Upcoming FHA Rule on Transfer Fees Could Squeeze Homebuyers & Sellers

REALTORS®, lenders and community associations are up in arms about a forthcoming Federal Housing Administration rule which has the very real possibility of making mortgage financing more expensive - maybe even impossible - for large numbers of buyers and sellers around the country.

The issue swirls around transfer fees which are routinely imposed whenever a unit is sold and it affects potentially tens of thousands of homeowner associations that routinely impose the fees. The fees, which range from $100 to $500 in most cases, frequently are used by HOAs to replenish capital reserves, make improvements to infrastructure or even fund environmental conservation activities. Unlike the controversial investor-driven private transfer fees marketed by Wall Street in 2010 and 2011, most HOAs are supposed to use these transfer fees to benefit the community.

Here's the problem: In response to the widely criticized private transfer fee programs, Fannie Mae and Freddie Mac adopted guidelines in 2012 that banned private-purpose, investor-benefit transfer fees from eligibility for conventional financing. Their rule carefully distinguished between the Freehold Capitol type of fees — which generated income streams for bond investors for up to 99 years — and the typical HOA transfer fees designed to benefit the community's residents.

However, the Office of the General Counsel for the U.S. Department of Housing and Urban Development have warned FHA that under existing "free assumability" regulations, the agency is not permitted to insure mortgages on properties that come with "restrictions on conveyance" — encumbrances on the title that could hamper transfers. That includes fees required to be paid at the sale of units in communities governed by homeowner associations. Additional information will be reported on this controversy as/if it develops.