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Regulator Eyes Private Transfer Fees

By Robert Freedman, senior editor, REALTOR® Magazine

The agency that oversees Fannie Mae and Freddie Mac could strike a considerable blow against the growing use of private transfer fees. If it does, the move would put the agency in alignment with NAR, which, along with other industry groups, says the fees are a stealthy way for third parties to milk real estate transactions for money without necessarily adding anything of value.

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If you’re not familiar with them, the fees are encumbrances on titles imposed by developers that typically require a payment to the developer any time the property is bought or sold subsequent to the initial transaction. The fees are similar to encumbrances placed on properties by public sector agencies or nonprofit organizations to provide for a public use. A good example is a conservation easement in which an encumbrance is placed on the title of a property to restrict future development.

In the case of private transfer fees, though, a case for any kind of public good isn’t necessarily made. A developer might say the fee income will go into neighborhood improvement, but in some cases no such claim is made. Instead, the fee is simply a way to create an income stream to the developer long after the property is initially sold.

Wall Street is reportedly getting in on the act, with financial gurus devising ways to create securities for sale to investors that are collateralized by the fees.

NAR has been offering assistance to state associations of REALTORS® for battling the fees and has been seeing considerable success. About a dozen and a half states now either ban outright or restrict the fees in some manner, up from practically zero when the effort was launched last year.

Now, with the Federal Housing Finance Agency (FHFA) publicly questioning the fees and considering taking steps to stop Fannie Mae and Freddie Mac from accepting mortgages on properties whose title is encumbered by the fees, the move to get them stopped is gaining even more momentum.

You can read FHFA’s concerns in a notice it just published. What’s interesting about the notice is the agency lays out in clear terms the many reasons why it thinks the fees are a net detriment to homeowners, the economy, and the real estate industry.

You can learn about NAR’s efforts to help state associations of REALTORS® in the video below, released earlier this year. NAR has also joined with others in a coalition to fight the fees.

People have different views about the value of private transfer fees. At this point, FHFA is saying the fees appear to be something that do more harm than good. We’ll see what the agency ultimately does.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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