The Federal Housing Finance Agency has proposed rules that would prohibit regulated entities (namely, Fannie Mae and Freddie Mac and Federal Home Loan Banks) from dealing in mortgages on properties that are encumbered by private transfer fee covenants. It is not uncommon for condominiums and homeowners association properties, for example, to be subject to a fee, charge or some other payment to be due in connection with the transfer of the property. Many state legislatures have already banned private transfer fees but New York has yet to make them illegal.
If the proposed federal rule becomes final, if any private transfer fee encumbers a property, the regulated entities cannot purchase or invest in a mortgage on the property unless that transfer fee provides a direct benefit exclusively to the property being encumbered. Among other things, this would affect any transfer fee that benefits the property developer or some third party entity, even if such entity is a not-for-profit organization. The lenders will have 120 days following publication of the final rule to come into compliance. The comment period on the proposed rule ends on April 11, 2011.
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