FHA Condo Approval Specialist: Does HUD Allow Private Transfer Fees? Yes and No

Does HUD Allow Private Transfer Fees? Yes and No

Does HUD Allow Private Transfer Fees?  Yes and No

fha condo approvalsOver the past two days, Eric attended a session about FHA condominium project approvals at HUD Headquarters in Washington DC.  There were many topics discussed during the session, some of which are highly classified.  Well, not really because they will appear in future articles...so you’ll have to wait.

One of the major topics of discussion was Private Transfer Fees, aka 3rd party transfer fees, community enhancement fees or any other fancy name that you might have heard.  Basically, these fees are deed restrictions which require the seller of a condominium unit to pay a fee to an entity other than the buyer upon conveyance.  A third party could include a management company, the association or an affiliated or unaffiliated entity.

HUD said that it is encountering an increasing number of condominiums whose legal governing documents require that unit owners pay some sort of 3rd party fee upon the sale of the unit.  These fees are subject to 24CFR203.41.  This section of the Code states that legal restrictions on conveyance may not limit the sales proceeds retained by the seller.  [This doesn’t only apply to condominiums.]

Basically, a condominium’s CC&Rs may not limit the amount a seller may gain from the sale of his/her unit EXCEPT for the exceptions laid out in the section of the code named above.

Because governmental language can be vague at times (ah-hem), the session sought to clarify it as it pertains to condominiums:

  • Third party fees that are administrative in nature are acceptable.  This would include reasonable fees charged by an HOA or management company for the processing of resale packages or for updating the list of unit owners, among other administrative-type duties.  “Reasonable” is obviously subjective, but we can probably agree that $1000 to update the list of unit owners is a bit excessive.

  • Capital contributions are acceptable.  Again, within reason, a requirement for the seller to contribute to the reserve account is acceptable because it is a benefit to the association.

  • Fees paid to affiliated or unaffiliated third parties are NOT acceptable.  These would include required transfer fees paid to entities such as non-profit organizations that are not for the betterment of the condominium.  This could be a topic in and of itself.

  • Fees may NOT be a percentage of the sales price even if the fees belong to the first two categories above.

  • Buyers may NOT pay the fees that are not acceptable.  Even though the section of the Code pertains to the proceeds of the sale to sellers, HUD has determined that buyers may not pay the fees on behalf of the sellers. 

If a developer or association wishes to collect the unacceptable fees and still be eligible for an FHA project approval (and, therefore, FHA-insured loans), creating an exemption in the CC&Rs for units encumbered with FHA financing is allowed.  However, HUD does want specific language to be included in order for the project to be eligible.

Image courtesy of David Castillo Dominici/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.

 

Please contact us with any questions regarding FHA or VA condominium project approvals.  You can email me at askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.

 


FHA/VA Condo Approval Specialist

404-433-4565 Cell Phone

860-644-3772 Fax Phone

eric.boucher@readysetloan.com
ready set loan condo team

 

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Comment balloon 15 commentsReadySetLoan Condo Approval Team • August 21 2015 04:35AM

Comments

Good morning Eric. Very informative and very timely. There are so many new rules and regulations happening when it comes to FHA, so always appreciate your tips. It just makes me a better mortgage broker.

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) over 2 years ago

Hi Eric - once again you show why it's important to work with someone who is informed on the nuances of the process.  This is too important for people to work with someone who simply dabbles rather than jumps in fully.    

Posted by Michael Jacobs, Los Angeles Pasadena Area Real Estate 818.516.4393 (Coldwell Banker Residential Brokerage) over 2 years ago

Eric Boucher And the beat goes on.... Why do these people think that it is OK to gouge?

Bill Roberts

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) over 2 years ago

And then, isn't there always an "AND THEN"???

There are communities with deed restrictions and no associations.

I've run into a couple over the years.

Fortunately, after 25 years, the fees are unenforceable, just keep hanging around in the deeds following sales.

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 2 years ago

Hi Joe Petrowsky - there was tons of new information and clarification of current guidance discussed this week at HUD.  I came back with 9 1/2 pages of notes!

Thank you Michael Jacobs .  With so few of us in the country who specialize in this arena, I have to work hard to become as knowledgeable as I can!

Hi Bill Roberts - these private transfer fees are most common in California.  Developers set up a sort of perpetual money-making machine for themselves via transfer fees being paid to a trust or non-profit in their benefit.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 2 years ago

Hi Lenn Harley - thank you for reading.  Deed restrictions can occur outside of the community association realm, as you mention.  In these cases, FHA-insured loans wouldn't be available to finance the homes unless in accordance with 24CFR203.41

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 2 years ago

Hi Eric, I really enjoyed your post. It was clear and informative, not like the government. Now  if they could just allow a reasonable time frame on phase 1 environmental reports.

Posted by Matt Brady, Lending With Competence And Character (Skyline Home Loans) over 2 years ago

Eric this is excellent information, and I will be looking forward to reading about the top secret stuff that you can't share yet.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 2 years ago

Great information.  It's good to be a specialist and have a  niche, as you've shown!

Posted by Jan Green, HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN (Value Added Service, 602-620-2699) over 2 years ago

Eric, thanks for simplifying government-speak and clarifying the fees that are acceptable and also not acceptable.

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 2 years ago

Keep us posted on the Hud guidelines.  I am not sure what the objective is of some of these changes so you sights will be appreciated.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 2 years ago

Thank you Matt Brady .  Well, someone is versed in Phase I ESAs!  While it is true that project approval packages must be submitted to HUD with a Phase I that is not more than 6 months old, once the project is reviewed another Phase I will not need to be submitted unless something occurs on the property or new land is added to the project.  If you have questions about this, please let me know!

George Souto ...will it include information about spot loans...or not?  How's that for a cliffhanger??

Thank you very much Jan!

I appreciate the feedback Sharon Alters .  Thank you for reading!

That is a nice point Joan Whitebook and could lead to another article.  I owe you one.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 2 years ago

Eric - This has been creating headaches around here recent, and it seems there is still much confusion.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 2 years ago

Eric Boucher so many new things are coming up - so thanks for sharing a good inforative post. Looking forward to what will happen on October 3rd....

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (eXp Realty) over 2 years ago

Eric - Thanks for the very valuable information on HUD transfer fees.

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) over 2 years ago

Participate