Ban on Private Transfer Fee a Big Win for Buyers

March 16, 2012

Efforts by NAR and others to curtail private transfer fees got a big boost yesterday with publication of a final rule by the Federal Housing Finance Agency (FHFA) prohibiting the fees on mortgages handled by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. FHA already bans the fees.

The fees are encumbrances placed on mortgages by the property developer to generate fees every time the property is sold. The fees range in amounts, but in some cases they’re as high as 1 percent of the mortgage amount and are often in effect for as long as 99 years.

Traditionally, the fees are used to cover expenses related to property improvements such as a community center, which is available as a benefit to all the property owners in a development. In recent years, however, there have been efforts to impose the fees for the sole purpose of generating income to the developers — and in some cases, investors — through the creation of securities collateralized by the fee income, without reinvestment of the proceeds into the property.

NAR several years ago launched a program to assist state associations of REALTORS® to fight the fees. Today, almost 40 states ban them. Yesterday’s FHFA rule, in conjunction with the ban by FHA, builds on these state bans by ensuring the fees aren’t imposed on any loans with government involvement in all 50 states.

“NAR has long been vocal in its opposition to private transfer fees,” NAR President Moe Veissi said in a statement yesterday. “There is virtually no oversight on where or how fee proceeds can be spent, how long a private transfer fee may be imposed, or how the fees should be disclosed to home buyers — and this often places an inappropriate drag on the transfer of property.”

The FHFA ban doesn’t apply to the traditional uses of the fees, in which the proceeds are reinvested in the property for the benefit of owners, or go to tax-exempt organizations or home owners associations or cooperatives. The ban kicks in for covenants created on or after Feb. 8, 2011, the date FHFA published its proposed rule on the ban. Covenants created before that date are grandfathered in, so the fees would be allowed. There are some other exemptions to the ban.

Read more on the fees and why they raise concerns.

By Robert Freedman, REALTOR® Magazine