BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  May 5, 2015


                           ASSEMBLY COMMITTEE ON JUDICIARY


                                  Mark Stone, Chair


          AB 807  
          (Mark Stone) - As Amended April 8, 2015


                                  PROPOSED CONSENT


          SUBJECT:  REAL ESTATE TRANSFER FEES: RECORDED DOCUMENTS


          KEY ISSUE:  SHOULD existing law be clarified to ensure that  
          private transfer fees are always disclosed to prospective   
          property buyers in a transparent and meaningful fashion, and  
          that newly structured typeS OF TRANSFER fees do not circumvent  
          current disclosure requirements?

                                      SYNOPSIS


          Private transfer fees (PTF) are generally imposed by a developer  
          and require a homebuyer -- and any subsequent purchaser of a  
          home -- to pay the fee every time a property is re-sold, in an  
          amount typically based on a percentage of the sale price.  The  
          money generated by the PTF is sometimes used for environmental  
          mitigation or development of affordable housing, but in other  
          cases simply operates as a deferred profit for the developer or  
          property owner who imposes the fee.  In order to ensure  
          transparency and proper notification of PTFs to prospective  
          homebuyers, the Legislature passed and the Governor signed AB  
          980 (Ch. 689, Stats. 2007).  Among other things, this law  








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          provides that when a PTF is imposed on real property on or after  
          January 1, 2008, the person or entity imposing the transfer fee  
          must, as a condition of payment of the fee, concurrently record  
          against the property a separate document entitled "Payment of  
          Transfer Fee Required." 


          This bill, sponsored by the California Association of Realtors,  
          seeks to further the intent of AB 980 and ensure that all PTFs  
          on real property continue to be recorded with the county and  
          disclosed to prospective purchasers in a transparent manner.   
          According to the author, this bill is needed to ensure continued  
          notification and disclosure of PTFs to homebuyers because some  
          PTFs are being structured differently since AB 980 became law in  
          2007.  For example, these new types of PTFs may be structured so  
          that they are not necessarily based on the sale price of the  
          home or paid immediately upon transfer of the home, as was  
          contemplated by AB 980.  As a result, there may not be  
          appropriate disclosure of all PTFs, contrary to the intent of  
          existing law.  To nip this potential problem in the bud, this  
          bill does the following: (1) clarifies the definition of PTF to  
          capture any fee that must be paid "as the result of" the  
          transfer of the property; (2) clarifies that the method of  
          calculating the amount of the PTF is disclosed if the fee is  
          neither a flat fee, nor a percentage of the sales price; and (3)  
          clarifies that required disclosures about the PTF must appear in  
          a single document and cannot be incorporated by reference into  
          other documents.  The bill provides that these changes are  
          clarifying and declaratory of existing law.  The bill is also  
          supported by the Community Associations Institute and has no  
          known opposition.


          SUMMARY:  Clarifies existing law to ensure that all private  
          transfer fees on real property are disclosed to prospective  
          purchasers.  Specifically, this bill:   


          1)Clarifies that "transfer fee" means any fee payment  








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            requirement imposed within a covenant, restriction, or  
            condition contained in any deed, contract, security  
            instrument, or other document affecting the transfer or sale  
            of, or any interest in, real property that requires a fee be  
            paid as a result of transfer of the real property.  


          2)Provides that the following information, required to be  
            recorded under existing law, shall be set forth in a single  
            document and may not be incorporated by reference from any  
            other document:


             a)   Payment of a transfer fee is required.
             b)   The amount or method of calculation of the fee.


             c)   The date or circumstances under which the transfer fee  
               payment requirement expires, if any.


             d)   The entity to which the fee will be paid.


             e)   The general purposes for which the fee will be used.


          3)Finds and declares that changes made by this bill are  
            clarifying and declaratory of existing law.
          EXISTING LAW:   


          1)Defines "transfer fee" to mean any fee payment requirement  
            imposed within a covenant, restriction, or condition contained  
            in any deed, contract, security instrument, or other document  
            affecting the transfer or sale of, or any interest in, real  
            property that requires a fee be paid upon transfer of the real  
            property.  (Civil Code Section 1098(a).  All further  
            references are to this code unless otherwise stated.)








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          2)Specifies several categories of fees that are not included in  
            the above definition of a transfer fee, including, among  
            others:


             a)   Fees or taxes imposed by a governmental entity.
             b)   Fees pursuant to mechanics' liens.


             c)   Fees pursuant to court-ordered transfers, payments, or  
               judgments.


             d)   Fees pursuant to property agreements in connection with  
               a legal separation or dissolution of marriage.  (Section  
               1098.)


          3)Also excludes from the definition of "transfer fee" any fee  
            reflected in a document recorded against the property on or  
            before December 31, 2007, that is separate from any covenants,  
            conditions, and restrictions, and that substantially complies  
            with subdivision (a) of Section 1098.5 by providing a  
            prospective transferee notice of the following: 


             a)   Payment of a transfer fee is required.
             b)   The amount or method of calculation of the fee.


             c)   The date or circumstances under which the transfer fee  
               payment requirement expires, if any.


             d)   The entity to which the fee will be paid.










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             e)   The general purposes for which the fee will be used.   
               (Section 1098(i).)


          4)Provides that when a transfer fee, as defined, is imposed on  
            real property on or after January 1, 2008, the person or  
            entity imposing the transfer fee, as a condition of payment of  
            the fee, shall concurrently record against the property a  
            separate document entitled "Payment of Transfer Fee Required"  
            in at least 14 point bold face type that includes all of the  
            following:
             a)   The names of all current owners of the property  
               subject to the transfer fee, a legal description and  
               assessor's parcel number of the property.
             b)   The amount, if the fee is a flat amount, or the  
               percentage of the sale price constituting the fee.


             c)   For residential property, actual dollar-cost examples  
               of the fee for specified prices.


             d)   Date or circumstance under which the transfer fee  
               payment requirement expires.


             e)   Purpose for which the funds will be used.


             f)   Entity which will receive funds from the fee,  
               including contract information.


             g)   The signature of the authorized representative of the  
               entity receiving the funds.  (Section 1098.5(b).)


          5)Provides that if a property being transferred on or after  
            January 1, 2008 is subject to a transfer fee, the transferor  








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            must provide, at the same time as the transfer disclosure  
            statement required pursuant to Section 1102.6 is provided,  
            an additional disclosure statement containing all of the  
            following:
             a)   Notice that payment of a transfer fee is required upon  
               transfer of the property.
             b)   The amount of the fee required for the asking price of  
               the real property and a description of how the fee is  
               calculated.


             c)   Notice that the final amount of the fee may be  
               different if the fee is based upon a percentage of the  
               final sale price.


             d)   The entity to which funds from the fee will be paid.


             e)   The purposes for which funds from the fee will be  
               used.


             f)   The date or circumstances under which the obligation  
               to pay the transfer fee expires, if any.  (Section  
               1102.6(e).)


          FISCAL EFFECT:  As currently in print this bill is keyed  
          non-fiscal.


          COMMENTS:  This bill, sponsored by the California Association of  
          Realtors (CAR), seeks to ensure that all private transfer fees  
          on real property are recorded with the county and disclosed to  
          prospective purchasers in a transparent manner, consistent with  
          the intent of existing law, AB 980, enacted in 2007.  To further  
          the intent of this current law, this bill clarifies the  
          following: (1) the definition of PTF to capture any fee that  








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          must be paid "as the result of" the transfer of the property;  
          (2) the method of calculating the PTF if the fee is neither a  
          flat fee, nor a percentage of the sales price; and (3) required  
          disclosures about the PTF must appear in a single document and  
          cannot be incorporated by reference into other documents. 


          Background on Private Transfer Fees.  Existing law allows  
          various required fees to be included in the price of a  
          residential real estate transfer.  These include public fees  
          such as transfer taxes and document recording fees as well as  
          private fees, such as homeowner association processing fees.   
          All of these required fees and payments must be disclosed on  
          statutorily required forms.  In addition, various types of  
          voluntary fees, including escrow fees, title insurance premiums,  
          and realtor commissions, as well as liens, including mechanics'  
          liens, judgment liens, and lender liens, are all paid out of  
          escrow.


          Private transfer fees (PTF) are generally imposed by the  
          developer and require the homebuyer -- and any subsequent  
          purchaser of the home -- to pay a fee upon transfer based on  
          some percentage of the sale price.  The money generated by the  
          imposition of the PTF is sometimes used for environmental  
          mitigation or development of affordable housing, but in other  
          cases may simply operate as a deferred profit for the developer  
          or property owner imposing the fee.  While PTFs are not  
          prohibited by law, in practice their use has been tempered in  
          recent years because under Federal Housing Finance Agency  
          regulations (12 CFR Part 1228) promulgated in 2012, Freddie Mac  
          and Fannie Mae backed mortgages must require any funds generated  
          by a PTF to provide a direct benefit to the encumbered property.  
           


          According to the sponsor, some of the first private transfer  
          fees appeared in Roseville over ten years ago when a project  
          developer and the city agreed to a legal settlement with  








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          environmentalists allowing for the development of 8,400 new  
          homes on the city's last large expanse of vacant land while  
          preserving nearly 6,000 acres of open space.  The $85 million  
          needed to purchase the agreed-upon open space results from a  
          charge of a percentage of the sales price each time a home  
          within the development is sold over the next 20 years.  The fee  
          goes to the private, non-profit Placer Land Trust for the  
          purchase of the open space, and these fees are required as part  
          of the covenants (CC&Rs) recorded against the property.


          In order to ensure transparency and proper notification of PTFs  
          to prospective homebuyers, the Legislature passed and the  
          Governor signed AB 980 (Ch. 689, Stats. 2007).  This law  
          provides that when a PTF is imposed on real property on or after  
          January 1, 2008, the person or entity imposing the transfer fee,  
          as a condition of payment of the fee, shall concurrently record  
          against the property a separate document entitled "Payment of  
          Transfer Fee Required."  This document must state, among other  
          things, the following information: (1) The amount, if the fee is  
          a flat amount, or the percentage of the home price constituting  
          the amount of the fee; (2) Actual dollar-examples of the amount  
          of the fee based on various home prices; (3) The date or  
          circumstances under which the obligation to pay the fee will  
          expire; and (4) the purposes for which the funds from the fee  
          will be used.


          Need for the bill.  According to the author: 


               AB 807 is needed to ensure continued notification and  
               disclosure of PTFs to homebuyers because some PTFs are  
               now being structured very differently than previously  
               seen since AB 980 became law in 2007.  For example, these  
               new types of PTFs may be structured so that they are not  
               necessarily based on the sale price of the home or paid  
               immediately upon transfer of the home, as was  
               contemplated by AB 980.  








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               As a result, prospective homebuyers may not be made aware  
               of such fees, contrary to the intent of existing law, if  
               these new types of PTFs are ever determined by the courts  
               to fall outside the current statute requiring recordation  
               and disclosure.  Recent court cases have documented  
               various efforts to structure PTFs to avoid the  
               recordation requirements of AB 980; therefore, elements  
               of the current statute should be clarified to further the  
               Legislature's intent to protect homebuyers.


          A recent court case illustrates the author's contention that  
          existing law needs to be clarified to ensure that all private  
          transfer fees are recorded and disclosed to prospective  
          homebuyers.  In Marina Pacific Homeowners Association v.  
          Southern California Financial Corporation (2014), defendants  
          imposed an "assignment fee" due every month in an amount based  
          on a complicated formula that included the fair market value of  
          the property and the monthly land rent.  In ruling for the  
          plaintiff homeowner's association, both the trial and appellate  
          courts agreed that the fee at issue was a private transfer fee  
          under the meaning of Section 1098.  However, the case  
          demonstrates that payment of a PTF: (1) did not have to occur  
          upon transfer of the property, but could be required a number of  
          years after the property had been transferred; and (2) did not  
          have to be based on the sale price of the property, but could be  
          in any amount or calculated by any other method.   (It should be  
          noted that in March 2015, the CA Supreme Court declined to  
          review the case, letting the Court of Appeals decision stand and  
          effectively ending the litigation.)


          Although the fee in Marina Pacific was recognized as a PTF, the  
          case illustrates that if these newly structured types of PTFs  
          are ever determined by other courts to fall outside the current  
          statute, disclosure to prospective homebuyers is not necessarily  
          assured.








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          Clarification of definition of PTF to mean a fee paid "as a  
          result of transfer."  Accordingly, the bill seeks to clarify the  
          definition of PTF to ensure that prospective home purchasers  
          receive required disclosures even if a new type of PTF were to  
          require payment some period of time after transfer of the home,  
          rather than "upon transfer."  Under existing law, private  
          transfer fee means "any fee payment requirement . . .  that  
          requires a fee be paid upon transfer of the real property"  
          (italics added.)  The bill would clarify this definition by  
          specifying that a PTF means "any fee payment requirement . . .   
          that requires a fee be paid as a result of transfer of the real  
          property"-the essence of a transfer fee.


          The Committee's review of the legislative history around the  
          current definition of PTFs indicates that this simple  
          clarification reflects the original intent of AB 980-to require  
          disclosure for fees that were required to be paid as a result of  
          or upon the event of the property being transferred.  There is  
          no evidence from the record that the Legislature ever intended  
          to exclude fees that would otherwise meet the definition of PTF  
          simply because payment was structured to occur after some  
          indefinite period of time after transfer, rather than  
          immediately upon transfer of the property.  For this reason, the  
          bill also specifies that this amendment is clarifying and  
          declaratory of existing law (as enacted by AB 980 of 2007.)


          Clarification that the fee may not be a percentage of the sales  
          price.  Under existing law, among the items of information that  
          must be recorded and disclosed to the purchaser is the amount of  
          the PTF, if the fee is a flat amount, or "the percentage of the  
          sales price constituting the cost of the fee."  (Section  
          1098.5(a)(2)(B).)  In order to ensure disclosure of the amount  
          of the PTF if the fee represents neither of those two figures,  
          the bill clarifies that the method of calculating the amount may  
          be disclosed instead, and makes corresponding changes to the  








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          disclosure notices.


          Clarification of the form of the disclosure to require a single  
          document and not by reference to other documents.  According to  
          the author, prospective homebuyers may not be made aware of PTFs  
          when required disclosures are made only by reference to one or  
          more secondary documents that contain the relevant information,  
          instead of being consolidated and recorded in a separate  
          individual document, as was the intent of AB 980.  According to  
          the Senate Judiciary Committee analysis of AB 980 (July 10,  
          2007):


               The California Association of Realtors, sponsor, further  
               notes: "Regrettably, transfer fee payment requirements  
               are often not well disclosed to prospective homebuyers .  
               . . As a result, C.A.R. is sponsoring AB 980 to require  
               that a separate document be recorded that discloses the  
               transfer fee payment obligation.  Recordation of a  
               separate document will insure that the transfer fee  
               payment requirement is brought to the attention of  
               prospective homebuyers."


          The legislative record shows that the intent of AB 980 was to  
          ensure disclosure of key PTF information to prospective  
          transferees was accomplished up front and not buried in other  
          documents.  The bill sought to do this by requiring "a separate  
          document" to be recorded concurrently with the instrument  
          creating the transfer fee requirement.  (Section 1098.5, subd.  
          (a) and (b).)  In addition, for property being transferred on or  
          after January 1, 2008, AB 980 required the transferor to provide  
          the transferee with an "additional disclosure statement"  
          containing the PTF information at the same time as the more  
          general transfer disclosure statement required under Section  
          1102.6 (also known as the "TDS.")










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          Accordingly, this bill seeks to clarify that specified PTF  
          information must be set forth in a single document and not  
          incorporated by reference from any other document.  The bill  
          also clarifies that the additional disclosure notice, required  
          under Section 1102.6e, must be provided to the transferee at the  
          same time as the TDS, and only if that information has not  
          already been provided pursuant to this single document.  


          Lastly, the bill finds and declares that these amendments are  
          clarifying and declaratory of existing law, especially in light  
          of the legislative history showing that the intent of AB 980 was  
          a "separate document" to ensure disclosure of a PTF and its  
          parameters.


          Previous related legislation.  AB 980 (Calderon), Ch. 689,  
          Stats. 2007, established the current definition of private  
          transfer fees, and required recordation and specified disclosure  
          statements of the PTF to be provided to prospective transferees  
          of property.  


          AB 1574 (Houston) of 2007 would have imposed greater  
          restrictions on the use of PTFs, including capping the amount of  
          the fee at 2% of the sale price of the property.  This bill was  
          amended in the Senate to address an unrelated subject.  


          SB 670 (Correa) of 2007 would have prohibited PTFs altogether,  
          but the bill failed in the Senate Transportation and Housing  
          Committee.


          REGISTERED SUPPORT / OPPOSITION:












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          Support


          California Association of Realtors (sponsor)


          Community Associations Institute




          Opposition


          None on file




          Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334