[NOTE: This article first appeared in the Spring 2012 Edition of Hyatt & Stubblefield, P.C.'s "Community Developments"]
Last summer we reported that the Federal Housing Finance Agency (FHFA) had moved beyond proposed "guidance" and had proposed a final rule in its effort to restrict Fannie Mae and Freddie Mac and all federal home loan banks from purchasing mortgages on properties in communities with "private transfer fee covenants."
The proposed guidance broadly construed the term "private transfer fee covenant" to include essentially any kind of transfer fee payable on successive transfers of property regardless of who collects the fee or the intended use of the fee. This would have adversely impacted many communities with covenants that provide for collection of such fees as contributions to working capital or capital reserves, for community enhancement, or to fund nonprofit entities organized to promote cultural, educational, environmental conservation, historic preservation, and similar purposes.
FHFA's proposed final rule purported to exempt transfer fees paid to homeowner associations to be used for the direct benefit of the community. However, the language of the proposed final rule created numerous practical and interpretative issues reflecting a lack of understanding as to how such fees are really used. Due to the difficulty of determining when a transfer fee qualified for the exemption, the proposed final rule would have created major problems for financing of home purchases in communities with transfer fees.