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New rules may prohibit Freddie Mac,
Fannie Mae and Federal Home Loan Banks from buying mortgages in community
associations with deed-based, or private, transfer fees. Ladera Ranch is one
community in Orange County with these transfer fees (in addition to regular
property taxes and Mello Roos). Pretty expensive home buying costs...
HOAs with transfer fees that benefit
a condo community (the vast majority) could receive federal mortgage support. HOAs
with mandated transfer fees that don’t directly benefit the Whole Association would
be unable to obtain federal loans. Private transfer fees—typically a percent of
the sale price and specified in the original condo documents—are fees paid when
a condo or co-op unit is resold. They are paid from the purchaser to one of
four groups: (1) the community association, (2) tax-exempt groups that provide
a direct benefit to HOA owners, (3) tax-exempt groups that don’t provide a
direct benefit to HOA owners (like the Sierra Club), or (4) third-party
developers or investors.
All four types of transfer fees were
sanctioned in the initial FHFA proposal; but in the revised proposal, transfer
fees that provide “direct benefit” to communities (typically, the first two
groups) would be allowed in conforming HOAs.
“Direct benefit means that the proceeds of a
private transfer fee are used exclusively to support maintenance and
improvements to encumbered properties as well as cultural, educational,
charitable, recreational, environmental, conservation or other similar
activities that benefit exclusively the real property encumbered by the private
transfer fee covenants.
Lawyers in the U.S. Department of Housing and Urban
Development’s office of general counsel have warned FHA that under existing
“free assumability” regulations, the agency is not permitted to insure
mortgages on properties that come with “restrictions on conveyance” —
encumbrances on the title that could hamper transfers. That includes fees
required to be paid at the sale of units in communities governed by homeowner
associations.
This means mortgage companies and banks cannot
finance a home with an FHA loan when a private transfer fee is part of the
deal. HUD spokesman Lemar Wooley explains that “private transfer fees violate
HUD’s regulations at 24 CFR 203.41, which prohibit ‘legal restrictions on
conveyance,’ defined to include limits on the amount of sales proceeds
retainable by the seller. “HUD also requires lenders to convey clear marketable title in exchange for insurance benefits.”
Will HUD, the CFBP and attorneys next crack down on the huge fees Management Companies charge for condo certificates and providing copies of budget, bylaws and CCR’s? These things could be posted for free in pdf format on the HOA website
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