Abusive Transfer Fees
If you are wondering about abusive HOA transfer fees you are not alone. You are absolutely on target in wanting to learn more about HOA transfer fees, most often charged by the management company hired by the HOA Executive Board of Directors. Transfer fees charged by management companies are back-room income generators and seldom apparent or disclosed to HOA homeowners.
Transfer fees are charged to HOA homeowners when they sell their home and are in addition to the monthly administrative fees paid by your HOA to the management company. Hidden and abusive transfer fees paid to management companies can add up to several times the commonly disclosed administrative fees charged by management companies.
Critical to providing transparency to all HOA homeowners is knowledge through a professional management system.
What are HOA transfer fees and what do the pay for?
Sometimes known as the Sale Package HOA transfer fees are usually charged for two items and are often paid directly to the management company without the knowledge of the HOA members.
Two main parts usually included in the purchase with transfer fees:
Part 1: A current copy of the HOA official documents. At minimum, these should include three items: 1) Covenants, Conditions & Restrictions (CC&R); 2) Bylaws and 3) Rules and Regulations. (These are simply electronic copies of your HOA documents, which every homeowner has a right to.
Question: Why do HOA Boards allow management companies to resell documents they do not create and costs them nothing? When our Executive Board asked for a copy of the documents being sent out by the management company, we discovered they were using obsolete and inaccurate documents. Today, this management company continues to our documents for $300 for simply emailing a copy of our HOA documents to the closing agent whenever a home sells.
To hid this fee, the management company uses a third-party payer and does not discloses this back-room income to HOA homeowners or HOA Boards. The funds do not show up on HOA balance sheets or anywhere in their financials.
Part 2: An accounting status of the seller's balance due or credit he/she may have with the HOA. Often the closing agent or Title Company will request a copy of this accounting record to prepare the closing statement. It is highly recommended that the Buyer insist on a separate record of fines and fees due, if any, and ensure that the Seller pay outstanding fines and fees and resolve any outstanding violations prior to closing.
Our management company has not required sellers to resolve outstanding violations prior to closing and have not always disclosed to the buyer outstanding HOA violations. This is unfair and unethical. The management company's negligence causes the new homeowner to become responsible for resolving and correcting known HOA violations.
If a pro-active HOA Board is using independent software to manage all vendors, including the management company, it can help ensure violations are resolved by sellers prior to closing and help new homeowners move in with a lot less trauma.
Our management company charges a $167 fee for simply providing a statement of the seller's HOA account. Not included for this fee are:
- A copy of the current operating budget.
- Year-to-date financial statement for the association
- A summary of the reserves of the association
- A statement of unpaid assessment(s)
- A statement of unsatisfied judgments
- A statement of any transfer fees, transaction fees or any other fees associated with the resale of a unit
Buyer Recommendation: It is critically important that Buyers read each HOA document carefully to understand the commitment they are making when becoming a homeowner-member of an HOA. These are legally binding documents and can be enforced by fining, denial or restricted use of HOA amenities...even foreclosure on your home. I also recommend that new buyers check with the HOA president to ensure they have been given the official current version of the Association Documents and ask the HOA board if they have authorized the sale of their documents via a third-party.
If complete Associations financials and annual audit are not included in the resale package, insist the HOA Board or management company provide this information before agreeing to move forward with the purchase of any property in an HOA.
My Personal Experience: When purchasing my home I was provided a copy of the CC&Rs, the Bylaws and Rules and Regulations. Nothing more. It was my first time buying a home in an HOA and obviously had not done sufficient research to know I had every right to full financials, minus individual property owner accounts, audits and vendor accounts.
Only after moving in did I learn the HOA had not paid thousands of dollars to vendors for several months. One vendor had not been paid for more than six months. The management company was under investigation and had been fined thousands of dollars for mismanagement. Many homeowners had not paid their HOA dues; one had not paid for more than tow (2) years. And, more than $140,000 was missing from the HOA operating account.
This was the result of a less than prudent HOA Board who, as volunteers had delegated their duties and responsibilities almost entirely to a management company. A huge mistake that cost all homeowners dearly.
Successful HOA communities are run by pro-active, informed and well-read Executive Boards who manage all vendors, including and especially their management company.
Note: Management companies often obscure transfer fees and do not fully disclose this back-end business of their company to HOA boards or HOA homeowner and sometimes do not provide the required documents to new home buyers.
Regarding Transfer Fees, Nevada Law States:
NRS 116.4109 Resales of units.
1. Except in the case of a sale in which delivery of a public offering statement is required, or unless exempt under subsection 2 of NRS 116.4101, a unit's owner or his or her authorized agent shall, at the expense of the unit's owner, furnish to a purchaser a resale package containing all of the following:
(a) A copy of the declaration, other than any plats, the bylaws, the rules or regulations of the association and the information statement required by NRS 116.41095;
(b) A statement setting forth the amount of the monthly assessment for common expenses and any unpaid assessment of any kind currently due from the selling unit's owner;
(c) A copy of the current operating budget of the association and current year-to-date financial statement for the association, which must include a summary of the reserves of the association required by NRS 116.31152 and which must include, without limitation, a summary of the information described in paragraphs (a) to (e), inclusive, of subsection 3 of NRS 116.31152;
(d) A statement of any unsatisfied judgments or pending legal actions against the association and the status of any pending legal actions relating to the common-interest community of which the unit's owner has actual knowledge;
(e) A statement of any transfer fees, transaction fees or any other fees associated with the resale of a unit; and
(f) In addition to any other document, a statement describing all current and expected fees or charges for each unit, including, without limitation, association fees, fines, assessments, late charges or penalties, interest rates on delinquent assessments, additional costs for collecting past due fines and charges for opening or closing any file for each unit.
2. The purchaser may, by written notice, cancel the contract of purchase until midnight of the fifth calendar day following the date of receipt of the resale package...
More often than not, HOA transfer fees are additional backroom income for management companies (which are merely vendors providing a service for the HOA). These hidden fees do not contribute to or benefit the HOA budget. In some cases, self-managed HOAs may charge a small photocopy fee for providing these documents and is usually much less than the $400 to $600 charged by for-profit management companies.
All too often HOA Executive Board members fail to review 'Sale Package' provided by the management company and are unaware that their management company is profiting by selling their documents. This profit is in addition to the monthly administrative fee already being paid by homeowner-members of the HOA.
Because management companies can sometimes provided old or stale HOA documents to Buyers, it is recommended that the HOA president validate and verify that these documents are a complete set of the current and accurate HOA governing documents.
By law, HOAs are run by elected HOA board members and not by management companies. It is essential that HOA boards respectfully and professionally manage their management company.