When it comes to HOA law in Arizona, many recent changes to rules and regulations have left HOAs confused and on track for potential fines and penalties. One common source of confusion for HOAs is regarding disclosure fees and transfer fees—two types of fees that are charged after the close of escrow when a unit is sold to a new owner.
Disclosure fees used to be lumped in with and referred to as transfer fees, but recent amendments to the law have changed this. Although the fees may appear to be the same thing, amendments to HOA law have made them quite different. Distinguishing between the two fees can be difficult, but is ultimately necessary in order for the HOA to legally charge buyers.
Here are the basics to understanding the difference.
An HOA is allowed to charge a “disclosure fee” up to a certain amount at the close of a sale of a unit. This fee is intended to compensate the association for any costs that occur regarding the preparation of a disclosure statement.
This disclosure statement includes a variety of documents that an HOA must deliver to a buyer when a home is sold, such as bylaw information, financial statements, operating budget and contact information for the HOA. In order for the HOA to charge for the preparation and delivery of this disclosure statement, certain criteria must be met.
First, the disclosure statement must include all of the aforementioned documents, as well as others that detail any pending lawsuits the association is involved with, whether a portion of the unit is covered by association-maintained insurance, and others. The full list of necessary information is available in A.R.S. Section 33-1806.
Additionally, the HOA must provide the resale disclosure statement within 10 days of being notified of a pending sale of a unit in writing.
The most important thing to note about disclosure fees is that they are capped at $400. HOAs may not charge more than an aggregate sum of $400 for preparing the disclosure statement, or any other services the HOA is performing related to the transfer, meaning HOAs must be careful to not overcharge. There may also be a rush fee of up to $100 if services are required within 72 hours of the request.
A “transfer fee,” on the other hand, is separate from the charge for preparing disclosure statements. In many cases, transfer fees are unlawful. However, some transfer fees are allowed, as long as they are paid to the association for a specific purpose and are specifically provided for in the HOA’s Covenants, Conditions and Restrictions (CC&Rs) that is provided to the new owner.
These fees may also be considered capital contribution fees, working capital fees or reserve contribution fees, which are used by the HOA to benefit the lot or unit.
There are no limits on transfer fees, but the fees must follow certain criteria. The transfer fee must concern the land and unit. Generally, transfer fees cannot be paid to a third party, unless that party is authorized to manage the plan of development for the HOA.
If you are uncertain about disclosure fees or transfer fees for your community, call Goodman Law Group for counsel. We focus on HOA law in Arizona, making us the foremost authority on collections, compliance enforcement and general counsel.