The Federal Housing Finance Board has finally quashed private transfer fees, all but putting an end to the controversial add-on that opponents maintain is an unwarranted tax on home buyers, now and long into the future.
Beginning July 16, Fannie Mae, Freddie Mac and the Federal Home Loan Banks will no longer be allowed to deal in mortgages on properties encumbered by private transfer fee covenants that do not benefit the property.
Under a final rule issued by their regulator last week, the government-sponsored enterprises will be permitted to trade in loans with such covenants only when the fees are paid to homeowner associations, condominium and cooperative associations and certain tax-exempt organizations that use the proceeds to manage the overall community.
But when the fees called for under the covenants do not benefit the property, the mortgages are off limits, the FHFA decided after reviewing what it said were thousands of comments on the subject.
Private fee covenants are contractual arrangements that require the purchaser and all subsequent buyers to pay a fixed percentage of the sales price—typically 1%—for up to 99 years.
The new rule should put a federal foot on a process that already has been restricted or banned outright in 38 states.
The practice has been fought on the state and federal level by a group calling itself the Coalition to Stop Wall Street Home Resale Fees, which maintained that the fees steal home equity from consumers, filter money away from communities and community development, infringe on property rights, and interfere with the safe and efficient transfer of real estate.
The 12 states which have yet to ban the fees are: Alaska, Connecticut, Georgia, Kentucky, Massachusetts, New Hampshire, New Mexico, Rhode Island, Vermont, West Virginia, Wisconsin and Wyoming.
Opposition to private transfer fees was led largely by the American Land Title Association. “As an association representing companies that provide homeownership assurance,” said ALTA's chief executive officer, Michelle Korsmo, “we know firsthand that transfer fees with no direct benefit to the property hinder the safe and secure transfer of real estate.”
Korsmo said the covenants act as an ATM machine for investors. They “are simply designed to generate additional revenue at the expense of consumers,” she said, adding that the fees called for under the covenants “provide no service or benefit to homeowners.”
Tom Skiba, chief executive officer of the Community Associations Institute, called the FHFA's decision “prudent.” He said transfer fees paid to community associations provide critical financing needed to maintain association-run activities and community-owned amenities.
