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Community Associations Oppose FHFA Transfer Fee Ban

10/4/2010  -  Alexandria, VA

As many as 11 million homeowners would find it difficult to sell their homes if the federal government moves forward with plans to ban so-called private transfer fees, according to Community Associations Institute (CAI).

A government ban could wreak havoc in already distressed housing markets. That’s because a draft regulation issued by the Federal Housing Finance Agency (FHFA) in August would ban federal mortgage underwriters from purchasing any loan on a property with a deed-based transfer fee. Such fees are recorded on the property title and bind subsequent purchasers.

Recently, these fees have become popular with private investment companies, which use deeds to require a purchaser to pay a percentage of the sales price to outside investors. The FHFA actions are seen as an attempt to curb this growing and controversial practice.

However, the fees also have been used by community associations for decades to help fund reserve accounts or community improvement projects.

“We agree that private transfer fees should get regulatory scrutiny,” said CAI Chief Executive Officer Thomas M. Skiba, CAE. “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 (49 percent) of the 1,252 communities responding to a CAI survey in September have 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.

Under the FHFA proposal, these homes would no longer be able to qualify for mortgages backed by Fannie Mae, Freddie Mac or any federal home loan bank, which account for up to 90 percent of all residential mortgages.

In addition, most community associations would be unable to comply with the proposed rule. That’s because changing deed restrictions typically requires approval of two-thirds or more of all homeowners, which is difficult to achieve.

The transfer fees charged by community associations are nominal, ranging from a fixed fee (averaging $750) to a percentage of the sales price (averaging 0.25 percent). Also, such funds have allowed financially strapped community associations keep monthly assessments low.

CAI 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 Realtors who want to ban all deed-based transfer fees, and it is opposed by investors, who seek to create new sources of revenue. The public comment period ends Oct. 15.

Learn more about this issue in the Heads Up section of the CAI website.

CAI is a 30,000-member, national association dedicated to fostering successful community associations. Working in partnership with almost 60 state and regional chapters, CAI provides information, education and resources to associations and the professionals who support them. Our mission is to inspire professionalism, effective leadership and responsible citizenship, ideals reflected in communities that are preferred places to call home. Visit or call (888) 224-4321.



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