September 14, 2010
Housing Committee
Legislative Committee
The following is for policy recommendation only and has NOT been approved by the Housing, Legislative, Executive Committees or the Board of Directors.
Issue:
Should C.A.R. sponsor legislation making existing law applicable to agents of home owners associations (HOAs)? Current law requires that HOAs provide specified documents and materials within a designated timeframe and limits the requesting party's cost for such services to "reasonable fees" based upon the HOA's "actual costs".
Action:
Optional
Options:
1. Sponsor legislation making existing law applicable to agents of HOAs.
2. Conclude that additional information is needed and seek input between now and the January 2011 C.A.R. meetings from Housing Committee Members as to the extent of this problem in their respective regions.
3. Take no action.
4. Other
Status/Summary:
The California Desert Association of REALTORS® (CDAOR) states that an emerging issue has become prevalent in the CDAOR region involving HOAs of CIDs where excessive fees are being charged for required disclosure of HOA documents to purchasers of separate interests in a CID. Some HOAs in this area are delegating this process to third party agents who then charge fees far above "actual costs" and the "reasonable fees" standard required "on its face" by Civil Code Section 1368 in the Davis-Stirling Act. The issue is whether, in light of the 2007 case,
Berryman v. Merit Property Management, legislation is needed to make existing law applicable to agents of HOAs.
Discussion
Pursuant to Civil Code Section 1368, upon written request of the purchaser of a separate interest in a CID, or the purchaser's agent, the HOA is required to provide within 10 days of receiving the request the items specified in paragraphs (1) through (8) of Section 1368(b). The recipient can select how these materials are provided, based upon the HOA's capacity to do so electronically or otherwise. Section 1368(b) very specifically limits the fees that an HOA can charge the requesting party to "a reasonable fee for this service based upon the association's actual cost to procure, prepare, and reproduce the requested items." It has been reported by the CDAOR that third party companies (agents) retained by HOAs to provide such document services in that area are charging fees in the range of $650 to $800 for such a service where costs previously assessed were in the $200 to $350 range when provided directly by the HOA. In the type of real estate market currently being experienced in California, any added costs, particularly unnecessary or inflated costs, can contribute to the difficulties in closing a transaction.
Additionally, on May 31, 2007 a decision in the Fourth District of the Court of Appeals, Berryman v. Merit Property Management, 62 Cal.Rptr.177, held that Civil Code Section 1368's fee limitation of "reasonable fees" based upon "actual costs" did not apply to the amount a managing agent of an HOA could charge for the documents and services it provided pursuant to Section 1368. The Fourth District encompasses cases in Imperial, Indio, Orange, Riverside, San Bernardino and San Diego Counties. The decision is final; the California Supreme Court denied review in October, 2007. The case is published and binding precedent in the six counties of the Fourth District. It is persuasive, if not binding precedent, in the rest of the State unless and until a decision in another appellate district comes down to the contrary.
In light of this case, companies acting as agents on behalf of HOAs are not restricted by the prohibitions in existing law that limit the fees an HOA can charge (for requested documents/materials) to "reasonable fees" based upon "actual costs".
Should the fee limitations of existing law (Civil Code Section 1368) be amended to apply to companies retained by HOAs to provide requested documents/materials required of HOAs under current law?
