The Federal Housing Finance Agency (FHFA) released a Proposed Rule on February 8, 2010, concerning the hotly contested ban on private transfer fees. The proposed rule would prohibit Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from buying mortgages on properties encumbered by private transfer fee covenants. Community
Association Institute defines a private transfer fee as “any fee or
payment required at time of sale of a property by a deed or covenant
restriction.” Many associations depend on these fees, typically a
percentage of the sales price of homes and condos, to pay for
association improvements or maintenance. The FHFA deems these covenants to be “adverse to the liquidity and stability of the housing finance market, and to financial safety and soundness.”
However, the FHFA proposes to exempt private transfer fees paid to homeowners’ associations, condo cooperatives, and certain tax-exempt organizations that rely on these fees and apply them for the direct benefit of the encumbered property owners. This is good news for associations, especially in light of the current financial climate. The proposed rule will effectively just prohibit transfer fees paid to investors at the time the property changes ownership. Application of this rule will be prospective, therefore it will not apply to existing transfer fees.
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Authors: Ryan McCabe