HOA Transfer Fee Disclosure: What Boards and Sellers Must...

When we built BoardStack, one of the issues we encountered repeatedly in researching HOA financial compliance was the transfer fee. It looks simple on the surface — a fee collected when a home sells. In practice, it sits at the intersection of federal mortgage regulation, state disclosure law, and association governance, and getting it wrong can kill a closing or cloud title for years.

This guide covers the legal framework, the permitted versus prohibited distinction, what disclosure must contain, state-specific rules, and how the treasurer and secretary should handle it in practice.

The two types of transfer fees and why the distinction matters

Not all transfer fees are created equal. Federal mortgage regulation draws a hard line between two categories, and the line determines whether a home in your community can be financed.

Private transfer fee covenants are recorded instruments that require a payment — often 1% of the sale price — each time the property changes hands, payable to a private party. Developers began using these in the 2000s as a recurring revenue mechanism. The payment does not go to the homeowners association. It goes to a developer entity, a royalty trust, or another private beneficiary named in the covenant.

Association transfer fees are amounts collected by the HOA itself. They cover administrative costs of processing the ownership change, fund the association’s reserve account through a capital contribution, or defray other direct association expenses. The money stays within the community.

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, drew the line in 2012 with a final rule at 12 CFR Part 1228. Properties burdened by prohibited private transfer fee covenants are ineligible for Fannie Mae or Freddie Mac financing. That covers most conventional conforming loans in the United States. A home that cannot be financed conventionally faces a drastically smaller buyer pool and a material discount to market value.

Permitted vs. prohibited: reference table

The FHFA rule provides a narrow exemption for fees paid to government entities or qualifying nonprofits for conservation, preservation, or historic purposes, provided the funds benefit the community rather than private individuals. Outside those exemptions, if the money leaves the community, the covenant is prohibited.

What permitted transfer fees look like in governing documents

The board’s authority to collect any fee at closing derives from the recorded CC&Rs or declaration. A properly drafted transfer fee provision identifies the type of fee, the amount or the formula, who is responsible for payment (buyer, seller, or both), and where the proceeds are applied.

A capital contribution provision might read: “Upon each transfer of a Lot, the transferring Owner shall pay to the Association a capital contribution equal to two months of the then-current regular assessment. Such contribution shall be deposited into the Association’s reserve fund and shall not be refundable.”

A provision written that way checks every required box: association as payee, formula tied to current assessments, reserve fund as the destination. A provision that says “a fee shall be paid at closing” without specifying the amount, the payee, or the destination gives the board no clear authority to collect.

When governing documents are ambiguous, consult the association attorney before imposing any transfer fee. Charging fees without documented authority creates a collection dispute that can cloud the closing and expose the board to claims for wrongful withholding of the estoppel certificate.

How Fannie Mae and Freddie Mac enforce the prohibition

Lenders originating conventional conforming loans are required to identify and disclose private transfer fee covenants in title searches. When a title search reveals a prohibited covenant, the lender cannot close the loan or must obtain a Fannie/Freddie waiver, which is not available for truly prohibited covenants.

This means the problem surfaces at closing, often after the buyer and seller have been under contract for weeks. The transaction fails or must restructure around a cash offer or portfolio loan. Disclosure earlier in the process protects both parties.

Fannie Mae’s Selling Guide addresses private transfer fee covenants and requires lenders to identify properties burdened by them. Freddie Mac follows equivalent guidance. FHA and VA also have restrictions that effectively eliminate government-backed financing for properties with prohibited covenants.

State disclosure requirements

California

California Civil Code Section 4580 makes clear that transfer fees must be disclosed before the buyer executes a purchase agreement. The disclosure must identify each fee, the amount or calculation method, the payee, and the governing document authority. The Davis-Stirling Act requires that the resale disclosure package include a written statement of all transfer fees the association will charge at closing.

California also limits private transfer fee covenants that were created after January 1, 2008, and provides that covenants requiring payment to an entity other than a qualifying association, government, or nonprofit are unenforceable if the deed or recorded document does not include a specified disclosure about the FHFA prohibition.

Florida

Florida Statute 720.30851 governs homeowners association transfer fees. The statute requires that any transfer fee be authorized in the declaration and caps the fee at the greater of $100 or 0.1% of the mortgage amount. The fee must be disclosed in the estoppel certificate. Florida’s estoppel statute specifies turnaround time (generally 10 business days) and caps estoppel fees, creating a structured process for resale disclosure.

Florida condominium law (Chapter 718) has parallel transfer fee provisions for condo associations. A condo association’s authority to charge a transfer fee must appear in the declaration, and the fee must be disclosed in the resale package that buyers have a right to receive before waiving their right to cancel.

Texas

Texas enacted the Private Real Property Rights Preservation Act (Property Code Chapter 5, Subchapter G) to address private transfer fee covenants. Prohibited covenants recorded after September 1, 2011 are void and unenforceable. Covenants recorded before that date must comply with disclosure requirements. Permitted fees paid to associations are not affected.

Colorado

Colorado Revised Statutes Section 38-35-127 similarly addresses private transfer fee covenants. Covenants created after January 1, 2009 that benefit a private party other than an association, lender, or nonprofit are void. Existing prohibited covenants must include recorded disclosure before they can be enforced, with strict limitations.

States without specific statutes

In states without a specific private transfer fee statute, the FHFA rule still applies to federally backed financing, meaning the practical effect of a prohibited covenant is the same financing barrier. Boards in those states should confirm whether proposed fees flow to the association and ensure governing document authority before collecting any transfer fee.

What the disclosure must contain

The resale disclosure package the association is required to provide in most states must include:

1. The amount or calculation formula for any transfer fee the association will charge at closing
2. The governing document provision (CC&R section and subsection) that authorizes the fee
3. The account into which the fee will be deposited — operating or reserve
4. Whether any portion is refundable
5. The name of any third party who receives any portion of a fee collected through the association’s closing process

The estoppel certificate should restate the transfer fee in monetary terms based on the anticipated closing date, so the escrow agent can include it in the HUD-1 or closing disclosure.

How boards should document and track transfer fee collections

The treasurer owns this operationally. Transfer fee income should appear as a named line item in the chart of accounts, separated from regular assessment income. Capital contribution proceeds must flow to the reserve fund, not the operating account. Commingling reserve fund receipts with operating funds is the same problem BoardStack was built to prevent.

At each closing:

• Issue a written acknowledgment to the buyer and seller stating the fee collected and the account credited
• Post the receipt to the correct account on the date of closing
• Reconcile collections against deed transfer records quarterly using county recorder data
• Note any disputed or unpaid fees in the accounts receivable aging

The secretary should maintain a log of resale disclosure packages delivered, the dates of delivery, and acknowledgment from the buyer or buyer’s agent. That log is the board’s evidence that statutory disclosure obligations were met if a dispute arises later.

Why this matters for the board’s fiduciary duty

Boards that fail to disclose transfer fees before closing, that collect fees without governing document authority, or that allow proceeds to flow to accounts where they do not belong are breaching their fiduciary duty to the association. The consequences include:

• Failed closings that reduce community property values
• Legal claims from buyers who argue undisclosed fees impaired their right to cancel
• State regulatory fines in jurisdictions with HOA oversight boards
• Personal liability for board members who approved collections without authority

The compliance work is straightforward: know what your governing documents authorize, confirm fees are disclosed in the resale package before contracts are signed, post receipts to the correct accounts, and document everything. Where governing documents are silent or ambiguous about transfer fees, get a board resolution and attorney opinion before collecting anything.

BoardStack tracks transfer fee receipts in the reserve and operating accounts separately, generates the disclosure statement for the resale package from the fee schedule in the governing documents, and maintains the audit trail the board needs if a closing is ever questioned. The alternative is doing it manually in a spreadsheet — which is how disclosure failures happen.

DEFINITION

Private Transfer Fee Covenant

A recorded instrument that requires a payment, typically a percentage of the sale price, each time a property is sold. If the payment goes to a private third party rather than the homeowners association, the covenant is prohibited under the FHFA rule at 12 CFR Part 1228, making the property ineligible for Fannie Mae or Freddie Mac financing.

DEFINITION

Permitted Transfer Fee

Under the FHFA rule, a transfer fee that benefits the association or community directly. This includes administrative processing fees paid to the HOA, capital contribution fees deposited into the association's reserve fund, and fees funding community amenities or facilities. The defining characteristic is that the money stays within the community rather than flowing to a developer or private beneficiary.

DEFINITION

Capital Contribution Fee

A one-time payment collected from the seller or buyer at closing and deposited directly into the association's reserve fund. It is a common form of permitted transfer fee used to ensure that incoming owners contribute to reserves that were built before they arrived. Authorization in the CC&Rs is required; without it, the fee is not collectible.

DEFINITION

Estoppel Certificate

A written statement from the association certifying the current status of assessments, any outstanding balances, pending violations, and fees due at closing, including transfer fees. Buyers rely on the estoppel as an official disclosure of what the association will charge at settlement. In Florida, estoppel certificates are governed by statute and must be delivered within a specified timeframe and at a capped cost.

DEFINITION

Resale Disclosure Package

A bundle of association documents provided to the buyer before contract execution or within a disclosure period defined by state law. It typically includes the CC&Rs, bylaws, current budget, reserve study summary, meeting minutes, and any fee schedules — including transfer fees. In California, the Davis-Stirling Act specifies what the package must contain and when it must be delivered.

DEFINITION

FHFA Rule (12 CFR Part 1228)

The Federal Housing Finance Agency regulation that directs Fannie Mae and Freddie Mac to avoid mortgages on properties burdened by prohibited private transfer fee covenants. The rule took effect in 2012 and applies to all new single-family mortgage purchases, guarantees, and securitizations by the GSEs. Properties with qualifying exempt fees are unaffected.

DEFINITION

Working Capital Fee

Another name for a capital contribution or move-in fee used in some governing documents. The proceeds fund the association's operating reserve or working capital account rather than the long-term reserve fund. The legal treatment is the same as other permitted transfer fees: must be authorized in recorded documents and disclosed before contract execution.