Q: In North Carolina, can a condominium association collect a fee or “capital contribution” from the purchaser of a unit that will be added to the association’s reserve accounts? Our condo declaration does not currently provide for such a fee, but I feel certain our members would approve an amendment to add a provision for capital contributions to be paid by buyers at closing.
What your question refers to is commonly known as “transfer fees.”
It is not uncommon to see a condo or planned-community declaration that requires purchasers to pay a fee to the association at closing. The income is generally added to the association’s reserve accounts, which are used to pay for long-term capital repair and improvement projects.
The fees are usually a fixed dollar amount or calculated as a small percentage of the sale price of the home.
However, in the go-go real estate boom of the last 15 years or so, creative developers realized that they could put provisions in condo or community declarations that required a transfer fee to be paid to the developer upon the resale of any home for many years into the future. This essentially guaranteed the developer an ongoing stream of income long after it had completed the development and sold all the homes.
These developer transfer fees didn’t sit well with many people, including the overseers of federal housing and mortgage agencies like the Federal Housing Administration.
FHA undertook an effort to ban any type of transfer fee and moved to disqualify approval of federally backed mortgages on homes in communities that charged them.
The problem is that the new federal rules also banned transfer fees payable to the HOAs, which often depended on those fees to fund their reserve accounts and keep annual assessments low. There has been some lobbying to get FHA to relent on transfer fees payable to HOAs, but the outcome on these efforts is uncertain.
Additionally, in 2009 the North Carolina General Assembly decided that any type of transfer fee was bad, whether payable to a developer or an HOA.
It passed a law in 2010 that essentially prohibits any transfer fees payable upon the resale of a home unless the declaration (or an amendment to the declaration) allowing the HOA to charge such a fee was recorded before July 1, 2010.
Thus, if your condo association had adopted an amendment to allow the imposition of transfer fees before that date, you could legally charge them. Under the law, though, no transfer fees provided for in a declaration or amendment recorded after July 1, 2010 will be enforceable.
Transfer fees may still be collected from the first purchaser of a home, but cannot be collected on any subsequent resale of the home.
Charlotte attorney Michael Hunter represents community and condominium associations for the firm of Horack Talley. Email questions to firstname.lastname@example.org.
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