Homeowners Unite!

Thanks to Gary Feltner, you can read about how his homeowner’s association and others were being subjected to a little scam he was able to put the stopper on.  Just shows you what one person can do independently!  

Alleged Extortion by Property Management Companies

Background

Due to my real estate investments (buying/selling) I’ve uncovered an extortion trend performed by several Property Management (PM) companies in the Austin, TX area.  The companies I describe also manage Home Owner’s Associations (HOA).  This is important because they are extorting money from the HOA members WITHOUT jurisdiction and without board of directors even knowing.

The fee which I am talking about is called a “Resale Certificate” and/or “Transfer Fees”.  The Texas statute which governs this document and issuance is the Texas Property Code Chapter 207.  This particular code simply says if a buyer is buying a house which is governed by a Property Management Association (aka HOA), then the HOA is obligated to provide 15 items of information related to that HOA.  It goes on to say that an HOA can charge a reasonable fee to assemble, copy and deliver such document.

What has happened is that PMs at one time charged $50.00 to create a “Resale Certificate”; however, today this charge ranges between $300.00-$700.00 or more. 

How the Extortion Scheme Works

Here is the scheme which can occur when an HOA hires a PM to help manage the HOA.  

1.              When you sell a home that is part of an HOA in the state of Texas, Texas Property Code Chapter 207 requires an HOA to provide disclosure.  This disclosure/information is called a “resale certificate”.

a.     By law, the HOA is responsible.

b.     By law, the HOA is liable.

c.     By law, the HOA can charge a reasonable fee to assemble, copy and deliver a “Resale Certificate”.

2.               What kind of money are we talking about?  PMs are charging between $300.00-$700.00 to provide this document to the new owner.  If you consider the number of sales that occur a year in an HOA subdivision, this adds up to SEVERAL THOUSANDS of DOLLARS per year.

3.              How does this kind of fee get out of control?  Most of the contracts which PM’s provide to HOA only state they will take care of the issuance of a “Resale Certificate” but do not disclose what they charge.  PM’s wrongfully ASSUME they have the authority to: ESTABLISH A FEE, CHARGE A FEE, COLLECT THE FEE FOR THEIR OWN ACCOUNT and RAISE THE FEE (for any reason) to a CAPTIVE audience/homeowner.  When I say CAPTIVE, I mean the homeowner is FORCED to pay that fee at closing or the title company won’t process the sale.  The owner can’t shop around for this service; there is no competition (supply/demand) to help stabilize that fee.  When one considers this scheme FORCES a seller/or buyer to pay for a fee which has absolutely no control by anyone EXCEPT the PM who is collecting those feed for their own account, is simply EXTORTION.

4.              How are they getting away with it?  It’s simple!!  First, the average home buyer or seller doesn’t understand what a resale certificate even is.  They assume it’s a legitimate fee which occurs at closing and is governed by some entity (Texas Real Estate Commission) or perhaps regulated by the free-market (supply/demand).  Unfortunately it’s neither because it is a fee hidden from the HOA and charged to the seller or new owner with NO control and oversight by the HOA.  The PM has the title company send the checks DIRECTLY to the PM so the HOA never has any idea what is being charged to the people they represent.

What Needs to Happen

Obviously there needs to be contractual disclosure by the PM as to what they charge.   This or any fee they intend on charging needs to be disclosed in the contract between the HOA and PM.  The fee should not be changed unless the PM provides adequate notice and reason to the HOA.

Accountability is a HUGE piece of the puzzle.  The HOA MUST financially account for this money because they are legally responsible per Texas Property Code.  Meaning ALL checks written and issued by the title company MUST be made out to the HOA and NOT the PM.  The PM can in turn bill the HOA for their services.

1.      It allows HOA to financially account and track this money they’re legally responsible for.  It also allows for continuous monitoring of the PM charges.

2.      If you do the math, there is substantial compensation made from those fees and there are 1099 Federal Tax requirements which say an HOA must report this compensation to the IRS.  Currently this is NOT happening.

What Kind of Money are the PMs Making Off this Extortion?

What a PM charges an HOA is a monthly fee which is per house per month.  A fee that is typical is $6.00/month per house (or property).  In this example, let’s consider a 400 house subdivision!

Typical fees collected monthly

The equation is simple, 400 homes * $6.00/home = $2400.00/month is what the PM will charge an HOA to help manage the common areas of the subdivision.

Fees collected by Resale Certificates

Now for the “Resale Certificates”.  Before we get into the calculation, we must first make an educated assumption on how often the average homeowner moves.  Well based on statistics, a family moves on average once every five years.   For our equation, we will be a little conservative and consider a family moves every 6 years.

Per Wiki:  About 40 million people move annually in the US. Nearly 3/4 of the US population moves an average of once every 5 years. Many things contribute to these statistics:

 (400 homes / 6 yearly rotation period)  / 12 months per year) * $400.00 per resale certificate.  The total month calculation is $2,222.22/month

Look at the profit; a PM almost DOUBLES their monthly income by extorting money from HOA members.

In Summary:  Why is this Wrong???

1.     Because there is no disclosure or accountability and people are FORCED to pay this fee at closing, extortion exists and is illegal!

2.     Fees are ridiculously high.  A resale certificate takes 15 minutes to email the “pre-drafted” document via PDF file to the title company.  Charging anything over $100.00 absolutely ludicrous.

3.     This should be considered compensation and requires 1099 Federal Tax disclosure, “What the PM is paid by the HOA”.

 

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19 thoughts on “Homeowners Unite!

  1. We are being royally ripped off by Associa-Principal Management Company. Anyone else know these ripoff artists? Their starting fees are $300 and our contact manager states publicly that they use it as a revenue item. I am asking our HOA Board to intervene because their is nothing in the management company contract with the HOA that allows the management company to charge members extra fees.

  2. I am in Houston on the HOA Board of a subdivision. The “Resale Certificate” requires to be current information with disclosure of any violations for the subject property under contract. All that requires additional work that the Property Manager is not paid for in the HOA Management contract, so the PM keeps that fee. We tried to negotiate to get half that fee, but the PM wanted to raise the other fees that all other homeowners would have to pay. The Board did specify the maximum fee charged to be under $ 200.

  3. So what can be done? Your assertions are great and true, but it seems the PM’s win. What you say should be done is correct, but how can that be enforced?

  4. Associa-Principal Management Company is charging 365.00+15.00 “convenience fee” for resell certificate. I have to have this within 14 days and they take 4-10 business days so am forced to order it now. Is there anyway to get this back, this is ridiculous.

    Sarina

  5. Sarina — who is your state representative or Senator? Go to this URL if you don’t know. You need to call their offices and see what they can tell you. We don’t know what the status is of the law in place: http://www.fyi.legis.state.tx.us/Home.aspx. Please let us know what you learn. We could also publish an article about this.

  6. We’re selling our home and got hit with a $385 resale certificate fee by Associa. Having friends on the HOA’s board, I got a copy of the PM agreement with Associa Hill Country. Per the agreement, Associa is only entitled to charge a “fee not to exceed Managing Agent’s current published rates for such service at time of service.”

    There was no attachment or disclosure of what that rate was, nor is the information publicly available on their website or recorded with the County recorders offices I checked. Better, not even the board members I spoke to seemed to have any idea what the charge was.

    I’m pretty sure that having to call someone up or submit an e-mail just to find out what the charge is does not amount to a “publication.” Given that, IMHO Associa is guilty of both breaching the agreement and defrauding HOA members.

    My bet is that they do this day in and day out with other HOAs.

  7. Thank you for publishing this article. My first visit to this site, and love it already. Keep up the fight!
    My situation is exactly this. Small time HOA charging $300 for a transfer. I’m not certain there is even a PM company, they seem to be sell managed. The annual dues are only $120 per year. This is a redneck subdivision back in the woods of Willis, TX. A mix of trailer homes and small 1000sq/ft houses, but again they charge $300 to just transfer! I’m selling the unimproved lot for $10k. Here is the kicker to me. The lot went 10+yrs without the owner paying the county taxes or HOA dues, then I purchase it at county auction for back taxes $5k. So now, finally the HOA has an owner that will pay the yearly assessment dues of $120, but that is apparently not enough. They want the $120, plus $300 transfer, plus 75% in late fees because I didn’t register and pay the dues the first year I had the property….. HOA’s are out of control! I may not even sell the propery now, just to stick it back to them.

  8. I am selling a home in a subdivision managed by Goodwin Management. They have just mailed me a bill for $550 for the Resale Certificate. This is totally unreasonable.

  9. Can’t disagree with you there. Voters need to get their own “union” — the League of Independent Voters — is working to unite them across party lines in order to start telling the legislature to focus on bread and butter, not bathroom. 🙂

    Please consider joining the LIV at:

  10. Associa Principal Management is getting us too. $440 resale cert. $150 working capital fee. $200 transfer fee. And a $200 post closing fee. That is $990 just to MOVE OUT of our house. Seriously don’t know how to fight it.

  11. I just sold a house in Temple, TX. The HOA fee is $100 a year. Yet I paid $300 for ‘ordering the HOA package’, and $170 for HOA transfer. The HOA used to be simple. It paid a volunteer $500 or $1000 a year to do the work (mainly paying utilities and maintenance of the common area.) Now the HOA is managed by Spectrum, and HomeWise. I am sure both charge a hefty fee. They rip me off since I am selling my house for nearly $300k, and they figure I would not mind paying an additional $500 after paying $30,000 to the Realtor. They think that $500 is a small amount to pay to move forward. But some of us don’t like to sit back and being robbed. I love my old subdivision. I would not mind of my $470 goes to benefit it. However, if it goes to fatten up Spetrum and Homewise it is a crime. There is absolutely no reason to charge me $470 to move out while the HOA dues are ONLY $100 A YEAR!!!!

  12. Does the State of Texas put limitations on the amount of the Resale Fee?
    If the HOA is charging and filling out the resale certificate. Does the Resale money go into the coffers of the HOA and/or can the HOA President that filled out the certificate pocket those funds for themselves?

  13. Associa’s charge for a resale certificate in 2018 was $625. $400 consisted of a “processing fee”, and $225 for a “post-closing fee”.

  14. I just received a request from Goodwin & Company for $600 to send the Resale Cert package. This seems completely unethical, especially during the current COVID pandemic and economic downturn.

    Also, prior to receiving the request to pay $600 to GW&Co I actually received a fee request iao $445 for Cornerstone, but the title agent was advised that Cornerstone merged with GW&Co, so now the fee is $600. It’s the same property manager/director at the same office address!

  15. I live in Sun City and trying to sell our house. They are charging 1/4 of a point based on the sale price of the house for the HOA Transfer fee and an additional; $200 for the transfer certificate. Cant our Texas Real estate Commission do something about this?

  16. We apologize to all the folks who have commented that we cannot advise you. If someone reading this page wants to help us get answers, please call 512.213.4511. That is not a call phone. Thank you. Linda Curtis

  17. Well, someone is making off with a good bit of money! I live in the condos at Twin Creeks – Sunset Ridge, not only do I have to pay for Sunset Ridge HOA fees at $220 per month but I have to pay Twin Creeks an additional $99.00. So not that I am selling by house I have to prepay $1050.00 for my resale certificates. ARE you kidding me!! I had to pay an entry fee to join the HOA at $200.00!! HOW DO WE STOP THIS MADNESS????

  18. It is a big project to get legislation passed. We support the League of Independent Voters’ efforts to build chapters around the state to get people together to develop legislation on any issue that’s really bothering people. This is a hot issue. Please visit LIVTexas.org, sign up to get their emails. From there, invite them to set up a meeting (via Zoom) with folks you know and that’s where you start! Their number is 512.213.4511. Thanks for asking!

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