The New World of Transfer Fees

The concept of “transfer fees” has been discussed in great detail over the past year after the Arizona legislature passed Senate Bill 1149. Senate Bill 1149 amends A.R.S.§33-1806 (planned communities) and 33-1260 (condominiums) and became effective December 31, 2011. It affects Transfer Fees and Disclosure Fees connected with property transfers/resales for associations and their management companies. The transfer fee debate becomes even more important now that the legislature has permitted the recovery of a $1,200 civil penalty from an association and/or its management company that violates the revised statute.

At Carpenter Hazlewood, we use three classifications for “due on sale fees.” These classifications are (1) transfer fees, (2) resale disclosure fees, and (3) resale assessments.

The term “transfer fee” is mentioned at A.R.S.§ 10-3302 (in the Arizona Nonprofit Corporation statutes) and is often mentioned in an association’s CC&Rs as well. This “transfer fee” relates to the fees charged by the association and/or its management company for completion of the administrative work required to effectuate the transfer of ownership of a lot from one owner to another.

The “resale disclosure fee” relates to the fee associated with the statement required to be provided pursuant to A.R.S.§ 33-1806 or § 33-1260. This fee is typically charged by the association’s management company and goes directly to the management company through the escrow/resale when the management company does the work.

These “transfer fees” and “resale disclosure fees” are the fees that are the subject of Senate Bill 1149, which caps the aggregate of these fees at $400 (with permissible extra charges for rush and updates).

“Resale assessments” (also sometimes known as “working capital”, “reserve assessment”, “community enhancement fee”, etc.) are not expressly provided for by statute and are instead completely document specific. We have found that some associations have great “resale assessment” language in their CC&Rs and the association is not charging any assessment upon resale. We have also encountered numerous situations where associations have no “resale assessment” provision, yet still charge an assessment/fee that goes directly to the association’s bottom line, in addition to the above “transfer fees” and “resale disclosure fees.” Such a practice may not only violate an association’s CC&Rs (because this is a non-uniform assessment), but it also may violate A.R.S.§ 33-1806 or § 33-1260 if the aggregate of all of the fees exceeds $400. A statute from the 2010 legislative session, A.R.S.§ 33-442, must also be considered with respect to such resale assessments.

Due to the complexity of this issue and the potential risk of “getting it wrong,” we recommend that all associations that charge fees in addition to those charged by a professional management company for resale and transfer work have their attorney review the “due on sale fees” charged by the association to ensure that the fees comply with the association’s CC&Rs and Arizona law. If the association charges “unlawful” fees upon transfer, it could result in a $1,200 penalty and potential litigation.

If you have any questions about transfer fees or any other topic, please feel free to contact Mark Sahl, Esq. or any other attorney in our firm. The firm also has special pricing with respect to this topic.