BILL ANALYSIS Ó
AB 807
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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