Private Transfer Fees on Real Estate?

Definition:  A fee charged (normally 1% of sales price) for a period of years (usually 99) each time ownership of a real property is transferred.  Sometimes it’s paid to homeowner’s association for maintenance or capital improvements (roads, entrance, pools, tennis courts, clubhouse, etc,.).  Other times it’s paid to the developer of a residential subdivision to be applied toward the developer’s costs of creating the subdivision including grading, subdividing, roads, common area amenities, sewers, utility (street water, sewer, and electrical lines), and coordination with local businesses and code department to comply with codes and ordinances, and profit.

Many times, the developer’s cost of developing the subdivision is included in the cost of each lot charged to builders who purchase the lots and build houses on them.

About 20 states have laws regulating the fees and a bill is in US Congress which calls for the prohibition of the fees.

The Federal Housing Finance Agency (FHFA) is proposing a regulation to prohibit Fannie Mae/Freddie Mac from buying mortgages on real properties that has these fees.  FHFA believes that the fees lower equity, depress home prices, and add a complicated the legal transfer of real estate.

Source: WSJ, 11-5-2010 C11

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