FHFA Guidelines Could Cost Communities with Transfer Fees

Recent guidelines proposed by the Federal Housing Finance Agency (“FHFA”) could drastically affect a community association’s finances and a homeowner’s ability to sell his or her property. FHFA is an independent agency of the federal government established in 2008 to regulate and oversee Fannie Mae, Freddie Mac and Federal Home Loan Banks. On August 12, 2010, the FHFA published proposed guidelines dealing with private transfer fees. Pursuant to these guidelines, properties in communities that have private transfer fee covenants would not be eligible for mortgages backed by Fannie Mae, Freddie Mac or Federal Home Loan Banks.

FHFA has stated that that the proposed ban is necessary because the fees “may impede the marketability and the valuation of properties,” “have a detrimental effect on still fragile housing markets,” and may not be “fully understood by consumers.” FHFA’s proposed ban does not distinguish between fees that support a community association and controversial fees that go to support an unrelated third party, such as a charitable group or developer.

If the proposed ban goes into effect it presents a large problem to those communities with associations that charge this type of fee, even if it is found in the CC&Rs and otherwise appropriate under state law.  For instance, this type of fee would typically be a fee or assessment that goes to the association on resale.  However, the proposed guidelines are arguably broad enough to encompass disclosure and other transfer of membership record fees if found in the recorded covenants.  Undoubtedly, if a community decided to do away with its transfer fee, annual assessments would have to increase to make up for lost revenue. In addition, if the guidelines are adopted and an association continues to have a transfer fee covenant, homeowners face the possibility that their property would essentially be rendered unmarketable (except to cash buyers) as many mortgages would be unavailable to potential buyers.  

Whether or not FHFA will implement these guidelines is uncertain. Currently, the only definitive deadline is October 15, 2010; the date by which all comments about the proposed guidelines are to be received by FHFA. If you would like to comment on the proposed guidelines you can do so on FHFA’s website at www.fhfa.gov.  The national Community Associations Institute will also be submitting comments in opposition to the guidelines and has indicated that it will provide sample forms that may be used to submit comments to FHFA and to individual Congressional Representatives and Senators.  

If you have any questions regarding this matter, please contact Jason Miller or any other attorney in the firm.