FHA Does Not Allow “Private Transfer Fees”
In many condominium projects across the country, legal documents require that a seller of a condominium unit pay a “private transfer fee”. This fee can be called many different names such as “community development fee” or the like.
Basically, this fee is paid at the closing by either the seller of a unit. The money then goes into a fund…any fund that the legal documents name. It can even be a non-profit organization that was established by the developer as a means to generate income in perpetuity. That’s pretty slick if you ask me.
What is objectionable to FHA is when the fee is a percentage of the sales price. It is not allowed that a fee be charged that impacts the seller’s proceeds of the sale (exceptions do exist in 24CFR203.41). It is also not allowed that a third party (such as the buyer or real estate agent) pays these fees on behalf of the seller.
FHA is understanding when the fee is a flat fee paid at the closing which goes to the Association to fund the budget or placed in a capital reserve account. These fees are often called “administration fees” or “capital fees”. So long as the fee is reasonable, goes to the Association and it not a percentage of the sale price, they are allowed by FHA. Another acceptable example is the Association charging to prepare documents for the transfer of title.
Fees that are collected that are not for the benefit of the Association are not acceptable, whether or not they are tied to the sales price.
In some states, counties and towns, it is a requirement that the developer or Association maintain a wooded area or natural landscape in a development or condominium project. It has been seen that the developer then charges a transfer fee to each seller which funds the maintenance of the land. This is not acceptable to FHA.
FHA has said that if the Association is responsible for the maintenance of these areas, it should be included in the budget. Paying the fees to a third party – whether or not it is a non-profit organization – appears to be a money-making scheme (my words, not FHA’s).
It is acceptable if the condominiums legal documents exempt units encumbered with FHA loans from transfer fees.
Image courtesy of anankkml/freedigitalphotos.net
The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA. We have assisted nearly 200 condominiums and we can help your association.
ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.
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Check out our article in Common Interest magazine on page 19!