A proposal to ban federal lenders from purchasing loans in co-ops that use flip tax fees or condos with deed-based transfer fees has housing community leaders worried the ruling would lead to diminished operating budgets and severely disrupt the cooperative and condominium market.
The proposed rule, originating with the Federal Housing Finance Agency (FHFA), would prohibit Fannie Mae, Freddie Mac and Federal Home Loan Banks from purchasing loans in buildings that have either deed-based, or private transfer fees or flip taxes.
Private transfer fees—typically one percent of the sales price and specified in the original condo documents—are fees paid when a condo unit is resold. They are paid from the purchaser to one of three groups: the board or the community association, groups associated with the board or the community association (like open-space land trusts), or third-party developers or investors. Transfer fees paid to the first two groups are generally seen as benefiting condominiums, while those paid to third parties are almost universally scorned as wasteful.
In the New York cooperative community, the fee is commonly called a flip tax. Flip taxes are typically paid when an apartment is "flipped" or changes hands. Flip taxes generally range from about one to three percent of the resale price (although higher percentages exist) or could be based on several methodologies, including a per share amount, flat fee, percentage of sales price, or percentage of net profit.
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A 60-day comment period on the rule ended in mid-October, and the FHFA is currently deciding whether to implement, scrap or revise the ban. FHFA General Counsel Alfred Pollard says the agency will “move with deliberate” speed to come to a decision on the rule, but notes that a decision will not come anytime soon.