Private Transfer Fees

If you've never heard of private transfer fees (PTFs), you're not alone. Most consumers have no idea that deed restrictions of this type even exist, or that they require a percentage of future sales proceeds to go back to the homeowners association, developer, or property owner in question. The length of this requirement often extends 99 years into the future.

Over the past ten years PTFs have become more popular. Currently they are present in new-home contracts in 45 states. Thirteen states have pending or planned legislation to abolish the practice, however, and PTFs could be banned in as many as 28 states by the end of 2011. The Federal Housing Finance Agency wants to limit the purchase of mortgages by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks if PTFs are present.

Additionally, the National Association of REALTORS® opposes PTFs because they decrease affordability while serving no public purpose and providing no benefit to either property purchasers or to the community in which the property is located. Often PTFs are difficult to discover within the language of the contract and therefore to disclose before a transaction, which raises serious liability issues for   REALTORS®. Additionally, the fees can present an obstacle to closings, create title problems, and open the door for litigation.

In Texas, PTFs are often described as a "reconveyance fee" in deeds. They were ruled unenforceable in 2007 by the legislature, but with  major exceptions. The state prohibition does not apply to property owners' association, governmental entities, and certain non-profit organizations. (The amount levied is 1 percent of the sales price.) These restrictions apply to residential properties only, however. Commercial developers are perfectly free to include private transfer fee covenants in their deeds.