On the House: Private transfer fee imbroglio

Posted: October 31, 2010

I wrote a few weeks back about private-transfer fees and efforts to block them in Pennsylvania and other states.

Although that column included someone opposing efforts to prohibit such fees, the folks at the Community Associations Institute - whose members include homeowner, condo, and cooperative associations - seemed to think I didn't go far enough to tell their side. So, to be fair, an explanation, their side, and the opposing view follow.

Many a new-home sales contract contains a private-transfer fee, also called a capital-recovery fee, requiring that the developer be paid a sum - typically 1 percent of the sale price - each time the house is resold, up to 99 years from the original sale date.

The Pennsylvania Association of Realtors is urging the state to join 12 others in prohibiting such fees. The ban is supported by the American Land Title Association and other groups.

On the other side of the argument is the new Coalition to Preserve Community Funding, created to fight efforts by the Federal Housing Finance Agency to restrict Fannie Mae and Freddie Mac from purchasing mortgages encumbered by private-transfer fees.

"For months, I have heard the Realtors and title companies peddle myths about private-transfer fees," said Jaime Arechiga, a Texas developer and coalition member. "I know firsthand how PTFs can offer a path to overcoming difficult economic times, keeping my workers employed, and making homes more affordable."

A bill introduced in the U.S. House would require "clear and prominent disclosure" of private-transfer fees, the coalition said.

From the coalition's viewpoint, the fee is simply a real estate financing tool that allows developers to spread the high up-front infrastructure costs of new developments - things such as sewer lines, roads, and water pipes.

The group says private-transfer fees have been in use for many decades and are "legal covenants that attach to property and are filed in the office of the public records, easily found by ordinary diligence."

Nationally, about 10 million to 12 million single-family homes are subject to private-transfer fees, the coalition says.

The Community Associations Institute says it recently surveyed its members across the country in September for information it could use to persuade the Housing Finance Agency to change its mind about the need for the fees. Among its findings:

Of the 1,252 housing communities responding to the survey, about 50 percent reported having deed-based transfer fees. Communities reporting such fees represent 482,000 housing units.

More than 40 percent have had such fees in place for 10 or more years.

The fees are levied in three ways: a fixed fee, a percentage of sale, or a multiple of monthly assessments.

One hundred percent of the fees go directly into the community by funding reserves, specific operating expenses, capital projects, or community-based charities.

Two-thirds of the properties with deed-based fees would require a two-thirds majority or more of all owners to amend or eliminate them.

Such fees have resulted in the cancellation of less than 1 percent of all sales in a community.

Meghan Sherman, spokeswoman for the Coalition to Preserve Community Funding, said developers could use private-transfer fees to create what is often referred to as a "development bond" - selling off the future income stream. The proceeds are then used to pay for infrastructure and to reduce development loans.

"This frees up lending capacity for regional and community banks, which tends to have a positive ripple effect throughout Main Street," she said.


Contact Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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