FHFA Proposes Ban on Transfer Fees

On August 13, 2010, the Federal Housing Finance Agency (FHFA) issued a proposed regulation to ban the use of deed-based or covenant-based transfer fees. The proposal would prohibit Fannie Mae, Freddie Mac and all federal home loan banks from purchasing mortgages for properties in communities with deed-based transfer fees. While the target of the regulation appears to be private transfer fees that require a payment to a third party each time a property is sold, the proposed rule, as currently written, would include deed-based transfer fees used by many community associations. Click here for a recent Los Angeles Times article that addresses this issue.

A Private Transfer Fee is defined any fee or payment required at time of sale of a property by a deed or covenant restriction.

This new rule, if adopted, could have a significant impact on those communities that have private transfer fees in their governing documents.

The question you are likely asking is whether this new rule would impact fees charged by management companies or associations at the time of a property sale. This is hard to determine. According to the Community Associations Institute, “[s]ince the target of the proposed regulation are fees that are required to be paid by deed-based or covenant-based restrictions [meaning the fee is mandated by the CC&Rs and this is not typical, at least in California], the proposed rule should not – in most cases – impact fees charged by management companies for production of documents or other services rendered at time of sale when such fees are based upon contractual relationships.”

CAI goes on to state that “[t]o the extent the broad definition of ‘transfer fees’ used by FHFA creates confusion that would impact the ability to recover these costs; CAI will address this in its comments to FHA, if needed.”

See CAI’s FAQ sheet on this issue and CAI’s FHFA Transfer Fee Reg. Resource Page.

This blog post was prepared by David Swedelson, Partner at SwedelsonGottlieb, Community Association Attorneys. Contact or send comments to David Swedelson at dcs@sghoalaw.com.

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