Both the Texas House and Senate have voted overwhelmingly for a bill that would ban private transfer fees on real estate.
Private transfer fees are written into neighborhood deed restrictions and typically throw 1 percent of a home’s sale price back to the original developer each time the home changes hands over the next 99 years.
Unless the governor vetoes the bill, Texas will join 33 other states that have banned or restricted private transfer fees in recent years.
Private transfer fees aren’t common in Texas, but they have been marketed to developers as a way to create an income stream in a down market.
Under current law, it’s possible that a homeowner could have a transfer fee in a neighborhood covenant and not realize it until he or she resells a home.
In the standard real estate contract in Texas, homebuyers agree to accept any restrictions that are common to the subdivision. And even if a transfer fee were to turn up in a title search, few people read all the neighborhood covenants and restrictions before signing.
Under the legislation, new private transfer fees are not allowed, and developers who have existing fees on properties must file a notice of the obligation in county property records by Jan. 31, 2012, and update it every three years, or the transfer fee is void.
The bill passed unanimously in the Senate and 142-1 in the House. It was sent to the governor’s office Wednesday. A spokeswoman in his office said he would “thoroughly and thoughtfully review it before he makes his final decision.”
Homeowner and property owner associations are not affected by the private transfer fee bill. Some neighborhood associations use transfer fees for community improvements or charitable work, and they still would be able to do so, unlike developers. And something like a fee for a club membership that transfers with the property also would not be affected.
Freehold Capital Partners, a company started in Texas and later moved to New York, has been selling developers across the country on a plan that would attach a private transfer fee to homes.
Freehold hopes to create a secondary market for the fees. The idea is that developers would get money upfront from investors who would get a 99-year income stream.
In response to Freehold, the National Association of Realtors and the American Land Title Association have been trying to restrict private transfer fees across the country, saying the issue is one of protecting consumers’ home equity and keeping title records transparent.
The company had opposed a provision in an early version of the legislation that would have voided existing transfer fee obligations if they did not comply with federal or state agency mortgage loan guidelines. The company’s lobbyist had said it did not want the bill to retroactively effect existing fees.
“Freehold is pleased that language impacting existing transfer fee covenants was removed,” the company said in a statement Wednesday.
The Federal Housing Finance Agency also has proposed a rules change that would bar Fannie Mae and Freddie Mac from guaranteeing loans with transfer fees attached.
Jeremy Yohe, ALTA director of communications, said it appears that those rules also will focus on private transfer fees and not those by homeowner associations. “That money is actually used to benefit the property,” he said.
