Homeowner’s associations in California are governed by state law (California Civil Code), and the section that specifically addresses HOAs (also called CIDs for “Common Interest Developments”) is called the Davis Sterling Act.  This is the collection of rules that cover operating the association, collecting member assessments, privacy, elections, notification of meetings, penalties for late payments, access to information, homeowner’s rights, and other consumer protection provisions.

1366.1. An association shall not impose or collect an assessment or
fee that exceeds the amount necessary to defray the costs for which
it is levied.

So what would be reasonable fees to defray the costs?

For the Document fee, I estimate a maximum of 500 pages of documents @ 25¢ per page to copy (although a pdf on disk would be more efficient) + maybe $25 for courier or mail delivery?  That total would be $150.  Add another $25 for the time it takes a person to make the copies and put them in an envelope?  Ok, maybe $175 could be justified, but only by being generous with rounding factors.

The Transfer fee may require spending a total of 30 minutes to look up the balance due on that property and sending that bill to escrow, then changing the name in the records at close, along with providing new membership cards and keys.  Some associations also require that someone physically view the property to make sure that it conforms to the association standards and that nobody painted it purple or extended a balcony without permission.  A reasonable Transfer fee could be as high as $150, by my calculation.

Unfortunately, the Davis Sterling Act does not limit private HOA management companies who manage associations as a business.  They have a right to make a profit, and when challenged in court, the court ruled that  “Competitive forces, not the statute, will constrain the vendors’ fees and charges.” In reality, there are no competitive forces available in this situation.  The management company that has the authority to provide the documents and complete the transfer is essentially a monopoly and there is no alternative but to give in to their extortion!  (Some of the private HOA management companies in Orange County are charging as much as $700, and when a condo is part of several associations & sub-associations, it can add up to a substantial part of the closing costs!)

What can be done about this? By the time you are either a buyer or a seller, it’s too late!  The management company is going to gouge someone.   If you currently live in a HOA that is managed by a private management company, you need to bring this to the attention of your Board of Directors.  The Board selects the management company and has the authority to control them. They have a contract that states what monthly fees will be charged to the homeowners for managing the association, and can put a limit on these fees if it is brought to their attention.  If enough homeowners demand that this be controlled, it can be!

I’ve ranted about this before!

If you are buying a new home, you may request a reservation in advance for the credit.  So far, they have received applications for about 63% of the budgeted amount.  If you are planning to buy a new home, there is still a chance to get in on this if you buy in the next few months.

If you are a first time buyer (haven’t owned a home in 3 years), you can’t reserve this credit – you need to close escrow first, then fax in the paperwork.  They promised to take 28,000 applications so this program is technically still open, but they have already allocated $105,898,000 as of June 29th!  They expect many of these to be duplicates, or not qualify for some reason, so they will continue to accept the requests until they reach the 28,000 limit.

If you want to monitor this project, check the latest reports from the California Franchise Tax Board .  It is supposed to be updated each week on Thursday.

If you want more details about this program (that I tried to translate into understandable language), see my prior article.

Some Clouds, Some Sun

Real estate sales activity in Lake Forest for the first half of 2010 was dominated by first time buyers who were motivated to purchase before April 30th, and close by June 30th.

Congress and the President have now created one more extension that will allow buyers who were under contract before April 30th, to close by September 30th in order to qualify for their tax credit of either $8000 for first timers, or $6500 for the repeat buyers who had lived in their prior residence for at least 5 of the last 8 years.  The extension won’t help any new buyers today, but the historically low interest rates (under 5%) seem to be stimulating a fair amount of interest now.

What happens to the market over the next 6 months is just about anybody’s guess right now.  While I expect things to slow down due to normal seasonality as well as the end of the tax credit, I haven’t seen it yet.  The agents that I talk to regularly seem to be just as busy as they were in April.  Pricing is somewhat of a question, as the logical expectation for the first time buyer price ranges is that the prices would drop by the $8000 tax credit as soon as it expired.  I don’t think we will really be able to draw any strong conclusions until early August when we get the July closing numbers.  My gut feeling is that the low interest rates will hold up the low-priced end of the market because the smaller homes are now priced very close to rental parity.

Total properties sold through June 30, 2010 was 316, slightly less than the 330 sold during the same period last year.

• 110  (35%) were short sales.

• 62 ( 20%) were bank-owned, or flipped by investors.

• 144 (45%) were sold by individuals who did not need their lender’s permission to sell.

The single family homes ranged from $200,000 to $852,000 with an average of $268 per square foot over all.

The 2 lowest sales are so far under their list prices, that I seriously doubt the reported sale prices.  The $200,000 sale was listed for $349,000 and private financing was used.  Since it just closed on 6/29, I haven’t been able to verify yet it on the tax records.  The next lowest sale at $310,000 was listed for $430,000 and the MLS states that the buyer paid all cash in March, but there is no recording of this transfer in the public records.  The lowest sale that I can confirm was a short sale that closed on 4/29 at $340,000 after 105 days on the market.

The high sale at $852,000 was an upgraded home in the Montbury neighborhood with a pool, a view and a 12,000+ square foot lot that sold in 6 weeks.

Short sale single family homes averaged $452,900 at  $238 per square foot, and took 158 days from listing to closing.

The traditional sales, investor flips and bank-owned sales of single family homes averaged $535,000 at $280 per square foot and took 54 days from listing to close.

The condos and townhomes ranged from $90,000 to $407,000.

The low sale was a one-bedroom condo that was a short sale and took 161 days to sell.  The high sale was an investor-owned (flipped) townhome that was highly upgraded and sold in 6 weeks after 2 price reductions.

The 63 short sales averaged $200,661 at $180 per square foot and took 131 days on the market.

The 83 traditional sales of condos averaged $224,144 at $200 per square foot and took 44 days on the market.

*All data is from the Southern California MLS, and is as accurate as the agents who entered the info!

There are big differences between the California program and the Federal program that just ended because it is allocated over 3 years, and it is “not refundable”.   If your California tax bill is less than $3,333 per year, you will not get the difference back!  You can’t carry any amount over from one year to the next either!

Anyone Can Buy a New Home:

If you buy a brand new home, that has never been occupied, and it closes escrow after May 1, 2010 you may qualify for the credit, if the program has not yet run out of money.  For a new home, you may request a reservation if you did not sign the contract before May 1^st.  If you signed before May 1^st, the state’s website suggests that you cancel that contract and write a new one with a May 1^st date on it. (This seems silly to me, but that’s really what it says – see the Q & A section at the California Franchise Tax Board.)

Since you followed their advice and cancelled, then re-wrote your contract on a new home, you may now submit a reservation form by fax only! This should reserve your allocation of the credit, but you will still need to send in the “2010 Application for New Home/First Time Buyer Credit” form no later than 2 weeks after the close of escrow.

A First Time Buyer Can Buy a Re-sale Home, or a New Home :

If you are a “first time buyer” (you haven’t owned a home in the last 3 years), you may qualify for up to $10,000 credit (maximum of 5% of purchase price).  It still needs to be your principal residence, and you need to live in it for a minimum of 2 years, or give the money back.  The first time buyer credit allocation is expected to run out faster than the new home credit, so it is important to fax in your reservation form as soon as you have an accepted offer. Correction : They won’t take any reservations from First Time Buyers, only the New Home Buyers. Then, don’t forget to send in the “2010 Application for New Home/First Time Buyer Credit” form no later than 2 weeks after the close of escrow.  If you are a first time buyer and the home you are buying is new construction, your reservation will be applied to the new home budget amount.  Unfortunately, you can’t “double dip” and get both tax credits!

If you want to take advantage of these credits, give me a call and I’ll help you find the house (fast – before it runs out!)

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