By Jonathan H. Katz, Esq.

The new FHA Condominium Project Approval and Processing Guidelines require that HUD reject applications submitted by associations where deed-based transfer fees or restrictions may affect the ability of a buyer to freely transfer the property. Although not specifically addressed in the new guidelines, the FHA has informally announced that any condominium association with a working capital or capital contribution fee would be disqualified from access to FHA-insured mortgages based on the transfer fees prohibition.

The inclusion of this prohibition as to working capital and capital contribution fees is perplexing, especially considering that this specific issue was recently addressed by the Federal Housing Finance Agency (FHFA), which found that such transfer fees add value to the properties where collected and have been an important source of funds for communities for over 40 years.

In October, CAI implored FHA to revisit its stance on these transfer fees, which exist in almost half of all community associations throughout the country. On November 23, 2011, the FHA responded in a short letter to CAI, in which it recognized that some deed-based transfer fees may benefit the burdened property and can be of value to the home purchaser. The FHA also indicated that it was working diligently to address this issue and anticipates publishing a proposed rule for public comment in the coming months. You can read the FHA’s full letter to CAI here.

For up-to-date information on the changes to the FHA’s Condominium Project Approval and Processing Guidelines, click the FHA Central tab or follow us on Twitter: @njcondolaw.