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SB-670 Real property: transfer fees. (2007-2008)

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SB670:v97#DOCUMENT

Amended  IN  Senate  May 01, 2007
Amended  IN  Senate  April 11, 2007

CALIFORNIA LEGISLATURE— 2007–2008 REGULAR SESSION

Senate Bill
No. 670

Introduced  by  Senator Correa

February 23, 2007

An act to amend Section 711 of the Civil Code, relating to real An act to amend Section 11010 of, and to add Section 11025 to, the Business and Professions Code, and to add Section 711.3 to the Civil Code, relating to real property.


LEGISLATIVE COUNSEL'S DIGEST


SB 670, as amended, Correa. Real property: transfer fees.

Existing

(1) Existing law permits various fees to be included in the price of a residential real estate transfer. Existing law requires specified disclosures to be made upon a transfer of residential real property and provides a form for this purpose. Existing law provides that conditions restraining transfer of property, also referred to as alienation, when repugnant to the interest created in the property, are void.
Existing law requires any person who intends to offer subdivided lands within California for sale or lease to file with the Department of Real Estate an application for a public report consisting of a notice of intention and a completed questionnaire that includes, among other things, a statement that there is an airport in the vicinity, and that this may affect the use of the property. Existing law makes a violation of these provisions a crime.
This bill would provide that any covenant, restriction, or condition contained in any deed, contract, security instrument, or other instrument affecting the transfer or sale of real property that contains a requirement that any transferee pay a fee upon transfer of the real property is a condition restraining alienation that is repugnant to the interest created and is void. The bill would except from this definition prohibition a covenant, restriction, or condition that was in effect on or before December 31, 2007, transfer fees that meet specified requirements regarding subdivided lands, taxes and fees imposed by governmental entities, mechanics’ liens, and fees imposed by lenders, among others. The bill would also make a related statement of legislative findings.
This bill would require the application for a public report in connection with subdivided lands to state whether the property offered for sale or lease is subject to a transfer fee, as specified, and if so, would require a description of how the fee will be used. By changing the definition of a crime, this bill would impose a state-mandated local program.
On and after January 1, 2008, the bill would permit the imposition of a transfer fee as a condition on the transfer of subdivided real property only if specific requirements are met. In this regard, the bill would prohibit a transfer fee from being imposed for a period that exceeds 30 years from the time it is first recorded and would require the fee obligation to be imposed on all buyers. The bill would require a subdivider to record a document making specified disclosures about the transfer fee. The bill would permit transfer fee funds to be paid only to nonprofit entities and would require any nonprofit entity collecting and using transfer fees to meet certain standards and to submit annual reports to the Department of Real Estate, as specified. The bill would provide that, if a nonprofit organization fails to file a required report, the Real Estate Commissioner may cause an examination and report to be made and charge the nonprofit organization, as specified. The bill would require the Department of Real Estate to make those reports accessible on its Web site.
(2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NOYES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 11010 of the Business and Professions Code is amended to read:

11010.
 (a) Except as otherwise provided pursuant to subdivision (c) or elsewhere in this chapter, any person who intends to offer subdivided lands within this state for sale or lease shall file with the Department of Real Estate an application for a public report consisting of a notice of intention and a completed questionnaire on a form prepared by the department.
(b) The notice of intention shall contain the following information about the subdivided lands and the proposed offering:
(1) The name and address of the owner.
(2) The name and address of the subdivider.
(3) The legal description and area of lands.
(4) A true statement of the condition of the title to the land, particularly including all encumbrances thereon.
(5) A true statement of the terms and conditions on which it is intended to dispose of the land, together with copies of any contracts intended to be used.
(6) A true statement of the provisions, if any, that have been made for public utilities in the proposed subdivision, including water, electricity, gas, telephone, and sewerage facilities. For subdivided lands that were subject to the imposition of a condition pursuant to subdivision (b) of Section 66473.7 of the Government Code, the true statement of the provisions made for water shall be satisfied by submitting a copy of the written verification of the available water supply obtained pursuant to Section 66473.7 of the Government Code.
(7) A true statement of the use or uses for which the proposed subdivision will be offered.
(8) A true statement of the provisions, if any, limiting the use or occupancy of the parcels in the subdivision.
(9) A true statement of the amount of indebtedness that is a lien upon the subdivision or any part thereof, and that was incurred to pay for the construction of any onsite or offsite improvement, or any community or recreational facility.
(10) A true statement or reasonable estimate, if applicable, of the amount of any indebtedness which has been or is proposed to be incurred by an existing or proposed special district, entity, taxing area, assessment district, or community facilities district within the boundaries of which, the subdivision, or any part thereof, is located, and that is to pay for the construction or installation of any improvement or to furnish community or recreational facilities to that subdivision, and which amounts are to be obtained by ad valorem tax or assessment, or by a special assessment or tax upon the subdivision, or any part thereof.
(11) A notice pursuant to Section 1102.6c of the Civil Code.
(12) (A) As to each school district serving the subdivision, a statement from the appropriate district that indicates the location of each high school, junior high school, and elementary school serving the subdivision, or documentation that a statement to that effect has been requested from the appropriate school district.
(B) In the event that, as of the date the notice of intention and application for issuance of a public report are otherwise deemed to be qualitatively and substantially complete pursuant to Section 11010.2, the statement described in subparagraph (A) has not been provided by any school district serving the subdivision, the person who filed the notice of intention and application for issuance of a public report shall immediately provide the department with the name, address, and telephone number of that district.
(13) (A) The location of all existing airports, and of all proposed airports shown on the general plan of any city or county, located within two statute miles of the subdivision. If the property is located within an airport influence area, the following statement shall be included in the notice of intention:
NOTICE OF AIRPORT IN VICINITY
This property is presently located in the vicinity of an
airport, within what is known as an airport influence area. For that
reason, the property may be subject to some of the annoyances or
inconveniences associated with proximity to airport operations
(for example: noise, vibration, or odors). Individual sensitivities
to those annoyances can vary from person to person. You may wish to
consider what airport annoyances, if any, are associated with the
property before you complete your purchase and determine whether they
are acceptable to you.
(B) For purposes of this section, an “airport influence area,” also known as an “airport referral area,” is the area in which current or future airport-related noise, overflight, safety, or airspace protection factors may significantly affect land uses or necessitate restrictions on those uses as determined by an airport land use commission.
(14) A true statement, if applicable, referencing any soils or geologic report or soils and geologic reports that have been prepared specifically for the subdivision.
(15) A true statement of whether or not fill is used, or is proposed to be used in the subdivision and a statement giving the name and the location of the public agency where information concerning soil conditions in the subdivision is available.
(16) On or after July 1, 2005, as to property located within the jurisdiction of the San Francisco Bay Conservation and Development Commission, a statement that the property is so located and the following notice:NOTICE notice:
NOTICE OF SAN FRANCISCO BAY CONSERVATION AND DEVELOPMENT COMMISSION JURISDICTION
This property is located within the jurisdiction of the San Francisco Bay Conservation and Development Commission. Use and development of property within the commission’s jurisdiction may be subject to special regulations, restrictions, and permit requirements. You may wish to investigate and determine whether they are acceptable to you and your intended use of the property before you complete your transaction.
(17) (A) A statement whether the real property that is intended to be offered pursuant to this chapter is subject to a transfer fee, which shall conform with the requirements of Section 11025.
(B) The identification and qualification of each nonprofit entity that will accept and use transfer fees pursuant to Section 11025.
(C) A description of each project to be funded by transfer fees, including, but not limited to, all of the following information:
(i) The project location.
(ii) The duration of the project, which shall not exceed 30 years.
(iii) The estimated budget for the duration of the project and documentation supporting that estimation.
(iv) A description of how the project benefits the real property subject to the transfer fee, pursuant to the requirements of Section 11025.
(v) Any other information required by the Department of Real Estate.

(17)

(18) Any other information that the owner, his or her agent, or the subdivider may desire to present.
(c) The commissioner may, by regulation, or on the basis of the particular circumstances of a proposed offering, waive the requirement of the submission of a completed questionnaire if the commissioner determines that prospective purchasers or lessees of the subdivision interests to be offered will be adequately protected through the issuance of a public report based solely upon information contained in the notice of intention.

SEC. 2.

 Section 11025 is added to the Business and Professions Code, to read:

11025.
 (a) For purposes of this section, a “transfer fee” is any covenant, restriction, or condition contained in any deed, contract, security instrument, or other instrument affecting the transfer or sale of real property that contains a requirement that any transferee pay a fee upon transfer of the real property that was subject to Section 11010.
(b) A transfer fee imposed upon real property pursuant to this section is subject to the following requirements and limitations:
(1) The transfer fee payment obligation shall be imposed on all buyers of the property, including the initial buyer.
(2) Any lien arising from the transfer fee payment obligation shall be subordinate to a purchase money security instrument.
(3) The transfer fee payment obligation shall arise only pursuant to a transfer that results in the assessment of a documentary transfer tax, as described in Section 11911 of the Revenue and Taxation Code.
(4) The transfer fee payment amount shall be calculated as a percentage of the sale price of the property, and the total of transfer fee payments shall not exceed 1 percent of the sale price of the property.
(5) A transfer fee shall not be imposed for a period that exceeds 30 years from the time it is first recorded.
(6) A transfer fee shall not be imposed on property upon which low- and moderate-income housing is to be built and that housing is subject to a restriction on resale price.
(c) Only a nonprofit organization that has tax exempt status under Section 501(c)(3) of the Internal Revenue Code and was identified in the notice of intention filed pursuant to Section 11010 may receive and use a transfer fee.
(d) (1) A transfer fee may only be used for a project that funds a facility or provides a service that provides a public benefit to the real property that is subject to the transfer fee. In order to provide a public benefit to the real property, the facility shall be located in, or the service shall be provided in, the same county or within 25 miles of where the real property is located. For purposes of this subdivision, a transfer fee that funds a facility or service that supports affordable housing is deemed to provide a public benefit to the real property that is subject to it.
(2) A transfer fee shall only be used to fund a project for a limited term, not to exceed 30 years, or until a specified funding amount is collected, whichever occurs first.
(3) Of the transfer fee funds received by a nonprofit organization, the organization shall spend for administration of the project only the amounts reasonably necessary for that purpose, not to exceed 5 percent of the funds received.
(4) The transfer fee funds shall not be used for expenses related to lobbying or litigation and shall not be transferred to another entity for these purposes.
(e) Beginning on February 1, 2009, and annually thereafter, a nonprofit organization that accepts any transfer fee shall file an annual report with the department that describes the current status of the project funded by the transfer fee. The nonprofit organization shall also provide the department an independently audited financial statement to the department showing all of the following:
(1) The total amount of all transfer fees collected.
(2) The amount of transfer fees expended on each project and a description of each project.
(3) The total amount of transfer fees used for administrative overhead of the nonprofit organization.
(4) The percentage of transfer fees used for administrative overhead compared with the amount used to directly support all projects funded by transfer fees.
(5) Any other information required by the Department of Real Estate.
(f) The department, no later than March 1, 2009, and annually thereafter, shall post each nonprofit organization’s annual report on its Web site and clearly show the identification of each subdivision affected by each report.
(g) If the nonprofit organization fails to file a report required by this section, the commissioner may cause an examination and report to be made and may charge the nonprofit organization one and one-half times the amount of the cost of making the examination and report.
(h) A person subdividing property that would be subject to a transfer fee shall record a document that contains the following:
(1) Notice that payment of a transfer fee is required upon transfer of the property.
(2) A statement of the percentage of the property price that constitutes the total of all transfer fees imposed on the property and examples of the total cost of the fees for property sales valued at two hundred fifty thousand dollars ($250,000), five hundred thousand dollars ($500,000), and seven hundred fifty thousand dollars ($750,000).
(3) The date or circumstances under which the obligation to pay the transfer fee will expire.
(4) The name of any recipient of the transfer fee funds.
(5) A description of the purpose or purposes for which the transfer fee funds are to be expended.
(6) A statement indicating that the transfer fee obligation may potentially affect the future resale value of the property.
(i) A transfer fee that fails to meet the requirements of this section and that does not fall within an exception described in subdivision (b) of Section 711.3 of the Civil Code is void.
(j) This section shall apply to a transfer fee imposed upon real property on and after January 1, 2008.

SEC. 3.

 Section 711.3 is added to the Civil Code, to read:

711.3.
 (a) Except as provided in subdivision (b), any covenant, restriction, or condition contained in any deed, contract, security instrument, or other instrument affecting the transfer or sale of, or any interest in, real property that contains a requirement that any transferee pay a fee upon transfer of the real property is void.
(b) Subdivision (a) does not apply to any of the following:
(1) A covenant, restriction, or condition that was in effect on or before December 31, 2007.
(2) A transfer fee that satisfies the requirements of Sections 11010 and 11025 of the Business and Professions Code.
(3) Fees or taxes imposed by a governmental entity.
(4) Mechanics’ liens.
(5) Court ordered transfers, payments, or judgments.
(6) Property agreements in connection with a legal separation or dissolution of marriage.
(7) Fees, charges, or payments in connection with the administration of estates or trusts pursuant to Division 7 (commencing with Section 7000), Division 8 (commencing with Section 13000), or Division 9 (commencing with Section 15000) of the Probate Code.
(8) Fees, charges, or payments imposed by lenders or purchasers of loans, as these entities are described in subdivision (c) of Section 10232 of the Business and Professions Code.
(9) Any assessment, charge, penalty, or fee authorized by the Davis-Stirling Common Interest Development Act (Title 6 (commencing with Section 1350) of Part 4).

SEC. 4.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.
SECTION 1.

The Legislature finds and declares the following:

(a)Transfer fees based on a percentage of the sales price of a home are increasingly being imposed by developers on home buyers. Often, the imposition of these fees is used to settle disputes between builders and parties who are opposed to a development or, in the alternative, by builders to avoid proactively a lawsuit by these opponents or to smooth development negotiations with the local government. Typically, in return for an agreement by the opponents to the development to not pursue a lawsuit based on one of the state’s environmental protection acts, the builder agrees to the imposition of one or more fees through a covenant that remains in effect through each sale of a home.

(b)Fees totaling 1.75 percent of a home’s sales price have been seen; however, there is no upper limit on the percentage of a home’s sales price at which a transfer fee can be established.

(c)Purchasing a home is increasingly beyond the reach of many Californians and these fees make housing even less affordable. Today, less than a quarter of all first-time home buyers can afford a median priced home in California.

(d)These transfer fees can be imposed for an unlimited period. Generally, the duration of these transfer fees ranges from 20 to 25 years, however many fees are imposed in perpetuity. Consequently, future generations will be saddled with paying fees established decades earlier by developers.

(e)The funds generated by these transfer fees can be used to pay for projects that do not directly benefit the development or the immediately surrounding community. As a result, the homeowners that pay these fees do not receive any benefit whatsoever in return.

(f)The number of transfer fees that can be imposed is unlimited. Multiple fees have been imposed by developers on each home in a development with each fee funding a different purported benefit. Future homeowners will be required to pay these fees without any say as to whether the recipients of the funds should continue to benefit from this revenue source.

(g)The requirements for disclosing the existence of a transfer fee are limited. In addition, the requirement for payment of the fee can be masked by it not applying to the first buyer but only to subsequent buyers. Consequently, many home buyers may be surprised to learn of the additional thousands of dollars that they will be required to pay upon the close of escrow.

(h)The organizations or developers that receive the transfer fee funds are not required to account to any independent oversight entity. Therefore, the public has no assurances that these organizations will work to achieve the goals with which they have been entrusted.

(i)The transfer fees threaten a number of established public policies, namely:

(1)The prohibition on the restraint of alienation. The fees will make it more difficult for homeowners to sell their homes because home buyers will likely balk at paying the fees.

(2)The taxing and spending authority reserved to local governments. The imposition of these fees by developers arguably usurps functions that properly belong exclusively to local government. Moreover, no public vote is required to impose or extend the fee.

(j)Based on the foregoing, The Legislature finds that the imposition of transfer fees shall be prohibited.

SEC. 2.Section 711 of the Civil Code is amended to read:
711.

(a)Conditions restraining alienation, when repugnant to the interest created, are void.

(b)Except as provided in subdivision (c), a condition restraining alienation that is repugnant to the interest created includes, but is not limited to, a covenant, restriction, or condition contained in any deed, contract, security instrument, or other instrument affecting the transfer or sale of, or any interest in, real property that contains a requirement that any transferee pay a fee upon transfer of the real property, unless the requirement was in effect on or before December 31, 2007.

(c)Subdivision (b) does not apply to any of the following:

(1)Fees or taxes imposed by a governmental entity.

(2)Mechanics’ liens.

(3)Court ordered transfers, payments, or judgments.

(4)Property agreements in connection with a legal separation or dissolution of marriage.

(5)Fees, charges, or payments in connection with the administration of estates or trusts pursuant to Division 7 (commencing with Section 7000), Division 8 (commencing with Section 13000), or Division 9 (commencing with Section 15000) of the Probate Code.

(6)Fees, charges, or payments imposed by lenders or purchasers of loans, as these entities are described in subdivision (c) of Section 10232 of the Business and Professions Code.

(7)Any assessment, penalty, or fee authorized by the Davis-Stirling Common Interest Development Act (Title 6 (commencing with Section 1350) of Part 4).