N.C. law banning transfer fees is questioned

newsQ. I need guidance on the new law dealing with transfer fees. I am a real estate agent and I have a home listed in a community whose covenants, conditions and restrictions state that a fee of 6 percent of the sales price of every home is to be paid to the developer at closing. With the new law banning transfer fees, is this seller obligated to pay the 6 percent to the developer at closing?

The governing documents of many communities, often called Covenants, Conditions, and Restrictions (CCRs), require the payment of a fee to the HOA upon the sale of a home.Such fees can be helpful for a fledgling HOA trying to build its capital reserves. These transfer fees typically were imposed only on the initial sale of a home, but not on subsequent resales.

Several years ago, many developers started putting provisions into the CCRs for their communities that require the payment of a fee to the developer (as opposed to the HOA) upon not only the initial sale of a home, but also on every subsequent resale.

The sole purpose for these transfer fees is to generate an ongoing income stream for the developer. At least 18 states have restricted or banned transfer fees; the federal agency that oversees Freddie Mac and Fannie Mae has proposed new rules that would prohibit these organizations from investing in mortgages on homes in communities that have transfer-fee covenants in their governing documents.

The N.C. General Assembly passed a law that became effective July 1, banning such fees for communities developed after that date. However, a plain reading of the wording of the law leads me to believe that the ban is not retroactive, and that transfer fees contained in CCRs recorded before July 1, 2010 are still legal and may be enforced by filing a lien against the subject property if the fee is not paid at closing.

If the CCRs in your case were recorded prior to July 1, 2010, I believe that the closing attorney must collect the fee and pay it to the developer. If the fee is not paid, I believe that the developer may have a right to file a lien against the home – that is, until our appellate courts rule otherwise

Charlotte attorney Michael Hunter focuses on community and condominium association law for the firm of Horack Talley.
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