ESCROW DOCUMENTS & TRANSFER FEES

Escrow Disclosures
 

Seller Duty to Disclose. The association is not a party to the transaction between the buyer and the seller and has no duty to make disclosures to the buyer; that duty falls to the seller. (Ostayan v. Nordhoff; Kovich v. Paseo del Mar) Realtors, as agents of sellers, cannot mislead buyers about the association and must fully disclose to buyers that they are buying into a deed-restricted community with rules and regulations. As required by Civil Code § 4530, before the close of escrow, sellers must provide buyers with ten different categories of documents. (Civ. Code § 4525) Associations must complete a form listing the documents being submitted pursuant to Section 4528 and providing an estimated cost for those records. (Civ. Code § 4530)

Fine for Willful Violation. There is a $500 fine for anyone who willfully violates the disclosure requirement. In addition, in an action to enforce this liability, the prevailing party shall be awarded reasonable attorneys' fees. (Civ. Code § 4540)

Escrow Documents

Upon written request, the association shall, within ten days of the mailing or delivery of the request, provide the owner of a separate interest, or any other recipient authorized by the owner (such as an escrow officer, with a copy of the requested documents. (Civ. Code § 4530(a)) Documents provided to a prospective purchaser are specified in Civil Code § 4525. Associations can charge a reasonable fee "based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents requested." (Civ. Code § 4530(b)) If the production of documents is handled by the association's management company, the company may include a profit component in its fees. (Berryman v. Merit Management; Fowler v. M&C Mgmt)

Document Disclosure Form. Associations must use a form prescribed by statute to list the documents being delivered to escrow and the fee for each document. The form is found in Civil Code § 4528. The seller is responsible for compensating the association, person, or entity that provides the documents. (Civ. Code § 4530(b)(8))

Transfer Fees

Associations may charge transfer fees. (Corp. Code § 7140(g)), A “transfer fee” is any fee affecting the transfer or sale of real property that requires a fee to be paid as a result of the transfer of the real property. (Civ. Code § 1098) It does not include Assessments, charges, penalties, or fees authorized by statute. (Civ. Code § 1098(a)(7)) It is the seller's responsibility to pay those costs. (Civ. Code § 4530(b)(8) 

Associations may pay a person or entity to assemble the documents on their behalf. (Civ. Code § 4530) They may collect a reasonable fee (including fees charged by a management company) based on their actual costs, but are prohibited from charging additional fees for the electronic delivery of documents. Delivery of the documents may not be withheld for any reason, nor may they be subject to any condition except payment of the fee. (Civ. Code § 4530) The document costs may or may not be included in an association's transfer fees.

Fee Justification

Associations should be prepared to provide an itemized breakdown to support their fees. Reasonable expenses might include the following:

• Copy costs for governing documents (Civ. Code § 4525),
• Copy costs for the financial documents per § 5300 (as required by Civ. Code § 4525),
• Copy costs for a preliminary list of construction defects provided to members (Civ. Code § 4525(a)(6)),
• Copy costs for a general description of defects the association believes will be corrected or replaced and an estimate of when the defects will be corrected per § 6100 (as required by Civ. Code § 4525(a)(7)),
• Copy costs for meeting minutes,
• Document delivery fees,
• Cost to close out old files,
• Cost to set up new files, including emergency information and/or security cards,
• Cost of attorney litigation disclosure letter (if any),
• Fee to change security systems (if any),
• Fee to inspect the property and/or documents for rules violations (Civ. Code § 4525(a)(5)),
• Fee to answer lender forms,
• Fee to answer escrow forms, and
• Fee to certify assessments (Civ. Code § 4525(a)(4)).

Reasonable Approximation Allowed. Because it may be impossible to establish an exact incremental cost for each element of a transfer fee, an approximation is allowed. Once a reasonable average has been established, the fee can be uniformly applied to all persons who move in or out of the development. (Watts v. Oak Shores) It is sufficient if the association demonstrates a rough proportionality between the fees charged and the association's actual costs.) 

Estoppel Certificate

Estoppel certificate: A signed statement by a party . . . certifying for the benefit of another party that a certain statement of facts is correct as of the date of the statement.  -Black's Law Dictionary

In addition to escrow disclosures and documents required by statute, an association's governing documents may require the association to provide an "estoppel certificate" upon the seller's request for the benefit of the buyer of a unit/lot in the development. Once the estoppel certificate has been issued, it prevents the association from later asserting facts different from those contained in the certificate. Estoppel certificates are legally binding on the association. (Plaza Freeway Limited Partnership v. First Mountain Bank (2000) 81 CA4th 616, 96 CR2d 865) Lenders often require their own version of an estoppel certificate. It is transmitted via escrow to the association and often includes questions about:

• delinquency levels,
• reserve funding levels,
• the percentage of renters in the development,
• rent restrictions, if any,
• how often dues are paid (monthly, quarterly, annually),
• the amount of the dues,
• if there are pending special assessments,
• if there are any arrears in the payment of assessments,
• insurance carried by the association,
• whether the association is currently involved in any litigation,
• FHA certification status,
• any violations involving the property (such as hardwood floors),
• any unsatisfied judgment against the association or the seller's unit,

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