we amend the docs asap?

I am on the board. The HOA is still controlled by the builder and has not been turned over yet. The Working Capital Fees have been going to the builder. I am speaking on behalf of the board, HOA and builder...

Yes

And if you're asking this on behalf of the developer, he or she can speak for him/herself, especially if they get the money. Refer the buyer to the developer and let them sort it out.

When I got on my board 5+ years ago I noticed that we also charged a $300.00 Capitol Improvement fee. It took me a while before I noticed that these funds were going into our Reserves. I noticed this when I saw how fast our Reserves were climbing and how we were over 100% funded based on the study that was done. We were also putting 23K quarterly into reserves as part of our budget.

Our community is just over 20 years old, and we were in need upgrading and also adding some amenities. Since then, we have been placing these funds into a separate "Capitol Improvement" fund and use it for Improvements in our HOA.

We have never had anyone question the fee as it is just another Junk Fee that goes with buying a home in an HOA. I am a little confused why the buyer would be negotiating with the Developer or the HOA on these fees since a realtor should only be working with the Sellers agent. I guess they will also be trying to negotiate the Transfer Fees with the PMC.

since your docs dont' state you can do this the person complaining is right. give him his money back and hope he doesnt' start a class action law suit.

this florida lawyer says this on his webpage:
https://archive.naplesnews.com/business/john-c-goede-how-much-can-an-association-charge-for-transfer-fees-ep-498322681-330737291.html/

John C. Goede: How much can an association charge for transfer fees?
Posted: July 20, 2014
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Editor's note: Attorneys at Goede, Adamczyk & DeBoest, PLLC respond to questions about Florida community association law. With offices in Naples, Fort Myers, Miami, and Palm Beach County, the firm represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, litigation, estate planning and business law.

Q. Our homeowners association (HOA) currently charges new potential purchasers a $100 application fee. I've been advised by our management company that $100 is the maximum we are permitted to charge, as stated in the Florida Condominium Act. They advised that a transfer fee is very broadly defined in the Florida Condominium Act and is not legal. However, I'm aware that other communities in the Naples area charge a transfer or resale fee as high as $1,000. Will you please advise if it is legal for an HOA to charge a transfer fee, and if so, are there limitations on the amount that can be set?

B.G.

Naples

A. With respect to transfer fees charged by an association upon a sale or lease, the rules for condominiums are different from the rules for HOAs. If you are an HOA governed by Chapter 720 of the Florida Statutes, the Florida Condominium Act (Chapter 718) does not apply to your community. Condo associations are not permitted to charge a transfer fee that exceeds $100 per applicant, and a husband and wife are considered one applicant. Condo associations that attempt to charge a transfer or "resale capital contribution" fee that exceeds $100 per applicant can get into legal trouble. On the contrary, there is no such statutory limitation for HOAs. Many developers charge a one-time capital contribution when the developer sells a home to the first purchaser. In some cases, this money is set aside and delivered to the HOA at turnover so that the community has start up funds. After turnover from the developer, the HOA as controlled by the members can continue to charge a transfer fee on resales. The amount of the transfer fee or resale capital contribution fee in an HOA is regulated by the association's documents, and the HOA membership can amend the documents after developer turnover to increase or decrease the amount of the fee. It is important to remember that these fees must be authorized by the community documents. If the management company in your HOA is charging a transfer or resale fee on every sale without clear authority in the governing documents, then the HOA board needs to consult with its legal counsel.

That's really unfortunate. To me one of the bright spots about HOAs and COAs is that all of the CC&Rs apply to everyone equally, especially those dealing with assessments and such. No discrimination.

What about the issue that the CC&Rs *run with the land* and are attached to the property, not to the buyer? Did the courts not see the contradiction in their thinking?

Do you have a citation asserting that the courts ruled capital contribution fees are not allowed for the second and subsequent buyers/sellers?

It appears to me that it is the legislature who decided to prohibit capital contribution fees for second and subsequent buyers/sellers. Also the prohibition seems to be only for HOAs/condos created on or after July 1, 2010.

https://communityassociations.net/transfer-enforceable-carolina/

https://nchoalaw.blogspot.com/2022/05/hoa-transfer-fees-are-they-enforecable.html

The OP may be dealing with a different kind of fee if it's not in the governing docs. Other states have shot down so-called transfer fees as a money grab, but I'm not sure who actually ended up with the money. But if the fee is in the CC&Rs, as our capital contribution fee is, then I stick by my statement that this fee is attached to the property and not to the buyer, and it can't be laid aside for certain buyers and not others. I'll have to find the court cases and see what kinds of arguments they made over this.

$400 is nothing when you're buying real estate compared to fees charged by lenders, for example. It's also nothing when you think about the kinds of unexpected expenses that go with owning property. If I were buying a home and was finding myself balking at a $400 charge, I'd be asking myself if I can actually afford this home and would probably conclude "no". Rather than "protecting the poor overwhelmed buyers", outlawing this fee is just throwing them a bone to convince them that the Realtor-HOA Industrial Complex has their backs so that they can reel in more suckers. I call BS on it.

And to get back to Ed's question since I've kinda derailed this, if I were on the board I'd want to run this by the association's attorney if there's a whiff of lawsuit in the air. I'd also be digging through state law to see what it says. I would think that the Developer would understand state law, particularly if he's been doing business for years without any issues. Unless the law has changed recently...? It's a puzzle.

I've mentioned this several times before but when we rewrote our docs we included a .5% capital improvement fee. The money has to go to reserves. I'm going to be blunt and crude when I explain why I wanted this change. It's a "stupid tax" for our condo owners who for 40 years ignored reserves and didn't even raise the monthly assessments to keep up with inflation. Enormous special assessments had occurred in the past when roofs were ignored and started to leak and the decking underneath rotted. Siding was falling off the condos and roads had crumbled. All the while the homeowners and the Board jointly agreed to ignore the issues so that each of them could save a buck every month. Some of the excuses I heard during my 3 years on the Board included:

1.) "I'm on social security and I can't afford any increases." (They should move and not put everyone else at risk.)
2.) "Why should I agree to an increase so that we can save money for roads? I'll be dead by then and I don't care." (Selfish)
3.) "Just patch the roofs when leaks spring up. It's not that big of a deal." (Ill informed and ignorant.)
4.) "I don't care about improvements that will maintain resale value. I'm staying here until I die and I don't care what the value of our condos are." (Selfish)

Condo HOA's are a problem waiting to happen when the association is responsible for virtually everything. We maintained roofs, siding, sidewalks, driveways, decks, screened in porches, patios, roads, etc. The sad truth is the typical homeowner, and in many cases the Board members, are downright stupid when it comes to managing these communities. Everyone here has seen time and again where reserve funds were not funded as needed and some cases they were non existent.

Based on my short rant above this is why I wanted a "stupid tax" to ensure that there were at least some funds going into reserves. In a perfect world a capital improvement fee would not be needed. The reality is condo associations can be a nightmare.

so by that logic, why not just tack on a $500 fee for the government to collect your garbage, and a $400 fee for the utility to set up your account and some more fees for something else.

You dont' get it. That is the "brainwashing" these groups use to justify thier bogus fees. well they are spending a ton of money on the biggest investment in their life, what'a a few hundred to get my share of the peanut pie. its ridiculous and not logicial at all.

Ed,

I think if you don't want questions on collecting such a fee on resales, then the documents should be amended so there is no question.

Do I think you should be collecting them on resales?
If you governing docs specifically say initial sale (or something along those lines) then I do not think you should be collecting them on resale.

Do I think any Association should collect capital fees based on sale of lot?
No. I think it can mess with the Associations actual needs (which should be funded by annual assessments).
That said, I know there are Associations that do this. I just wouldn't personally purchase within one of them.

so you are going to pay a lawyer $350 to avoid paying $400 to a homeowner who you admit is right about thier claim that the docs don't specifically mention this fee? What happens if you piss him/her off even more and then they decide to start a class action lawsuit?
All over what an extra $50? this is a no brainer.

Wendy and Melissa,
I have a slightly different view on the Capital Improvement fees. As many have stated the Developer usually sets this fee up as a way to jump start the Reserve account. Typically, Developers want to keep dues low to attract buyers. The CI fee is a way to pass this fee on at closing and basically hide it.

Fast forward to the owner-controlled HOA. Once owners have been charged this fee removing it for new owners may cause some issues with precedence. I am no lawyer and don't want to debate the law. I view the fee as an initiation to the Club we call an HOA. I think that separating these funds and using it for new amenities is a good way for communities to add things to an HOA without taxing the existing owners. We all know that developers build amenities to attract buyers. HOAs have no way of funding new projects without raising dues. When owners ask for new things, it is easy to point to the CI account and say this is the funds we use for improvements. When there is more in the fund, we will spend it.

Most Clubs have initiation fees. An HOA is much like a dysfunctional club so why not have a fee?

Addendum: in my community this "fee" is actually an assessment. Assessments are higher on the food chain than fees or fines - they can't be changed without an amendment to the CC&Rs, which in this case requires unanimous approval by the membership. No playing games with assessments.

Community associations have their share of issues, but to me one of their most praiseworthy aspects is that all members have the same rights and responsibilities.

And I stand by my earlier comment: if someone's balking at a $400 fee when they're in the process of spending hundreds of thousands of dollars, I wonder if they really understand what they're committing themselves to.

For reference, here is the language from our CC&Rs.

6.9 Working Capital Fund. The Master Association has established a Working Capital Fund. Contributions to the Working Capital Fund will be collected by the Master Association from each Parcel purchaser, at the time of conveyance, in such amount as is established by the Board from time to time by written resolution adopted at a Board meeting, provided, however that the Board may not increase the amount of the Working Capital Fund contribution more than once in any 12-month period. Each Parcel’s share of the Working Capital Fund shall be collected and transferred to the Master Association at the time of closing of the sale of each Parcel. The purpose of this fund is to assure that the Board will have cash available to meet any legitimate Master Association expense, or to acquire additional equipment, property, or services deemed necessary or desirable by the Board. Amounts paid into the Working Capital Fund at closing are not to be considered advance payment of any Assessments under this Article 6 and are not refundable or transferable. For purposes of this Article, the term “conveyance” shall mean the transfer of record legal title to a Parcel by deed or other authorized means of conveyance, with or without valuable consideration, and shall also refer to a transfer of possession and beneficial ownership by means of an agreement for deed.

So we don't have a set amount and we can change it with a resolution. Currently we collect $1500 which is a pretty average amount for our area. There are a few exceptions - if you are changing the title because of the death of a spouse or creating a trust or if you were a homeowner in the community within the last 90 days (so someone trading for a different home doesn't have to pay agai

To the OP - I still think you need to speak with an attorney. We don't know if there might be some language in your documents that cover this or if there needs to be while the developer is in control.

In 2010 North Carolina lawmakers declared that HOAs created after July 1, 2010, capital contributions assessed to buyers are no longer enforceable post-Declarant.

For HOAs created before July 1, 2010, capital contribution fees assessed to buyers are 100% lawful.

Your credibility has vanished.

I am confused about this fee that is not in the governing documents. Is it paid directly to the HOA? If it’s not in the governing documents I don’t know why anyone agrees to pay it, resale or not.