By Andrew S. Fortin, Esq., Community Associations Institute
Thanks to efforts by CAI members, the Federal Housing Finance Agency (FHFA) has issued a revised draft regulation governing so-called private transfer fees. Originally proposed in August of 2010, the FHFA regulation would have banned any federally backed mortgage for property that contained a deed-based transfer fee. For community associations, the impact would have been devastating, as up to 49 percent of all community associations charge a deed-based transfer fee. These communities would have been unable to qualify for most federally backed mortgages under the regulation as drafted. However, due to the strong feedback from CAI members across the country, the FHFA has revised its proposal, excluding transfer fees charged by community associations.
FHFA took action on growing concern over the use of deed-based transfer fees payable to investors. Under this model, deed-restrictions require a transfer fee payable at the time of sale to the original developer or landowner for up to 99 years. As such, these transfer fees pull money out of communities and allow investors to obtain the benefits of equity or investments made by subsequent home owners. Unfortunately, the FHFA also included deed-based fees charged by community associations in its original draft regulation.
In its revised draft, FHFA specifically excludes deed-based transfer fees payable to a community association. It allows such fees when used to provide a direct benefit to the property upon which the transfer fee is levied. Under the draft, such fees may be used for support maintenance and improvements to encumbered properties, as well as cultural, educational, charitable, recreational, environmental, conservational or other similar activities that exclusively benefit the real property encumbered by the private transfer fee covenants. Such benefits must flow to the encumbered properties and its common areas or to adjacent or contiguous property. This shift in FHFA’s proposal, brought about by CAI member activism, is a critical shift in policy and one that will benefit CAI members by ensuring access to affordable and fair mortgages.
Of course, the devil is always in the details, and CAI continues to work with FHFA to ensure the final regulation, when adopted, provides associations the greatest flexibility allowed in using a variety of tools, including monthly assessments, special assessment and deed-based transfer fees to balance the financial burden of maintaining the association For now, residents in associations with deed-based transfer fees can sleep easy knowing that a potential regulatory disaster was averted.
As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org. CAI will continue to monitor and participate in shaping the development of the final FHFA transfer fee rule to ensure the perspective of community associations is heard. If you have any questions about the FHFA Transfer Fee Proposal and how it could affect your community, e-mail email@example.com with FHFA Transfer Fee Proposal in the subject line.