HOA transfer fees are getting some attention in the news again this week. In particular, news coverage has focused on demands that HOA property management companies provide invoices for the transfer fees charged to buyers or sellers of properties within HOAs. There is good news for buyers and sellers in HOAs: access to transfer fee information is already available.
What exactly are transfer fees? Colorado statutes address transfer fees in the three following ways that are relevant to HOAs and their members:
- The Colorado Revised Nonprofit Corporation Act expressly authorizes nonprofit corporations to impose transfer fees upon their members unless the articles of incorporation provide otherwise. Most HOAs are formed as nonprofit corporations and have this right to impose transfer fees.
- The real property statutes prohibit certain transfer fee covenants, such as those intended to benefit a person or entity who does not hold an interest in the property burdened by the covenant. But transfer fee covenants for fees payable to homeowner associations are not prohibited and are recognized by statute as valid fees.
- Community association management companies typically contract with the HOAs they manage to charge transfer fees to the buyers or sellers of properties within those communities. The community association manager statutes and licensing rules impose explicit requirements on managers concerning these transfer fees. Those statutes and rules are the good news for buyers and sellers, and all owners, who want to know what transfer fees apply in their HOAs.
So what rights do owners, buyers, and sellers have to access transfer fee information?
Here is what the statute says:
12-61-1004.5. Fees and charges for contracted services and home sales – disclosure required
(1) Every manager, and every agent or other person who represents or negotiates on behalf of a manager, shall disclose to the executive board of each HOA for which it provides or offers to provide services, during contract negotiations and thereafter on an annual basis, all fees and other amounts that the manager charges or will charge to the common interest community, unit owners, and purchasers of units in the common interest community for or as a result of any service, product, transaction, or item of value provided by the manager, any employee or contractor of the manager, or any other individual or entity with whom the manager associates in the performance of community association management services.
(2) Neither a manager nor any agent of a manager may enforce any fee or charge, including a transfer fee, against the HOA or any buyer or seller of property served by the HOA unless the fee or charge is:
(a) Explicitly disclosed in the manager’s contract with the HOA or an addendum to the contract; or
(b) Documented by a clearly identified line item on a real estate closing settlement statement.
(3) In addition to making the disclosures required under subsections (1) and (2) of this section, a manager shall disclose to the executive board all remuneration the manager or any subsidiary, affiliate, or related person or entity receives or will receive, directly or indirectly, in connection with its relationship with the common interest community.
(4) The division may regulate, investigate, and take disciplinary action against any manager or principal thereof for a violation of this section.
Here are the relevant provisions of the community association manager (“CAM”) rules:
F-6) Contracts, agreements, authorizations and disclosures must be in writing.
1) All contracts, agreements, authorizations and disclosures between a CAM or CAM company and a common interest community must be in writing and must contain the entire agreement of the parties.
2) The written agreement between the parties must be legible and clearly specify the terms and conditions of the management services to be performed by the CAM or CAM company. The agreement must include, but is not limited to, the following:
a) Beginning and ending dates of the contract;
b) Details of all compensation, fees and charges;
c) Cancellation rights of the parties;
d) Record retention and distribution policy;
e) Errors and omissions insurance coverage;
f) Crime fidelity insurance coverage;
g) A general description of the records to be kept and the accounting or bookkeeping system to be used; and
h) The designated manager’s license number.
3) A CAM or CAM company must disclose in writing and at no charge, within 3 business days after a request by an owner in a common interest community, or by a buyer or seller who is under contract for the purchase of real property or a unit in a common interest community, or their respective agent, all fees and charges that the CAM or CAM company will charge in connection with the sale, transfer and closing of the real estate or unit in a common interest community.
The requirements imposed by statute and rule clearly give owners, buyers, and sellers access to the transfer fees in their communities and set forth the penalties for failure to provide the information upon request. Please help spread this good news!