Bulletin: CA2010001

Dear Associates: 

This Bulletin describes current Company policy regarding covenants purporting to require the payment of a fee upon the transfer of real property (hereafter "Transfer Fee Covenants").  The common characteristic of such covenants is generally a requirement to pay a fee each time the property is transferred (on the current sale and all future sales), for an extended period of time, sometimes as long as 99 years.  The fee varies, but is generally a percentage of the selling price or the gross sales price.  Some purport to create a lien on the property in the event the transfer fee is not paid.   

These covenants may be created in separate documents and may be referred to as "Transfer Fee Covenants," "Freehold Licensing Transfer Fee Covenants," GenEstate Legacy Covenants," "Private Transfer Taxes," "Charitable Housing Agreement Imposing Endowment Fee On Transfer And Lien," "Covenant And Declaration Imposing Community Benefit Fee On Transfer" or some similar name.  In some cases, the transfer fee provision is included within other documentation, such as a general declaration of covenants and restrictions, or in a deed.  Because new names may be used as time passes and the descriptions may vary, you must read all such documents very carefully. 

California Civil Code Section 1098 states "A 'transfer fee' is any fee payment requirement imposed within a covenant, restriction, or condition contained in any deed, contract, security instrument, or other document affecting the transfer or sale of, or any interest in, real property that requires a fee to paid upon transfer of the real property." 

California Civil Code Section 1098.5 states "When a transfer fee, as defined in Section 1098, is imposed upon real property on or after January 1, 2008, the person or entity imposing the transfer fee, as a condition of payment of the fee, shall record in the office of the county recorder for the county in which the real property is located, concurrently with the instrument creating the transfer fee requirement, a separate document that meets all of the following requirements: (1) The title of the document shall be "Payment of Transfer Fee Required" in at least 14-point boldface type. (2) The document shall include all of the following information: (A) The names of all current owners of the real property subject to the transfer fee, and the legal description and assessor's parcel number for the affected real property. (B) The amount, if the fee is a flat amount, or the percentage of the sales price constituting the cost of the fee. (C) If the real property is residential property, actual dollar-cost examples of the fee for a home priced at two hundred fifty thousand dollars ($250,000), five hundred thousand dollars ($500,000), and seven hundred fifty thousand dollars ($750,000). (D) The date or circumstances under which the transfer fee payment requirement expires, if any. (E) The purpose for which the funds from the fee will be used. (F) The entity to which funds from the fee will be paid and specific contact information regarding where the funds are to be sent. (G) The signature of the authorized representative of the entity to which funds from the fee will be paid." 

Section 1098.5 also states "For transfer fees, as defined in Section 1098, imposed prior to January 1, 2008, the receiver of the fee, as a condition of payment of the fee on or after January 1, 2009, shall record, on or before December 31, 2008, against the real property in the office of the county recorder for the county in which the real property is located a separate document that meets all of the following requirements: (these requirements are the same as shown above (1) and (2), (A) through (G). 

As of the date of this Bulletin, all Transfer Fees, unless exempted pursuant to Section 1098, must have a separate document recorded in compliance with the provisions of Section 1098.5.  Those exemptions are as follows: (a) Fees or taxes imposed by a governmental entity. (b) Fees pursuant to mechanics' liens. (c) Fees pursuant to court-ordered transfers, payments, or judgments. (d) Fees pursuant to property agreements in connection with a legal separation or dissolution of marriage. (e) Fees, charges, or payment  in connection with the administration of estates or trusts pursuant to Divisions 7, 8 or 9 of the California Probate Code. (f) Fees, charges, or payments imposed by lenders or purchasers of loans, as these entities are described in Section 10232 of the California Business and Professions Code. (g) Assessment, charges, penalties, or fees authorized by the Davis-Stirling Common Interest Development Act. (h) Fees, charges, or payments for failing to comply with, or for transferring the real property prior to satisfying, an obligation to construct residential improvements on the real property. (i) Any fee reflected in a document recorded against the property on or before December 31, 2007, that is separate from any covenants, conditions, and restrictions, and that substantially complies with subdivision (a) of Section 1098.5. 

The following policies and guidelines apply to all properties subject to a Transfer Fee. 

Do not insure any Transfer Fees by showing them in Schedule A nor indirectly by not taking the appropriate exception as shown below. 

Upon discovery of a Transfer Fee in the chain of title, all preliminary reports, commitments and policies must contain the following exceptions: 

For an Owner's Policy:  (Covenants, Conditions and Restrictions, set forth in instrument recorded __________, as instrument number __________, official records of _______________ County, together with transfer fees set forth therein, and as set forth in instrument recorded __________, as instrument number __________, official records of _______________ County, together with transfer fees set forth therein). These instruments include provisions purporting to create a lien on the Land payable upon each transfer of the Land.  Notwithstanding any Covered Risk, policy provision, or endorsement to the contrary, this policy does not insure against and excepts all loss or damage due to the failure to pay any fees, amounts, or assessments: (a) on any prior transfers of Title, (b) on the current conveyance of Title, and (c) on any future transfers of Title. 

For a Loan Policy:  (Covenants, Conditions and Restriction, set forth in instrument recorded __________, as instrument number __________, official records of _______________ County, together with transfer fees set forth therein, and as set forth in instrument recorded __________, as instrument number __________, official records of _______________ County, together with transfer fees set forth therein).  These instruments include provisions purporting to create a lien on the Land payable upon each transfer of the Land.  Notwithstanding any Covered Risk, policy provision, or endorsement to the contrary, this policy does not insure against and excepts all loss or damage due to the failure to pay any fees, amounts, or assessments: (a) on any prior transfers of Title, (b) on the current conveyance of Title, (c) on any future transfers of Title, and (d) a lack or loss of priority of the Lien of the Insured Mortgage to any lien securing the payment of such fees, amounts, or assessments. 

Modifications to the Loan Policy exception may be made as follows: 

(a)    You may delete section (a) of the Exception if you receive acceptable documentation, in recordable form, confirming that the applicable fees have been paid for all prior transfers of the property.  If not already of record, you should record such documentation with all other closing documents.

(b)    You may delete section (b) of the Exception only if you receive acceptable documentation, in recordable form, confirming that the applicable fees have been paid for the current transaction.  You should record such documentation with all other closing documents.

(c)    You may not delete section (c) of the Exception from any policy.

(d)    You may delete section (d) of the Exception if you furnish the Transfer Fee documentation to Stewart Underwriting Personnel and they approve such deletion.

(e)    You may not make any other modification to the Exception or provide any affirmative coverage relating to the Transfer Fee Covenants without Stewart Underwriter approval. 

Other policies and endorsements: 

In addition to the 2006 ALTA Owner's and Loan Policies, you may issue the following policies and endorsements, upon the following conditions:

1. A Short Form Loan Policy, provided that you add the Exception to the Addendum.
2. An ALTA Endorsement 4-06 (115.1-06), 4.1-06 (115.3-06), 5-06 (115.2-06), 5.1-06 (115.4-06), 9-06 (100.2-06), 9.1-06, 9.2-06, 9.3-06 (100.2.1-06), 9.4-06 (100.2.2-06) and 9.5-06 (100.2.3-06); and any CLTA 100 series except as shown below,  provided that you add the Exception to each policy.
3. A Homeowner's Policy provided that you add the Exception to each policy. 

You may not provide affirmative insurance in Schedule B with respect to the Transfer Fee Covenant. 

Do not issue CLTA 100.4, 100.5, 100.6, 100.7, 100.8, 100.13, 100.19, 100.20, 100.27, 100.28, or  -06 counterparts unless they contain a similar exception for any transfer fee documents or are authorized by Stewart Underwriting Personnel.

If you have questions relating to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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