Be Wary of “Private Transfer Fees” on Residential PropertyJuly 17, 2012
Homebuyers should beware of residential properties that are subject to private transfer fees. A private transfer fee is a condition placed on the property that imposes a fee of a percentage of the gross sales price payable by the seller every time the property is transferred to a new owner. The fee, which is usually one percent of the sales price, is payable to the original developer or a trustee they’ve assigned.
Most homes subject to these transfer fees are recent building developments in the last ten years. Some developers are recording Covenants, Conditions and Restrictions on the land records that contain these fee arrangements. A home buyer would not be aware of the fee unless it was disclosed before the purchase or the land records were carefully reviewed before purchasing the property.
These fees place a burden on the home and make it more difficult and expensive for future owners to sell the property. Many states have specifically banned these types of fees, but to date Connecticut has not.
Opponents of these private transfer fees have argued that it affects the marketable title to the property in that title insurance companies may not be willing to insure the property. Title insurance companies may decline to insure the property because the transfer fees are of questionable enforceability and the exposure to future claims is too great.
The fees also affect the ability of a buyer to secure a mortgage, because the lender does not want any liens or obligations to have priority over their mortgage. Potential home buyers should be aware of these fees and should determine whether the property they are considering buying is subject to any private transfer fees.