Private Transfer Fee Covenants Draw Fire From FHFA

Dennis Norman

Today the Federal Housing Finance Agency announce proposed guidance that would prohibit Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in mortgages with private transfer fee covenants. Considering that covers the lenders that originate, invest in or, or insure over 90 percent of the homes in the U.S. that pretty much puts the kibosh on financing a home with such a transfer fee.

Private transfer fees are something that I only first became aware of about 6 or 7 years ago when a few developers started imposing them on new developments.  In the FHFA notice a private transfer fee is defined as:

A private transfer fee covenant is attached to real property by the owner or
another private party, frequently, the property developer, and provides for a transfer fee to be paid to an identified third party (such as the developer or its trustee) upon each resale of the property. The fee typically is stated as a percentage, such as one percent of the property’s sales price and often survives for a period of ninety-nine (99) years.

To say these fees have been the target of some criticism would be an understatement.  Developers argue that it is a method to help make a development financially feasible, to offer lower prices to homeowners and to enable them (the developer) to participate in the increase in property values over time as a result of the developers efforts.  Opponents argue that the fees increase the cost of homeownership, limit property transfers and expose lenders and title companies to risks from unknown potential liens and title defects.

Several states have passed laws making such private transfer fees illegal or restricting them.

This is not a rule of the FHFA yet, it is just a suggestion that most likely will become a rule after they allow a period of time for public comment.


Print Friendly, PDF & Email

180 comments to Private Transfer Fee Covenants Draw Fire From FHFA

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>