BILL ANALYSIS Ó
AB 807
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
807 (Mark Stone)
As Amended September 3, 2015
Majority vote
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|ASSEMBLY: |79-0 |(May 11, 2015) |SENATE: | 40-0 |(September 8, |
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Original Committee Reference: JUD.
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
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:
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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.
The Senate amendments clarify that 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 constitutes a "transfer fee," and that any such
transfer fee is unenforceable unless recorded against the
property, in a single document, on or before December 31, 2016
(i.e. one year after the operative date of this bill, if
enacted.)
FISCAL EFFECT: None
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 (Charles Calderon), Chapter
689, Statutes of 2007. To further the intent of this current
law, this bill clarifies the following: 1) the definition of
private transfer fees (PTF) to capture any fee that must be paid
"as the result of" the transfer of the property; 2) the method
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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.
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 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.
In order to ensure transparency and proper notification of PTFs
to prospective homebuyers, the Legislature passed and the
Governor signed AB 980. 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
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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.
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. 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 Civil Code 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. In March 2015,
the California 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
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assured.
Clarification of definition of PTF to mean a fee paid "as a
result of transfer". Accordingly, this 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.)
This 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 Assembly Judiciary 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).
Clarification that the fee may not be based on 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."
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 disclosure
notices.
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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. 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. 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 Civil Code
Section 1102.6 (also known as the "TDS.")
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 Civil Code 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, this 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.
With respect to any fee reflected in a document recorded against
a property on or before December 31, 2007 that is not separate
from any covenants, conditions, and restrictions, or that
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incorporates by reference from another document, the Senate
Judiciary Committee noted a concern that, when this bill goes
into effect, such fees will cease to comply with the new law.
Accordingly, in order to ensure that such fees do not
automatically become uncollectable overnight, recent amendments
to the bill provide a one year time period for the separate
recording of such fees, running from January 1, 2016 (the
operative date of this bill, if enacted) until December 31,
2016.
Analysis Prepared by:
Anthony Lew / JUD. / (916) 319-2334 FN: 0001956