Condo Media - November 2010 - 30

LENDING

FHFA and “Private Transfer Fees”
CAI and Communities Around the Country Respond to Proposed Ban
n Aug. 13, 2010, the Federal Housing Finance Agency (FHFA) issued a proposed regulation to ban the use of deed- or covenant-based transfer fees. The proposal would prohibit Fannie Mae, Freddie Mac and all Federal Home Loan Banks from purchasing mortgages for properties in communities with deed-based transfer fees. While the target of the regulation appears to be private transfer fees that require a payment to a third party each time a property is sold, the proposed rule, as currently written, would include deed-based transfer fees used by many community associations. How does FHFA define a “Private Transfer Fee”? The definition of a deed-based transfer fee used by FHFA is fairly broad. For purposes of this document, we interpret this to mean the following: A private transfer fee is any fee or payment required at time of sale of a property by a deed or covenant restriction. When will this regulation be implemented? At press time for this issue of Condo Media, it was unknown when or even if the FHFA would issue a final regulation on this matter. While the August announcement clearly indicated FHFA’s current position on the matter, as well as its areas of concern, its position may change before any final, binding regulation is issued. The only definitive deadline known was Oct. 15, 2010 for all comments about the proposal to be received. How would this regulation impact community associations? The impact of such a rule would be devastating to

communities with such restrictions. The reason for this is that Fannie Mae, Freddie Mac and the Federal Home Loan Banks supply funding for most bank-originated mortgages subject to conforming mortgage limits set by these entities. If they cannot purchase such mortgages from banks, banks will not lend money for purchase of these properties. To further complicate matters, it is difficult — if not impossible — to remove a deed restriction, as it usually requires a super-majority of all property owners to approve such changes and, in some instances, requires the consent of all property owners. Will this impact fees charged by management companies or associations at the time of a property sale? Since the target of the proposed regulation are fees that are required to be paid by deed- or covenant-based restrictions, the proposed rule should not — in most cases — impact fees charged by management companies for production of documents or other services rendered at time of sale when such fees are based upon contractual relationships. CAI’s public policy supports the ability of associations and management companies to charge reasonable fees for the production of documents and certification of information necessary at time of sale. To the extent the broad definition of “transfer fees” used by FHFA creates confusion that would impact the ability to recover these costs, CAI will address this in its comments to FHA, if needed. How is CAI responding to this challenge? In 2009, in response to a growing set of federal challenges, the CAI

Government and Public Affairs (G&PA) Committee established a Federal Affairs Task Force to advise and oversee the Institute’s efforts in the federal affairs arena. Working with the task force members and the G&PA Committee, CAI surveyed members to gather data on how communities use deed-based transfer fees to support their arguments and counter FHFA’s misperception of these fees. Member response was unprecedented with nearly 1,300 communities completing the survey. Manager members, board volunteers and business partners all worked in concert to get the word out and the response will help CAI support industry arguments to FHFA on the negative impact of this rule with hard data. Individual data is critical to make the government truly understand the negative impact of the proposed regulation. Some highlights of the data collected include: • 1,252 communities responded to the survey. • Close to 50 percent of communities reported having a deed-based transfer fee. • Communities reporting such fees represent 482,000 housing units. • More than 40 percent of these communities have had such fees in place for 10 or more years. • Such fees are levied in three ways — a fixed fee, a percentage of sale or a multiple of monthly assessments.

CONDO MEDIA • NOVEMBER 2010

Condo Media - November 2010

Table of Contents for the Digital Edition of Condo Media - November 2010