Title · 12 CFR part 1228 (FHFA)Private transfer fee covenants: the fee that can block a conventional loan

A private transfer fee is a charge imposed by a covenant, restriction or similar recorded document that must be paid each time the property changes hands, for a period of time or indefinitely. FHFA's rule bars Fannie Mae, Freddie Mac and the Federal Home Loan Banks from buying, investing in or taking as collateral mortgages on properties encumbered by such covenants – unless the covenant is an excepted one. Excepted covenants are those that pay a covered association (an HOA, condo, co-op or similar mandatory-membership nonprofit, or a 501(c)(3) or 501(c)(4) organization) and limit the money to purposes that directly benefit the encumbered properties – maintenance and improvements, common property, and community activities such as recreation or conservation – and covenants in qualifying shared equity resale-restriction programs. Fees paid to a government, and fees that cover the actual cost of the transfer (including transferring HOA membership), are not private transfer fees at all. The rule applies to covenants created on or after February 8, 2011, with a narrow exception for some earlier settlement or government-approved agreements. State laws on the validity, enforceability and disclosure of these covenants still apply. In practice, a fee payable to a developer or other private party on every resale is the red flag a title search should catch early.