Editor’s note: This story has been updated to note that more than 30 states have laws banning or restricting private transfer fees.
Pennsylvania has become the latest state to ban private transfer fees, joining a list of more than 30 states that have enacted such legislation.
The Pennsylvania Association of Realtors says it worked with the state’s Land Title Association in support of a bill signed into law today by Gov. Tom Corbett.
Pennsylvania’s HB 442 is aimed at resale fees that developers sometimes attach to homes — often 1 percent — that’s paid every time a home is resold for up to 99 years.
Developers have said the fees help them spread out the cost of capital improvements over the life of a project instead of forcing the original buyers to shoulder the entire burden.
Federal regulators of Fannie Mae and Freddie Mac said last year they were concerned that the fees are used to fund "purely private continuous streams of income" that increase the seller’s burden "by a meaningful amount" when a property is resold.
The Federal Housing Finance Agency (FHFA) announced in August that it was considering banning Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in loans with private transfer-fee covenants.
After receiving more than 4,000 comment letters from industry and consumer groups, developers and builders, FHFA published a proposed rule in February that would exempt private transfer fees paid to homeowners associations and tax-exempt nonprofits, but only if the fees are used "for the direct benefit" of the encumbered properties.
Pennsylvania’s ban on private transfer fees includes similar exemptions for fees paid to homeowners associations and nonprofits.
According to FHFA, states that have taken the approach in banning private transfer fees unless they are used for the direct benefit of an encumbered property include Arizona, California, Delaware, Florida, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Oregon, Texas and Utah.
A website created to drum up opposition to private transfer fees, StopHomeResaleFees.org, lists 33 states with laws against "Wall Street home resale fees," but does not include bills recently signed into law in Maine and Tennessee.
According to research by Jack Miedema, president of Great Lakes Realty Systems Inc., 35 states have banned or limited private transfer fees, and California requires sellers to disclose them in advance.
Miedema, who tracks legislation governing private transfer fees as part of a continuing education course he authored, said lawmakers in New York and South Carolina have also passed bills addressing transfer fees that haven’t yet been signed into law.
In justifying an exemption for transfer fees paid to homeowners associations other covered organizations, FHFA officials said the fees "may be viewed as a means by which members of the organizations avoid paying the costs of their amenities out of current income, instead paying those costs out of the equity in their houses when they sell."
Although property owners subjected to such fees will then have less sales proceeds with which to buy their next house or to use for other purposes, FHFA said, "this has been an accepted means of paying for the maintenance, infrastructure and amenities at these associations."
FHFA concluded that transfer fees paid to associations "contribute to the value of the burdened property through the amenities and maintenance that they fund, and hence do not pose the same valuation risk as do fees that fund other activities that do not provide a direct benefit to the burdened property."
FHFA said it would not exempt private transfer fees paid to nonprofits if they were not used exclusively to provide cultural, educational, recreational, maintenance or environmental activities providing a direct benefit to encumbered properties.
It can be difficult to pinpoint the direct benefit provided to properties by nonprofit organizations formed to grow and maintain affordable housing stock, support city and state redevelopment efforts, or for environmental preservation, FHFA said.
"Although the activities themselves may be meritorious, it appears that these private transfer fees provide a benefit to the general community rather than specifically to the community that is burdened by the private transfer fee covenants, and hence are not dedicated to enhancing the value of the residential housing collateral that is central to the underwriting of mortgage loans purchased and accepted by the regulated entities," FHFA said.
"Because these fees pose the valuation and other issues related to private transfer fees, without providing benefits that are directly focused on the burdened properties, FHFA declines to except them from the restrictions of the proposed rule."
FHFA received more than 1,000 comments on the proposed rule before closing the comment period on April 11. When FHFA publishes a final rule, it will take affect after 120 days.
