A proposal to ban federal lenders from purchasing mortgages in condos with deed-based transfer fees has been drastically scaled back following intense lobbying against the rule by community associations around the country.
The proposed rule, originating with the Federal Housing Finance Agency (FHFA), would have prohibited Freddie Mac, Fannie Mae and Federal Home Loan Banks from buying mortgages in community associationswith deed-based, or private, transfer fees.
But under the new revised rule, published February 8 in the “Federal Register,” HOAs with transfer fees that benefit the condo community (the vast majority) could receive federal mortgage support. Only units in HOAs with mandated transfer fees that don’tdirectly benefit HOAs would be unable to obtain federal loans.
Private transfer fees – typically one percent of the sale price and specified in the original condo documents – are fees paid when a condo or co-op unit is resold. They are paid from the purchaser to one of four groups: (1) the community association, (2) tax-exempt groups that provide a direct benefit to HOAowners, (3) tax-exempt groups that don’t provide a direct benefit to HOA owners (like the Sierra Club), or (4) third-party developers or investors.
All four types of transfer fees were sanctioned in the initial FHFA proposal; but in the revised proposal, transfer fees that provide“direct benefit” to communities (typically, the first two groups) would be allowed in conforming HOAs.