Governor Arnold Schwarzenegger signed AB 980 (Calderon), Disclosure of Private Transfer Taxes, into law this month. The legislation, according to California Realtors, seeks to protect home buyers.
AB 980 will require that existing private transfer taxes are clearly disclosed and will ensure that home buyers aren't surprised by an additional expense at the close of escrow. A stand-alone document on the private transfer tax will now need to be recorded to become part of the title record, as well as a separate disclosure to potential home buyers as to whether the home they are considering purchasing requires the payment of a private transfer tax, the percentage of the home price constituting the PTT, the duration of the payment obligation, and the recipient of the PTT payment.
Realtors with the Silicon Valley Association of REALTORS® have joined Realtors across the state of California in the fight to prohibit PTTs that give developers, non-government entities and individual property owners the power to tax. The practice is allowed due to a gap in California law that lets developers and other private sellers to impose PTTs on home buyers every time the home is sold with no oversight, no accountability and no limit on the amount of the tax, or how many of these taxes can be "piled" onto the same home.
Silicon Valley Association of Realtors President Mark Burns said, "Although AB 980 will create more transparency in a transaction where a PTT is present, there are still no restrictions on where or how proceeds from private transfer taxes can be spent; no accountability or oversight of the recipients of the private transfer tax funds; no limits on how long a private transfer tax may be imposed; no limits on the amount of private transfer taxes that can be imposed on home buyers; and no clear mechanism for disclosing the existence of a private transfer tax obligation to home buyers."
Burns said Realtors attempted to prohibit this practice, but the bill was defeated in committee this June.
"Only government should have the power to tax," said Burns. "With this newly discovered mechanism, anyone selling a home in California is free to assess a PTT on future buyers. Currently, the highest rate we are aware of is 1.75 percent of a home's value, but there is no limit."
Burns said there is no requirement that the proceeds from these taxes benefit the local homeowners or their community. "These proceeds can even be used for personal benefit. Every time the cost of a home increases $10,000, another 200,000 purchasers can't afford to buy a home, putting homeownership farther out of reach for more families.
"PTTs are an ongoing source of revenue for those who benefit from them, and there is no oversight to make sure that the funds collected are spent appropriately. In fact, some PTT revenues are currently being used to benefit people and causes in other states," said Burns.
AB 980 will take effect in January 2008.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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