The Who, What and When (and How) of Escrow Transfer

Document Disclosures David C. Swedelson, Esq.

SwedelsonGottlieb, Community Association Attorneys

Who has transfer disclosure

obligations?

California Civil Code Sections 4525 through 4530 describe the

obligations of an owner and an association to provide certain

documents to a prospective buyer.

Additionally, Sections 4575 and 4580 govern the costs which may

be charged by an association for fees connected to title transfers

The association is obligated to provide copies of the documents

to the owner upon request, either directly to the owner or to an

owner’s representative.

In practice, an association’s management company will usually

provide the documents to the escrow company.

What is included in the list of required

disclosure documents?

A copy of all the association’s governing documents

A statement regarding any occupancy or use limitations based on age

The association’s most recent annual budget report and annual policy statement (associations are required to prepare these documents yearly, so this shouldn’t be difficult to produce)

A true statement from an authorized representative of the association as to (i) the association’s current regular and special assessment amounts, (ii) any unpaid assessments on the current owner’s property, (iii) any monetary fines/penalties levied against the owner and unpaid at that time, and (iv) information about the late charges, interest and collection costs applicable to the association’s assessments

What is included in the list of required

disclosure documents? (cont.)

A copy of any notice of violation previously sent to the current owner for a violation of the governing documents which remains unresolved at the time of the disclosure

A copy of the initial list of defects provided to each association member pursuant to Civil Code Section 6000; this also includes a statement that a final determination as to the accuracy and completeness of the list of defects has not been made

A copy of the latest information provided for in Civil Code Section 6100; this is the association’s disclosure of a settlement/resolution in any construction defect dispute

Any change in the association’s current regular and special assessments and fees which have been approved by the board but have not become due as of the date of the disclosure

What is included in the list of required

disclosure documents? (cont.)

A statement describing any leasing

limitations/prohibitions, if any, in the governing

documents

If specifically requested, a copy of all regular board

meeting minutes for the previous 12 months (in addition

to the yearly financial documents, associations are

required to prepare minutes, so this shouldn’t be difficult)

(And a copy of the completed billing disclosure form set

forth in Civil Code Section 4528 which the association

provides upon the initial request)

What are the deadlines for disclosure?

Upon receipt of a written request for transfer disclosure documents from a prospective buyer, the current owner must provide the buyer with the required transfer documents as soon as practicable before the transfer of title or execution of a sales contract.

The association must provide the documents within 10 days of mailing/delivery of the request from the owner/owner’s representative.

Upon receiving a request, the association should provide the billing disclosure form to the owner.

Delivery of the transfer disclosure documents cannot be withheld for any reason nor subject to any condition except the payment of the fees.

Exercise caution and consult with legal counsel prior to withholding documents for nonpayment.

How are “reasonable” fees

determined?

Only the actual costs incurred by the association can be

demanded in the Section 4528 form.

If documents are requested electronically, no fee can be

charged to the owner.

Case law confirms that reasonable management service

fees can be passed along to the owner.

Actual costs include management service fees

New legislation effective January 1, 2015 will further

clarify the owner’s responsibility for related management

fees.

Case Law

Brown v. Professional Community Management, Inc. (2005) 127 Cal. App. 4th 532

The court in the Brown case held that although the Davis-Stirling Act limits an association to charging a homeowner only actual costs incurred by the association, a vendor’s services for an association are not limited in the same manner.

The court noted that a management company’s fees are not illegal unless they exceed the association’s “costs,” and costs “necessarily include the fee charge [by the management company] for the service.”

An association must necessarily hire employees or contract with others to provide services; the association’s volunteer directors cannot be expected to perform all required services at no cost.

This case interpreted Civil Code Section 5600(b) (then Section 1366.1)

Case Law (cont.)

Berryman v. Merit Property Management, Inc. (2007) 152Cal. App. 4th

1544

The court in the Berryman case affirmed and expanded upon the Brown decision. The court specifically held that the statutory language of Section 4575 of the Civil Code (then Section 1368(c)(1)) does not constrain the amount a managing agent may charge for their services in charging fees for the transfer of title documents.

The court held that competitive forces of the market, not state statute, would ensure a management company’s fees are reasonable.

If a management company realizes it is losing business because its fees are out of line with the marketplace, it will surely adjust its fees accordingly.

Additionally, if prices are too high, the association’s owners can seek to persuade the board to find a management company that charges less for its services

Case Law (cont.)

Fowler v. M & C Association Management Services, Inc. (2013) 220 Cal. App. 4th 1152.

The homeowner in this case claimed the association violated Civil Code section 1098.5. That statute requires the recording of prior notice of “transfer fees,” as defined in Civil Code section 1098, before such fees can be collected. However, one of the express exceptions to the recording requirement, pursuant to Civil Code section 1098(g), is for fees that are authorized by the Davis-Stirling Act (e.g., Civil Code Section 4530).

The court in the Fowler held that an association is authorized to charge its “actual costs” for transfer services, and that a management company is authorized to act on behalf of an association. Thus, a management company charging fees for the “actual costs” of its transfer services is authorized by the Davis-Stirling Act.

Other considerations

Transfer disclosure documents and the related fees for same must always be delivered and billed separately (not bundled).

The fees for the transfer documents must be billed as a separate line item from other fees, fines or assessments which are part of the sales transaction.

Depending on the specific written request, it may be wise to consult with the association’s legal counsel if there is uncertainty regarding what should be provided during the transfer process.

When the association provides the transfer documents to the owner’s authorized recipient, a copy of the completed billing disclosure form must be provided.