A private transfer fee is a charge written into a recorded covenant that is owed every time the property sells, usually a flat amount or a percentage of the sale price. For a lender, the question is narrow: can the loan still be sold? Under the FHFA's rule at 12 CFR Part 1228, Fannie Mae and Freddie Mac can't buy mortgages on properties encumbered by a private transfer fee covenant created on or after February 8, 2011, unless the covenant fits an exception. The main exception is a fee paid to the homeowners association and restricted to uses that benefit the property.
A fee payable to the HOA for reserves usually clears. A 1% fee payable to the developer usually doesn't. Here is how to tell them apart before underwriting.
The short version
- A private transfer fee is a recurring charge owed on each sale under a recorded covenant, not a one-time closing cost.
- Fannie Mae and Freddie Mac won't buy loans on properties burdened by a non-excepted covenant created on or after February 8, 2011.
- Fees paid to the HOA, with use limited to the property's direct benefit, are excepted. Fees paid to a developer or investor generally are not.
- Ordinary HOA processing and resale fees that cover the actual cost of the transfer are not private transfer fees at all.
- The clause can sit in a supplemental declaration, a master association document, or a separately recorded covenant. Check all three.
What is a private transfer fee?
A private transfer fee is a payment that a covenant running with the land requires on each future transfer of the property. The FHFA's definitions describe a covenant that binds current owners and successors in title and requires a fee on transfer of an interest in the property. The fee goes to a private party, not a government. That separates it from a transfer tax.
The classic version came out of master-planned communities: a developer-recorded covenant requiring 1% of the price on every resale for decades, payable to the developer or investors who bought the income stream. That is what the FHFA rule targets.
Plenty of fees that look similar are not private transfer fees under the rule:
- HOA processing or resale fees. The definition excludes charges that cover the actual costs of the transfer, including transferring membership in the association. The fee the management company charges to update the owner roll falls here. Our post on the HOA transfer fee covers who pays it and where it shows up.
- Government charges. Transfer taxes and recording fees are excluded by definition.
- Capital contributions and reinvestment fees paid to the HOA. These usually do meet the definition. The question is whether they fit the exception, covered below.
When a private transfer fee makes the loan ineligible
The rule at 12 CFR 1228.2 bars Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from buying, investing in, or accepting as collateral mortgages on properties encumbered by private transfer fee covenants, unless the covenant is excepted. Three questions decide it.
When was the covenant created? The rule applies to covenants created on or after February 8, 2011, the date the proposed rule was published, according to 12 CFR 1228.3. An older covenant is outside the federal rule, though state law can still affect it.
Who gets paid? The first exception covers fees paid to a "covered association." That means a nonprofit with mandatory membership created under a declaration or similar instrument. Master associations and sub-associations each qualify, and so do certain 501(c)(3) and 501(c)(4) organizations. A developer, a for-profit affiliate, or a fee investor does not qualify.
What can the money be spent on? Paying the HOA is not enough. The excepted covenant must require the fee to go to the association and limit its use to purposes that provide a direct benefit to the encumbered property. Direct benefit means maintaining and improving the burdened properties and association-owned property, plus qualifying recreational or environmental activities in or near the community. A covenant that pays the HOA with no stated limit on use is the gray zone. Flag it rather than assuming it clears.
A second exception covers fees under shared equity programs that meet the FHFA's Duty to Serve criteria, for loans with note dates on or after July 1, 2023. Fannie Mae announced this in Lender Letter LL-2023-02. It matters mostly for community land trusts and affordable resale programs.
Fannie Mae's 2012 announcement also requires lenders to keep policies that screen these loans out of deliveries, whether or not they originated the loan, according to NAR's summary. FHA is its own question: in 2010, HUD said private transfer fees "clearly violate" its FHA rules on restrictions on conveyance, as reported by ALTA.
Where private transfer fee language hides in the documents
The fee is rarely labeled "private transfer fee." Search for the mechanism instead: a payment owed on each conveyance, stated as a percentage or a fixed amount.
The declaration's assessment article. Look near the capital contribution or working capital provisions. Names vary: "transfer fee," "reinvestment fee," "community enhancement fee," "resale assessment." The name doesn't decide anything. The payee and the use restriction do.
Supplemental and amended declarations. Developers often record phase-specific supplements, and a fee can sit in one that never made it into the seller's packet.
The master association documents. In a layered community, the master association may impose its own fee on top of the sub-association's. Each is analyzed separately. If you haven't read the master declaration, you haven't finished the review.
A separately recorded covenant. Some developer fees were recorded as standalone instruments, outside the HOA documents entirely. These show up on the title commitment as an exception, not in the resale packet.
The resale certificate or estoppel. Some certificates list every fee due at closing. A percentage-based charge payable to someone other than the association is the line to question.
Hypothetical, for illustration: a supplemental declaration requires 0.5% of the price on each conveyance, payable to the association, "to be deposited in the reserve fund for repair and replacement of the common areas." The payee is a covered association and the use is limited, which lines up with the exception. Change the payee to "Declarant or its assigns," and it likely doesn't.
What to ask before the file goes to underwriting
The documents answer most of this. Get the rest in writing.
- Is any fee owed on transfer other than the HOA's processing fee? Ask the management company to list every transfer-triggered charge and its payee.
- What instrument creates each fee, and when was it recorded? The recording date tells you whether the federal rule applies.
- Does the covenant limit how the association can spend the money? Quote the language. "Reserve fund" or "maintenance of the common area" is the kind of text the exception describes.
- Is a master association charging its own fee? Get its declaration too.
- Does the title commitment show a transfer fee covenant as an exception? If the commitment lists a covenant the HOA packet doesn't mention, reconcile them.
- Is the property in a shared equity or resale-restricted program? If so, the second exception may apply, with its own conditions.
If the answer is still unclear, it's a question for the investor's guidelines, title counsel, or a real estate attorney. Enforceability under state law is a separate question from GSE eligibility. Some states restrict or void these covenants, but that doesn't change how the federal rule treats the loan.
How ClearHOA reads this for you
Upload the declaration, supplemental declarations, bylaws, rules and regulations, or HOA addendum, and ClearHOA returns a plain-English report in under 90 seconds. For transfer fees it pulls every transfer-triggered charge, the amount or percentage, the named payee, any language limiting how the money is used, and the section and recording reference it came from. It flags fees payable to someone other than the association so they get a second look before the file moves. Run the documents through ClearHOA and attach the report to the project review.
Frequently asked questions
Is an HOA transfer fee the same as a private transfer fee?
Not always. A fee that only covers the actual cost of processing the transfer, like updating membership records, is excluded from the federal definition. A percentage-based fee owed on every sale is a private transfer fee, even when the HOA collects it. Whether it blocks a Fannie Mae or Freddie Mac loan depends on the payee and on how the covenant limits its use.
Are private transfer fees legal?
It depends on the state. Some states restrict or void these covenants, and others allow them with disclosure. Separately, the FHFA rule doesn't ban the fees themselves. It stops Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from buying or accepting loans on properties burdened by non-excepted covenants created on or after February 8, 2011.
Can you get a Fannie Mae or Freddie Mac loan on a home with a private transfer fee?
Yes, if the covenant is excepted or predates February 8, 2011. The common exception is a fee paid to the HOA and limited to uses that directly benefit the property. Certain shared equity programs qualify for loans with note dates on or after July 1, 2023. A fee payable to a developer or investor generally makes the loan ineligible.
Can you get an FHA loan on a property with a private transfer fee?
HUD said in 2010 that private transfer fees violate its FHA rules against restrictions on conveyance. Fees that only cover HOA processing costs are a different thing. If a covenant charges a percentage on each sale, confirm treatment with current HUD guidance and your FHA underwriting team before the borrower commits to the program.
How do I find out if a property has a private transfer fee?
Read the declaration's assessment and transfer provisions, any supplemental declarations, and the master association documents. Then check the title commitment for a recorded transfer fee covenant listed as an exception. The resale certificate may also list fees due at closing. Any charge owed on a sale to someone other than the association deserves a closer read.
ClearHOA flags transfer fee covenants alongside the rest of the warrantability picture, including litigation, reserve thresholds, owner-occupancy ratios, and STR percentage, each with a source citation from the governing documents. Upload the declaration and supplements before the project review. It reads like an underwriting summary: every fee owed on transfer, who it goes to, and what the documents say it pays for.