H.B. 306 Reinvestment Fee Amendments: transcript

Thank you. Members of the committee. This bill came to me, um, from a constituent who moved three times, um, over the course of five years. And each time she moved into an HOA and when she moved, she had to pay a 0.5% reinvestment fee of the cost of her home. So, um, that was really a home affordability issue for her and something that, um, it, the buyer or the seller can bring to closing. But, um, in a seller's market, it's often the buyer. So this, I, she came to me and said, I have, I kinda have a home affordability idea for you. Uh, and so, uh, what I proposed to do is to cut, um, the reinvestment fee for HOAs that have lower amenities. So what this bill does is it redefines, um, different types of HOAs. So we've defined a low amenity, HOA, so that's an, uh, HOA without a capital intensive, without any capital intensive, um, projects in it, like pools, walking paths, um, tennis courts, clubhouses. Um, so if you're thinking of a, of just single family homes in an area where HOAs don't do much more than maybe some landscaping or snow removal, that would be defined as a low amenity, HOA. Other than that, we're keeping the 0.5%, um, for the HOAs who need that to have healthy, um, reserve funds. This also clarifies the HOAs that are not with the amendment online, that are not, uh, master plan developments would have to put 50% of that reinvestment fee into the reserve fund to make sure they're healthy and ready to, uh, take care of those capital intensive projects when they may need one. Um, and then this also is a transparency bill. It requires HOAs to post on the Department of Commerce's registry, um, if they do have a reinvestment fee and a transfer fee. So buyers can know ahead of time to prepare for that cost at closing. And with that, I'm happy to answer any questions.

Yes, Senator Musselman. Yeah, so I guess I, I clearly see what you're, you're doing here. Um, but clearly there's a carve out for larger master plan developments. And I, I think I understand you're, you're suggesting that those larger master plan committees have more, uh, amenities, thus they get to continue. Um, let's see. Tell me again what you're adjusting for the carve out and what you're adjusting for those that aren't carved out.

Yeah, so when I initially proposed this, I was, uh, proposing a 0.2, uh, 0.25% cap across the board. However, in working with industry, and also we have, we, uh, have a new HOA ombudsman in the Department of Commerce. Um, they indicated to me that, um, really the health of HOAs is a concern for, uh, for our state. And so they say they use, uh, I mean this is used as a tool and the HOA ombudsman agreed that, um, this is a tool that's needed to replace those capital intensive projects. Things such as pools, clubhouses, tennis courts, um, and then you have like resort communities that have big projects in them, like golf courses, ski resorts, um, and then you also have someo that own their roads or they may be condos that they have to take care of everything on the outside of.

Okay. Yeah, I, I apologize, Mr. I just to, we got, I gotta get to kind of what I'm thinking. I, I recognize what you're doing, but, um, so what's the cap on those that are carved out then? So, 0.5. So it just remains at 0.5 and That it's always been 0.5, Right? Yeah. So in the early two thousands we capped it at 0.5. And, and Then where did you get kind where to carve, carve out where to make the, I guess the, I'm assuming the ombudsman kind of guided you on where to draw the line.

Yeah. Is that how you came? Yeah. Yeah. I worked with industry and the ombudsman and, and this is where we came, came to that, That, so it comes from industry and ombudsman.

Okay. Alright. Thank you. That helps me. Appreciate it.

Uh, thank you very much. Uh, my name is Ty McCutchen. Uh, my business is Third Cadence. We develop large master plan in mixed use communities. And I also am here on behalf of the Property Rights Coalition. Uh, I want to thank, uh, Representative Defay, uh, Senator Musselman as you, uh, noted. Uh, she stated that she worked with industry where some of the groups that she reached out to. And we appreciate the opportunity to work through the, the details of how various communities' needs differ and, uh, while working to, to preserve the end goal of her objective, which is to size these appropriate to the need and, and not have needless costs going to homeowners that don't have highly amenitized environments. So we are supportive, uh, with the amendment that she's got, uh, before you. Thank you.

Um, yeah, so I'm Erin Re I'm the new HOA Ombudsman. And so again, to Senator Musselman's questions, just wanted to thank Representative Defay for her work on this and for, um, you know, this is an issue that comes into our office a lot. We get a lot of questions on this, and I think this will be helpful and clarify. So just wanna thank Representative Faye for her work here.

Uh, I move house amendment nu number one to HP 3 0 6 for sub.

Yes. But is there anything you want to add to that? Yeah, No, I'll wa Okay.

Five to zero. Mr. Chair, I'd like to favorably recommend HB 3 0 6. First substitute as amended.

So thank you Mr. Chair, members of the committee. First of all, I'd like to introduce you to Erin Rider. She is the HOA ombudsman, if you have not had a chance to meet her, but she knows everything there is to know about HOA. So I have her with me in case there are questions that I cannot answer. Um, and I'm excited for all of you get to know her because we passed a bill last year to create her office, and she's doing an amazing job. So, house Bill 3 0 6, um, HOA reinvestment fees was brought to me by a constituent. This constituent moved, um, three times in the span of five years. Um, and each time within a community that was an HOA and that HOA had a 0.5% reinvestment fee. So at closing, she had to bring an extra 0.5% on top of the cost of the house to that closing. Um, and so that 0.5% was, um, created back in the early two thousands. And in the early two thousands, 0.5% of the cost of a home was much less. When you have an average home price of about $250,000, um, than today when you have an average home price of about $650,000. So it, it's, it's very different in today's terms. Um, and so this is kind of a housing affordability conversation. So, um, I, I came from that standpoint. How can we address these reinvestment fees? So what 3 0 6 does is, first of all, it limits how much an HOA can charge, um, depending on how many amenities the HOA neighborhood actually has. So, and we've defined the, uh, capital intensive infrastructure. So if there is an HOA that has pools and walking trails and clubhouses and, and really high capital intensive amenities, then we are keeping that cap at the 0.5%. However, we are creating a new low amenity category. And for those low amenities, we're thinking of neighborhoods where the homes are single family homes. And really an HOA doesn't provide a whole lot, unless maybe it's some landscaping, maybe it's just a fence. Um, maybe it's just a sign at the front of the HOA. Um, if you're moving into that type of an HOA, we're defining it as a low amenity, and we're capping that fee at 0.25%. So we're just making that distinction, um, in, in hopes that we can help with, uh, housing affordability there. Um, finally, we not, finally, there's two more. So not finally, also, the money from these fees, um, are supposed to be used for long-term costs and capital intensive projects like roads, utilities, drainage systems, and major repairs. So to ensure that the money that is collected in these reinvestment fees is spent on that, we have, uh, there's a provision in this bill that 50% of that fee must be put into the HOA reserve so that it can be used for that. And, um, and having great conversations, uh, with Aaron. Um, really HOA health has become, uh, budget health has become a concern. We wanna make sure that HOAs are prepared for these intensive projects and, and are ready and have money in their reserve to take care of these capital intensive, intensive projects. And then now finally, HOAs. Um, we have a transparency piece. It's hard when you're buying a house to find out how much, well, first of all, a lot of homeowners don't even understand, uh, that when they go to buy a home, that at closing they have to have that reinvestment fee. It can land on the buyer or the seller. But in a seller's market typically lands with the buyer. Um, so they'll sh they are sometimes surprised. And that is, I think, where a lot of the shock and the consternation comes. Um, and emotion comes around reinvestment fees is because they simply don't know. And it comes as a surprise and it's hard to get that number. Um, there have been attempts to make it more transparent. This is another level of transparency. So it just requires HOAs to put the reinvestment fee along with the transfer fee, which we're not really talking about here, but just put them on, um, the Department of Commerce's registry and with the disclaimer that they shouldn't rely on those numbers, um, foreclosing documents because they are subject to change. Um, but to help real estate agents and buyers in understanding some of the costs that they'll be facing, um, when they go to closing. And that's what the bill does. I'm happy to answer any questions. Okay.

Thanks. So my question is, when I read this list of things that you had struck around, um, you know, things that they could pay for, things like recreation amenities, charitable purposes association. So I, so my clarifying question is this is just what they can spend their reinvestment fee on. It doesn't mean that if the community decides they want to do some sort of community programming, they couldn't do that with their other funds.

Yes. Right. This is just specific to the reinvestment funds, Correct? Yes. And

I need to clarify, I'm speaking to the sub. Okay. Which has completely different language. It does not. Oh, okay. So the sub is very different.

We, that part that struck out is not struck out in the substitute. So the sub is online. Um, so that might help clarify things as well. And I apologize for not mentioning that at the beginning.

Good evening. Uh, I'll be brief. My name is Ty McCutchen. Uh, my company is Third Cadence. We build, uh, large scale master plans in mixed use communities. And I'm also representing the Proper Rights Coalition. Uh, we are in support of the efforts that, uh, Representative Defay is advancing to, uh, rightsize the fee structure in these smaller communities while protecting the, the robust funding strategies that larger communities need. So we appreciate working with you on that. Uh, we do have, uh, a couple more technical things that we're working through with her, but we support, um, the bill advancing and trust that the good collaboration we've had thus far will continue. We'll be able to address those couple remaining items.

Yeah. I'll move sub one.

I'll waive Motion is

Um, yeah. I'd like to favorably recommend 3 0 6. First sub Motion is to favorably recommend first substitute house bill 3 0 6. Would you like to speak to your motion Just briefly? I've been involved in some HOAs that, uh, in fact most of the HOAs I've even had association with have been on the verge of collapse or very conflicted, uh, participation in the best. I hope this helps and it certainly clears up at least the use of their fees and how they'll be distributed. So I support the bill.

Thank you. Um, I, I think this is a good bill working towards housing affordability and creating transparency for consumers. Thank you.

Thank you Mr. Speaker. This is a home affordability bill. This was brought to me by a constituent who moved three times in the space of five years each time into an HOA. And when she moved into those HHOA, she had to pay an HOA reinvestment fee. In the early two thousands, we capped the reinvestment fee at 0.5% of the cost of the home, which sounded great when the average cost of a home was about $250,000. Now, when an average cost of a home is about $650,000 0.5% of the cost of that home is a big burden and is something that buyers usually have to come to the close to closing with that, with that cash on hand. So what this simply does is it creates a new category for low amenity HOAs. So if your HOA is just standalone homes that provides very little capital intensive, um, uh, amenities, then it caps that fee at 0.25%. And um, then it also has some transparency pieces to it. A lot of people are surprised by the 0.5 reinvestment fee when they come to closing. This would require, um, HOAs to post on the Department of Commerce's registry that they do in fact have transfer fees and, um, reinvestment fees. Um, just helping homeowners know before they go to closing that they are going to have additional costs at closing. With that, I'm happy to answer any questions.

Thank you Mr. Speaker with a sponsor yield to a couple of questions.

Um, I'm just trying to make sure I understand. Going down to, um, well, if we start at line 52 where it has the description of what capital intensive infrastructure means and what it doesn't mean, um, that includes things like regular maintenance and landscaping as far as what it doesn't mean. Um, and I'm curious, when you go down below to line, starting at one 17 on the reinvestment fee covenant, it includes on there these capital intensive infrastructure maintenance, uh, category that's been defined, but it also include includes in that category, things like, um, recreation amenities, common planning. So I guess my question is are, is there a, are there two different definitions here that conflict, if we're saying that, for example, landscaping can't be included in a reinvestment fee under these maintenance programs, but some of these, uh, management of some of the open spaces and such can be,

Uh, Mr. Speaker? No. So it's not saying what reinvestment fees can be used for, although that is already clarified in code. This is just saying that if you live in an HOA with a low amount of capital intensive infrastructure, then you will be classified as a low amenity HOA and with therefore your, therefore your reinvestment fee would be capped at 0.25%. I don't know if I'm answering that correctly.

Thank you, Mr. Speaker. And I guess, um, if I could direct if that's allowed the sponsor to line 60 where it specifically outlines capital intensive infrastructure maintenance does not include the following. This looks like new definition, new code that's outlining not just what the low amenity association, uh, means, but also what capital intensive infrastructure both means and doesn't mean. And that's where my question comes in under maybe some competing definitions here that may conflict. So as I understand it, we're, what the bill is saying is capital intensive infrastructure, it defines what that is and if your HOA does have capital intensive infrastructure, then it would fall under a normal HOA and it would be subject to the 0.5 reinvestment fee. If it does not include capital intensive infrastructure and their standalone homes, then those would then be defined as a low amenity and would therefore be subject to The 0.25% cap. Okay. Thank you Mr. Speaker.

Thank you Mr. Speaker. I rise in support of this bill. And I think maybe just to, to piggyback on the last conversation. I think in addition to what, um, the good sponsor, um, from Davis County was talking about, I think it also adds that capital and intensive infrastructure maintenance to line one 30. So an area where those reinvestment fees could go to pay for. Um, but then the, the lines 60 through 66 is saying that these things are not capital intensive infrastructure maintenance, thus you couldn't use the reinvestment fee to pay for those things. So I, I think that gets at what, uh, the, the good representative from West Valley was, was talking about. That being said, I appreciate, uh, the good sponsor here working and trying to weave, um, a narrow space between different types of HOAs. And I've lived in both types. So I've lived in HOA that is a very low amenity, uh, HOA where we had an annual fee of $90. It, it really paid for them to have someone go around and, and make sure we were putting our trash cans away and, and mowing our lawns. Um, but in that case we, we wouldn't want a large reinvestment fee being charged to everyone when they were selling their homes. Um, at that time we didn't have any reinvestment fee. But I think having some cap in those types of, uh, developments is really important. On the other hand, I currently live in kind of the large planned, uh, um, development that the bill contemplates where, um, the, the members of the community really appreciate the reinvestment fee because it goes towards these things that you talk about in lines. Um, 1 21 through one 30 in particular. They're very, they are very appreciative of the ability for community programming. This allows for a lot of, um, events and activities and art and things like that, that are brought into the community that the things that people wanted to live in the community and reinvest in the community. And that's exactly what we see this reinvestment fee for. And so I just just wanna applaud the good sponsor and trying to, to, uh, narrowly weave between these two different types of HOAs to ensure that we're protecting those in those low, um, uh, low amenity HOAs versus those that are in the high amenity HOAs.

Thank you Mr. Speaker. Will the sponsor yield to a few questions? Representative Faye, will you yield to a series of questions?

Thank you Mr. Speaker. Uh, I've never had the opportunity of living in an HOA, so forgive me if these questions are stupid, but, uh, a reinvestment fee is that charged based on what I see on lines 1 0 5, 1 0 6, that fee is charged at the buyer, buyer buying or selling of real property or transfer of property. Is that correct?

Yes, that is correct. Can you tell me

what additional or new impact that causes that would, that would initiate, uh, an increased fee?

I'm understanding the, the question correctly. Um, the, the need for an increased fee is often because of these capital intensive projects. Usually it's happens. Um, they have, uh, a reserve fund. Most hos have a reserve fund that's used for these for usually replacing roads, pools, clubhouses, roofs, um, things that cost a lot of money. Uh, and so they keep this reserve fund and charge this fee to keep those reinvestment, to keep those, uh, capital intensive projects up to date.

I think, I think I understand that. I, I guess, um, my question is, the person that lived there before was paying into the HOAI assume, and I'm just curious why, and I appreciate you lowering the cost of it. I would like to, I think, see it go to nothing, but I've never lived in one of these. I just don't understand how selling a property that's been occupied, uh, would, would cause an increase in this fee. So thank you for lowering it, I guess, but I'm still trying to understand why we charge these fees.

So thank you. I, I I agree with that sentiment. I've worked closely with the home builders, with the HOAs and with the stakeholders to strike a balance. Um, it is a tool that they use to fund infrastructure and projects, um, that they would otherwise not have. Uh, the, the bigger question is the health of these HOA funds and finding ways to make sure that they are staying healthy and, uh, doing the job that they're supposed to do.

Thank you. Thank you for the discussion. This is, this is a bill about home affordability. It's about consumer protection and transparency and I encourage your support. Thank you.

the HOA can sometimes charge a reinvestment fee. This puts clear rules around that reinvestment fee. It limits how much an HOA can charge. And the limit depends on how many amenities are in that particular HOA. It creates different classifications of HOAs low HOA, which would cap it at 0.25 of the cost of the house. And then, uh, if, if it's a higher amenity, HOA, then it, then it scales that up and then it prescribes that the money from these fees can only be used for long-term costs. So these are like roads and shared utilities, drainage systems, stuff like that. A minimum of 50% of the fee must go into reserve saving. This helps the HOAs plan instead of using these reinvestment fees for their operating costs, uh, it also has some, uh, requirements that they clearly report the fees to the Department of Commerce. So this is about increased transparency on reinvestment fees. It's about not funding the operations of HOAs on investment reinvestment fees.

I move that we pass First house bill 3 0 6.

Senator Vickers Baldry Bwin B Bramer Bus Comore Escamilla. Phil Fillmore Grover Harper Hankins Ipson Johnson. Quan McKay Mikel Milner Aye. Musselman Musselman Owens Pitcher Plum Rebi Sandal Stevenson Stevenson Stratton Bickers Weiler Wilson Winterton.

Motion to concur with the Senate amendments Representative. That motion is ordered. I speak to it.

Yes. Uh, this amendment just, uh, in the original bill required HOAs to post on the Department of Commerce's registry the, uh, reinvestment fee, um, the actual amount. This just requires them to post the reinve that they do have a reinvestment fee for transparency purposes.