Your association's transfer fee is only permissible if the association keeps it
Your association's transfer fee is only permissible if the association keeps it
2026-09-15 · North Dakota · Compliance
A North Dakota association that charges a transfer fee, capital contribution or working-capital fee at resale is inside a federal rule most boards have never read — and the rule just moved in their favour.1
The restriction
12 CFR § 1228.2: “The regulated entities shall not purchase, invest or otherwise deal in any mortgages on properties encumbered by private transfer fee covenants, securities backed by such mortgages, or securities backed by the income stream from such covenants, unless such covenants are excepted transfer fee covenants.”
The regulated entities are Fannie Mae, Freddie Mac and the Federal Home Loan Banks. If a lot is burdened by a transfer fee covenant that is not “excepted,” a mortgage on that lot cannot be sold to any of them. That is a marketability problem for every owner in the community, and none of them chose the covenant.
The carve-out that keeps most association fees lawful
12 CFR § 1228.1 defines an excepted transfer fee covenant as one that:
“Requires payment of a private transfer fee to a covered association and limits the use of such transfer fees exclusively to purposes which provide a direct benefit to the real property encumbered by the private transfer fee covenants…”
Two conditions, both of which must hold. To a covered association. And used exclusively for purposes providing a direct benefit to the encumbered property.
The definition also excludes from “private transfer fee” altogether any charge “That defray actual costs of the transfer of the property, including transfer of membership in the relevant covered association” — so a genuine administrative cost-recovery charge is outside the rule.
What changed in March 2026
FHFA reinstated timing exceptions that its 2024 amendments had removed. The final rule, 91 FR 12673, was published and effective March 17, 2026, with a correcting amendment at 91 FR 13492 on March 20:
“The technical amendment reinstates timing and transitional applicability ("grandfather") exceptions that were removed by FHFA's 2024 amendments to the PTFC Regulation. The reinstated "grandfather" exceptions are applicable nunc pro tunc beginning July 16, 2012.”
The reinstated § 1228.3(a):
“Beginning July 16, 2012, this part shall apply only to mortgages on properties encumbered by private transfer fee covenants if those covenants were created on or after February 8, 2011, except that this part shall not apply to mortgages on properties encumbered by private transfer fee covenants if those covenants were created pursuant to an agreement entered into before February 8, 2011 applicable to land that is identified in the agreement and the agreement was in settlement of litigation or approved by a government agency or body.”
This is good news for older North Dakota declarations. A transfer fee covenant created before February 8, 2011 is outside the rule entirely — retroactive to 2012. A great many North Dakota subdivisions were platted and declared well before that date.
Where a fee goes wrong
The failure is almost never the existence of the fee. It is the destination.
A fee routed to the developer. Some declarations direct a percentage of each resale to the declarant or an affiliated entity, often for a stated term. That is not a payment to a covered association and is not excepted.
A fee routed to the management company. A charge collected at closing that goes to the manager rather than the association fails the first condition, whatever it is called on the settlement statement.
A fee with no stated restriction on use. The carve-out requires the use to be limited exclusively to purposes providing a direct benefit to the encumbered property. A declaration that creates a transfer fee and says nothing about what it may be spent on does not obviously satisfy that.
A fee that funds something off-site. Contributions to a foundation, a regional amenity, or a charitable purpose are not a direct benefit to the encumbered real property.
What the rule turns on for a board
Find the clause. It is usually in the declaration's assessment article, sometimes in a separate recorded instrument, and it goes by several names: transfer fee, capital contribution, working capital contribution, initiation fee, reserve contribution on resale.
Date it. Created before February 8, 2011 puts it outside the rule.
Follow the money. Payable to the association, and spent on the property. If any part of it goes elsewhere, that is the problem to fix.
Separate the cost-recovery charge from the transfer fee. The charge an association makes for preparing a resale packet is cost recovery, and is excluded from the definition. It should be identified and priced as such rather than bundled into a percentage-of-price fee. North Dakota now requires that packet anyway: since August 1, 2025, § 47-10-02.3(5) permits the association to charge “a reasonable fee, which must be disclosed before the final acceptance of a purchase agreement” for furnishing the documents. Our North Dakota estoppel and resale page covers the packet.
Disclose it either way. Section 47-10-02.3(2)(j) requires disclosure of “Any fees relating to the transfer of ownership or other transactions.” A fee nobody mentioned until the settlement statement is a fee that will be argued about.
Why it is worth doing now
A non-excepted transfer fee covenant does not produce a fine or a notice. It produces a lot that the enterprises will not buy a mortgage on — discovered by an owner, at a sale, at the worst possible moment, with the whole community in the same position. Our North Dakota assessment limits page covers what the association may charge its members generally.
What to watch next
Watch whether FHFA revisits the 2024 amendments more broadly — the March 2026 rule is styled a technical amendment reinstating what was removed, which is usually a signal that the larger question is still open. Watch, too, for North Dakota title companies to start flagging pre-2011 covenant dates, since that date is now the line between inside and outside the rule.
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