As managers, residents, and board members of the city's residential buildings gear up for 2011, sweeping up the tinsel and cookie crumbs leftover from holiday parties isn't the only job at hand. From bedbug disclosure rules to a proposed federal ban on flip taxes, there is also an array of new legislation that promises to have an impact on managers, boards, and the co-op and condo communities they represent and serve.
Flip Taxes Banned?
One of the hottest topics being debated among co-op and condo owners is the Federal Housing Finance Agency (FHFA)’s Proposed Guidance on Private Transfer Fee Covenants, which was published in August 2010. The rule would restrict Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from investing in mortgages in buildings with private transfer fees —better known as flip taxes. Many are objecting strenuously to the proposal, feeling that as it is currently drafted, the rule would effectively eliminate flip tax fees—a revenue stream upon which many buildings rely.
Critics of this proposed rule say that the FHFA’s ban was developed with the intention of eliminating current provisions that allow developers to receive revenue long after they have sold all their ownership interests in a development. In its Proposed Guidance, the FHFA states: “The typical one percent fee at the time of resale is neither a minimal nor a reasonable amount; further, such fees may be in excess of one percent. Such fees increase by a meaningful amount the seller’s and potentially the buyer’s burden at the time of a property sale. Expanded use of private transfer fee covenants poses serious risks to the stability and liquidity of the housing finance markets.” Co-ops, critics say, present a unique situation that was not contemplated by the FHFA, and are not subject to the same abuse.
"The [flip tax] fee is not onerous when it directly benefits the community and individual homeowners by funding reserves, capital improvement projects, and ongoing co-op association obligations," says New York Congressman Eliot L. Engel, (D-17) of the U.S. House of Representatives, serving the Bronx, Rockland, and Westchester counties. "This enables monthly maintenance fees for co-op dwellers to remain affordable. In its absence, co-op boards would need to substantially increase rates to afford improvements and daily upkeep. It is unfair that the vast majority of developers, investors and the hard-working families who live in co-ops suffer due to the shady methods by some to ‘game the system.’ As our housing market struggles to recover from the devastating effects of the past three years, we must not add to the problems and hinder both resale prices and current living expenses. FHFA needs to understand the critical and necessary role transfer fees play for millions of Americans who benefit from it daily.”
Upon FHFA’s publication of the proposed rule, the federal agency invited public comment. Many co-op shareholders, in New York especially, responded by sending emails and letters, and by responding through the Federal eRulemaking Portal located at www.regul ations.gov. These letters are available to the public on the FHFA’s website. One letter on behalf of a New York cooperative corporation, states, "Without transfer fees, our board would have to substantially increase monthly carrying charges in order to maintain our building. This will inflict financial hardship on our shareholders/unit owners and could result in defaults, displacement for individuals and, poorer quality of lives. We urge FHFA to protect the right of housing cooperatives and condominiums to preserve affordability by continuing to collect transfer fees.”