A private transfer fee is a fee that must be paid each time a property is sold. In general there can be two types of transfer fees assessed. The most common fee is the transfer fee that the homeowner’s association management company charges to handle the transfer from the seller to the buyer. That is not the fee type discussed below.
The second type of transfer fee is a Private Transfer Fee (herein after PTF) which is generally in favor of a third party, not the HOA. When a property that is subject to a private transfer fee is sold the fee must be collected at closing in addition to any HOA related fees.
Many of you may have read about legislation that makes a private transfer fee unenforceable in today’s resale environment. While that is true for certain PTFs created after the date of that legislation, there are still lots of PTFs that existed prior to the legislation that were able to re-enact their enforceability by following a statutorily prescribed process so that they are still enforceable today.
Here are two samples of PTF clauses found in recorded documents:
“Each owner of a Lot, upon the transfer of title to such Owner’s Lot, will pay a one-time assessment to Developer in the amount of Five Hundred and No/100 Dollars ($500.00) per Lot.”
“This property is subject to a Private Transfer Fee. The private transfer fee is equal to ONE PERCENT (1%) of the SALES PRICE paid in connection with each transfer of title to all or any part of the real property.”
The transfer fee must be calculated and paid at closing. The charge is a line-item charge on the seller’s Closing Statement and once the transaction is funded a check is issued to the PTF holder.
These fees can often times be a large expense to the parties. Also, in many cases, these fees are a surprise to the sellers because this issue was not presented to them when they were buying their homes. Think of a seller that is selling their $500,000 home and they have just been notified that there is a $5,000 fee that must be paid from the proceeds. In most cases they are going to be very upset with the real estate agent and title company that closed their purchase.
The best way to navigate a transaction involving a PTF is to work closely with your Texas National Title escrow team and to closely review your title commitments. When a PTF affects the property you will see PTF exceptions on Schedule B of the Title Commitment. Here is a sample of the language:
“All terms, conditions and provisions of that certain notice concerning a Private Transfer Fee due upon the sale of the subject property, of record in Document No. 2003007402, of the Official Public Records of Williamson County, Texas.”
When you see this language you should make sure that your buyer is aware of the restriction on the property they are purchasing. Your trusted Texas National Title closing team can also provide copies of the documentation for your client as well as contact information for the PTF holder. We are the experts you need and the partners that you can trust in getting your clients to closing.