Buying A Home Encumbered By Private Transfer Fees
When buying a home outside Virginia or Maryland, you will need to check with the seller to determine if the home is being sold encumbered with private transfer fees. Many states have banned this practice, including Virginia and Maryland, however, there are twenty states that have not as yet gone down this path, particularly in the northeast. What are private transfer fees?
In the past, some developers have built housing estates and rather than passing the total cost of the development onto the first home buyer, they have encumbered the house for 99 years, typically with a 1% private transfer fee. This means that every time the house is sold the original developer receives 1% of the sales price. While 1% doesn’t sound like much, it represents $3000 on a home that sells for $300,000. That’s a tidy sum to lose when selling and moving your home.
Maryland and Virginia, together with another 30 states, have banned this practice, some totally, and some with modifications where homeowners associations are involved. Homeowner associations generally apply the transfer fee as payment for ongoing services provided.
In those states that haven’t banned private transfer fees, most home sellers are not even obliged to inform potential buyers of their existence. More importantly, the Federal Housing Finance Agency (FHFA) is considering banning Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from providing mortgages to buyers of homes that are encumbered by private transfer fees.
Selling a home is difficult enough in the current environment. Having mortgage restrictions placed on your property because of private transfer fees could make selling even harder. The solution for home buyers is straightforward – don’t buy a home outside Virginia or Maryland that is encumbered by private transfer fees.
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