BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 807 (Mark Stone)
Version: April 8, 2015
Hearing Date: June 9, 2015
Fiscal: No
Urgency: No
TH
SUBJECT
Real Estate Transfer Fees: Recorded Documents
DESCRIPTION
This bill would make declaratory and clarifying changes to
existing law pertaining to the disclosure of real estate
transfer fees, including, among other things, providing that
transfer fees due at times other than upon the transfer or sale
of a property are subject to disclosure under existing law.
BACKGROUND
Under existing law, various fees may be included in the price of
a residential real estate transfer. Those fees, such as
transfer taxes and homeowner association processing fees, are
generally expected when purchasing homes within California. In
recent years, a new type of transfer fee has appeared within
California. Deemed a "private real estate transfer fee," the
fee amounts to a percentage of the sale price of a home, and is
generally paid to a third party not involved in the transaction.
According to a recent news story:
A private transfer fee, sometimes called a "property transfer
fee," occurs when the builder adds a covenant to the deed of
each new home. Sometimes the recipient of the fee is a
charity or government agency, which provides housing for
low-income families. But sometimes builders themselves pocket
the money as pure profit.
In Placer County . . . one builder agreed to impose the fee,
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effective for 20 years, as part of a deal to placate two
environmental groups, the Sierra Club and the Audubon Society.
In some cases, though, the covenant runs with the deed for 99
years, meaning that each time the house changes hands,
subsequent buyers must also pay the fee. And because the
charge is a covenanted mandate, it is difficult to reverse
once in place . . . Moreover, most buyers often don't realize
they are paying the fee. The builder or seller (if a
subsequent seller even knows of it) doesn't tell them about
it, and because they pay so little attention to the closing
statement, it escapes their view altogether. But even if they
do question the charge, there isn't anything they can do about
it short of backing out of the deal. (Herald-Tribune, Some
States Ban Private Transfer Fees (July 4, 2010)
[as of May 29, 2015].)
In 2007, the Legislature passed AB 980 (Calderon, Ch. 689,
Stats. 2007), which requires any person or entity that imposes,
or has imposed, a transfer fee on real property to document and
record the fee in the property's records held by the county
recorder prior to collecting the fee. AB 980 also imposed a
duty on sellers of residential property to provide a disclosure
statement notifying buyers about the transfer fee, as well as
the amount, recipients, purpose, and expiration (if any) of the
fee.
This bill makes several clarifying changes to the requirements
enacted by AB 980, including clarifying that transfer fee
disclosures must be made whenever the obligation to pay such a
fee arises "as a result of" the transfer of real property.
CHANGES TO EXISTING LAW
Existing law requires the transferor to deliver a transfer
disclosure statement (TDS), and other disclosures, as soon as
practicable before transfer of title, or close of escrow, when
transferring real property and manufactured homes or
mobilehomes. (Civ. Code Sec. 1102.3a(a).)
Existing law states that for transfer fees imposed prior to
January 1, 2008, the receiver of the fee, as a condition of
payment of the fee on or after January 1, 2009, shall record, on
or before December 31, 2008, against the real property in the
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office of the county recorder for the county in which the real
property is located a separate document entitled "Payment of
Transfer Fee Required," with the title appearing in at least
14-point boldface type. The document shall include all of the
following information:
the names of all current owners of the real property subject
to the transfer fee, and the legal description and assessor's
parcel number for the affected real property;
the amount, if the fee is a flat amount, or the percentage of
the sales price constituting the cost of the fee;
if the real property is residential property, actual
dollar-cost examples of the fee for a home priced at two
hundred fifty thousand dollars ($250,000), five hundred
thousand dollars ($500,000), and seven hundred fifty thousand
dollars ($750,000);
the date or circumstances under which the transfer fee payment
requirement expires, if any;
the purpose for which the funds from the fee will be used;
the entity to which funds from the fee will be paid and
specific contact information regarding where the funds are to
be sent; and
the signature of the authorized representative of the entity
to which funds from the fee will be paid. (Civ. Code Sec.
1098.5.)
Existing law provides that when a transfer fee is imposed upon
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 record in the office of the county recorder for the county
in which the real property is located, concurrently with the
instrument creating the transfer fee requirement, a separate
document that meets all of the above requirements. (Civ. Code
Sec. 1098.5.)
Existing law provides that if a property being transferred on or
after January 1, 2008, is subject to a transfer fee, the
transferor shall provide, at the same time as the transfer
disclosure statement is provided, an additional disclosure
statement containing all of the following:
notice that payment of a transfer fee is required upon
transfer of the property;
the amount of the fee required for the asking price of the
real property and a description of how the fee is calculated;
notice that the final amount of the fee may be different if
the fee is based upon a percentage of the final sale price;
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the entity to which funds from the fee will be paid;
the purposes for which funds from the fee will be used; and
the date or circumstances under which the obligation to pay
the transfer fee expires, if any. (Civ. Code Sec. 1102.6e.)
Existing law defines a "transfer fee" as 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, except as provided. (Civ. Code Sec. 1098.)
Existing law exempts 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 substantially complies with
the above requirements by providing a prospective transferee
with notice of the following:
that payment of a transfer fee is required;
the amount or method of calculation of the fee;
the date or circumstances under which the transfer fee payment
requirement expires, if any;
the entity to which the fee will be paid; and
the general purposes for which the fee will be used. (Civ.
Code Sec. 1098.)
This bill would clarify that a "transfer fee" is 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 as a result of
transfer of the real property, except as provided.
This bill would provide that, for a document that was recorded
against a property on or before December 31, 2007, to be
excluded from the definition of a "transfer fee," it must set
forth information about the fee, as currently required, in a
single document and may not incorporate by reference such
information from another document.
This bill would specify that disclosures providing notice of
transfer fees must describe the method for calculating the fee
amount, and whether or not the fee is a flat amount or is based
on the sale price of the real property.
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This bill would make other technical and clarifying changes to
existing law pertaining to the recording of real property
transfer fees.
This bill would find and declare that amendments made by this
act are clarifying and declaratory of existing law.
COMMENT
1.Stated need for the bill
The author writes:
This bill seeks to ensure that all private transfer fees
[PTFs] 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 (Stats.
2007) To further the intent of this current law, this bill
clarifies the following: (1) the definition of PTF to capture
any fee that 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.
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.
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.
2.Clarifying Transfer Fee Disclosure Requirements
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Residential real property disclosures include, among other
things, the broad transfer disclosure statement (TDS),
information about Mello-Roos liens, property taxes, former use
as a federal or state military training location that could
possibly contain explosive munitions, and a natural hazard
disclosure statement (NHDS), disclosing risks of flooding, fire,
and other natural hazards to the property. (Civ. Code Sec. 1102
et seq.) Failure to provide the statutory disclosures does not,
by itself, invalidate a transfer, but any negligent or willful
violation subjects the seller to liability for damages as a
result of that failure. (Civ. Code Secs. 1102.13, 1103.12.)
Existing law requires the receiver of a transfer fee payable
upon transfer of real property to record a document disclosing
information about the fee against the property as a condition of
receiving payment of the fee. According to the California
Association of Realtors, transfer fees may be payable "[not
only] upon transfer but could be required, for example, five
years after the property has transferred." This bill would
clarify that transfer fee disclosures must be provided whenever
such a fee must be paid "as a result of" the transfer of real
property, regardless of when or how often payment occurs. This
clarification will help ensure that prospective purchasers of
real property subject to a transfer fee are fully informed of
the financial obligations they will assume should they obtain
the property.
3.Requiring Separate Recording of Transfer Fees
This bill would, among other things, specify that, in order for
a document recorded against a property on or before December 31,
2007, to be excluded from the definition of a "transfer fee," it
must set forth specified information about the fee in a single
document and may not incorporate by reference such information
from another document. The issue of whether information about a
fee could be incorporated by reference into other recorded
documents and still be excluded from the definition of a
"transfer fee" was recently examined by the Court of Appeals for
the Second District in Marina Pacifica Homeowners Assn. v.
Southern California Financial Corp. (Cal.Ct.App. 2014) 232
Cal.App.4th 494. In Marina Pacifica Homeowners Assn., the court
considered whether a monthly "assignment fee" paid by residents
to a condominium developer constituted a "transfer fee" subject
to recording and disclosure under existing law. The case
involved a 570-unit condominium complex constructed in the early
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1970s along the Long Beach waterfront. Unit owners, who
purchased their units as well an undivided leasehold interest in
the land underlying the complex, were required to make two
monthly payments under their leases: rent payable to the
landowner and an "assignment fee" payable to the developer.
Individual unit leases containing the assignment fee provision
were not recorded, but a "Memorandum of Condominium Common Area
and Unit Space Leases" was recorded in 1973, which incorporated
by reference the unit leases containing the assignment fee
provision. When the assignment fee was due to be readjusted in
2006 under the terms of the leases, the homeowners filed suit
alleging, among other things, that the assignment fee was a
"transfer fee" under Civil Code Section 1098, and since the
defendant developers had not recorded the assignment fee, the
fee became uncollectable after December 31, 2008, pursuant to
Civil Code Section 1098.5.
On appeal, the court determined that the assignment fee met the
general definition of a transfer fee under Section 1098, but
that a statutory exemption pertaining to fees reflected in
documents recorded against a property on or before December 31,
2007, that provide prospective transferees with notice of the
fee, excluded the assignment fee from transfer fee statutes
barring its collection. (See Marina Pacifica Homeowners Assn.,
232 Cal.App.4th at 505.) While not separately recorded, the
court found that the unit leases incorporated by reference in
the recorded documents contained all the information required to
qualify under the statutory exemption, and that the fee was thus
"reflected" in documents recorded against the property. (Id. at
511.)
By specifying that a recorded document providing notice of fees
may not rely on other information incorporated by reference and
still qualify under the statutory exemption, this bill seeks to
overrule the holding in Marina Pacifica Homeowners Assn.
Furthermore, as a matter of policy, by requiring record
documents to contain pertinent information about fees for which
a prospective transferee will be responsible arguably provides
better notice about the obligation the transferee will take on
should they purchase or obtain the real property at issue.
4.Retroactive Application
This bill would find and declare that amendments made by it to
existing law pertaining to transfer fees are clarifying and
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declaratory of existing law. However, as noted above, some of
these amendments may substantively change the way existing law
has been interpreted, raising the possibility that they could be
given retroactive application.
"Generally, statutes operate prospectively only." (McClung v.
Employment Dev. Dept. (2004) 34 Cal.4th 467, 475.)
[T]he presumption against retroactive legislation is deeply
rooted in our jurisprudence, and embodies a legal doctrine
centuries older than our Republic. Elementary considerations
of fairness dictate that individuals should have an
opportunity to know what the law is and to conform their
conduct accordingly; settled expectations should not be
lightly disrupted. For that reason, the principle that the
legal effect of conduct should ordinarily be assessed under
the law that existed when the conduct took place has timeless
and universal appeal. (Landgraf v. USI Film Products (1994)
511 U.S. 244, 265 (internal citations omitted).)
"A statute does not operate [retroactively] merely because it is
applied in a case arising from conduct antedating the statute's
enactment, or upsets expectations based in prior law. Rather,
the court must ask whether the new provision attaches new legal
consequences to events completed before its enactment."
(Landgraf, 511 U.S. at 269-70 (internal citations omitted).)
"This is not to say," however, "that a statute may never apply
retroactively." (McClung, 34 Cal.4th at 475.) In California,
"[a] statute's retroactivity is, in the first instance, a policy
determination for the Legislature and one to which courts defer
absent some constitutional objection to retroactivity." (Id.,
at 475.) Under California law, "a statute may be applied
retroactively only if it contains express language of
retroactivity or if other sources provide a clear and
unavoidable implication that the Legislature intended
retroactive application." (Myers v. Philip Morris Companies,
Inc. (2002) 28 Cal.4th 828, 844.)
On the other hand, legislation that merely clarifies existing
law may be found not retroactive in effect. (See, e.g.,
Colmenares v. Braemar Country Club, Inc. (2003) 29 Cal.4th 1019,
1028). "Courts are not to infer that legislation merely
clarifies existing law unless (1) the nature of the amendment
clearly demonstrates such an intent or (2) the legislature has
itself stated that the particular amendment is merely
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declaratory of existing law." (Goldman v. Standard Ins. Co.
(9th Cir. 2003) 341 F.3d 1023, 1029.)
This bill contains express language indicating that its
provisions are clarifying and declaratory of existing law
irrespective of the fact that its provisions may attach new
legal consequences to events completed before its enactment. To
ensure that fees reflected in documents recorded against a
property on or before December 31, 2007, that do not comply with
this bill's provisions do not become automatically uncollectable
by this change in the law, the author offers the following
amendment that would allow a one-year time period for the
separate recording of such fees.
Author's Amendment :
On page 3, after line 40, insert: "(c) Any fee reflected in a
document recorded against the property on or before December
31, 2007, that is not separate from any covenants, conditions,
and restrictions, or that incorporates by reference from
another document shall constitute a "transfer fee" for
purposes of Section 1098.5, unless it is recorded against the
property on or before December 31, 2016, in a single document
that complies with subdivision (a)(9) and (b) of this
section."
5.Federal Restraints on Private Transfer Fees
Five years after California mandated the disclosure of transfer
fees in AB 980 (Calderon, Ch. 689, Stats. 2007), the Federal
Housing Finance Agency issued federal regulations restricting
certain regulated entities, including the Federal National
Mortgage Association, Federal Home Loan Mortgage Corporation,
and Federal Home Loan Banks, from dealing in mortgages on
properties encumbered by private transfer fee covenants created
on or after February 8, 2011. (See Federal Housing Finance
Agency Final Rule on Private Transfer Fees, 77 Fed. Reg. 15566
(Mar. 16, 2012).) The federal regulations exempt from the
restriction private transfer fees used to obtain membership in
nonprofit mandatory membership organizations comprising
homeowners, including homeowners' associations formed under the
Davis-Stirling Common Interest Development Act (Civ. Code. Sec.
4000 et seq.). (See 12 C.F.R. Sec. 1228.1.) The regulations
also exempt private transfer fees that are used exclusively to
maintain and improve to encumbered properties, or to acquire,
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improve, maintain, and administer property owned by an
association comprised of the owners of encumbered property.
(Id.) While not banning private transfer fees outright, these
federal restrictions may effectively eliminate any secondary
market for mortgage loans on properties burdened by non-exempt
transfer fee covenants.
Support : Community Associations Institute
Opposition : None Known
HISTORY
Source : California Association of Realtors
Related Pending Legislation : None Known
Prior Legislation :
SB 670 (Correa, 2007) would have restricted the use of private
transfer fees recorded against real property by, among other
things, directing that transfer fee funds go to a non-profit
entity to fund facilities or services that provide a public
benefit to the real property subject to the fee. This bill died
in the Senate Transportation and Housing Committee.
AB 980 (Calderon, Ch. 689, Stats. 2007) requires any person or
entity that imposes, or has imposed, a transfer fee on real
property to record a specified document with the county recorder
as a prerequisite to any payment of that fee, as specified.
This bill also requires the seller of residential property to
provide a disclosure statement notifying the buyer about the
transfer fee, as well as the amount, recipients, purpose, and
expiration of the fee.
AB 1574 (Houston, 2007) would have limited the imposition of
residential real property transfer fees to properties for which
the Department of Real Estate has issued a public report under
the Subdivision Map Act. This bill would have also restricted
the prospective use of transfer fees by requiring that the fee:
(1) only go to public entities or nonprofit organizations
identified in the public report; (2) constitute no more than 2
percent of the sale price; (3) be imposed for no greater than 99
years; (4) provide a public benefit within the region; and (5)
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not be used for expenses relating to lobbying. This bill was
gutted and amended to address a different issue.
Prior Vote :
Assembly Floor (Ayes 79, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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