WASHINGTON—The Federal Housing Finance Agency's proposed ban of so-called private transfer fees goes too far, according to a group dedicated to fostering successful community associations.
The draft regulation is an attempt to curb the growing and controversial use of the fees by private investment companies, which use deeds to require a purchaser to pay a percentage of the sales price to outside investors every time a property changes hands.
The proposed rule would ban Fannie Mae and Freddie Mac from purchasing any loan on a house, townhouse or condominium with a deed-based transfer fee, which is recorded along with the title and binding on subsequent purchasers, often for as long as 99 years.
But in so doing, the Community Associations Institute claims, the regulation would ensnare community associations, which have used the technique for years to help fund reserve accounts or community improvement projects, and make it difficult for as many as 11 million households to sell or refinance their homes.
The Alexandria, Va.-based CAI says there are more than 305,000 association-governed communities throughout the country.
"We agree that private transfer fees should get regulatory scrutiny," said CAI chief executive officer Thomas M. Skiba. "The problem is that the FHFA regulation would apply to any and all deed-based fees. If implemented as drafted, it would be catastrophic."
Close to half of the 1,252 communities responding to a CAI survey in September reported having deed-based fees. Extrapolating from that data, CAI estimates that as many as 11 million homes nationally are located in communities that rely on deed-based transfer fees.
The transfer fees charged by community associations are nominal, ranging from a fixed fee averaging $750 to a percentage of the sales price, typically 0.25%, and generally allow financially strapped community associations to keep monthly assessments low.
CAI also says most community associations would be unable to comply with the proposed rule because changing deed restrictions typically requires approval of two-thirds or more of all homeowners, which is difficult to achieve.
The group hopes to persuade the FHFA to change its proposal to allow community associations or other organizations to charge fees that directly benefit their communities.
The draft regulation is supported by the National Association of Realtors, which wants to ban all deed-based transfer fees, but is opposed by investors, who seek to create new sources of revenue. The public comment period ends Oct. 15.
The CAI study found that more than 40% of the communities that responded have had transfer fees in place for a decade or longer. In "nearly all" cases, the respondents said, the fee is disclosed to potential buyers. And in less than 1% of the reported transactions, the existence of the fee killed the deal.
More than 60 million people live in properties governed by community or homeowner associations, according to the CAI, whose 30,000 members represent volunteer boards, association managers and businesses that support associations.
