Your transfer fee is lawful only if you spend it right
Your transfer fee is lawful only if you spend it right
2026-09-15 · Ohio · Regulation
Ohio associations charge a fee at closing under half a dozen different names — transfer fee, capital contribution, working-capital contribution, initiation fee, reserve contribution. Whether that fee makes the unit unfinanceable turns on two things: the instrument that imposes it, and what the association spends it on.1
The governing rule is 12 CFR part 1228. Fannie Mae, Freddie Mac and the Federal Home Loan Banks may not buy, invest in, or take as collateral a mortgage on property burdened by a private transfer fee covenant unless the covenant is an “excepted transfer fee covenant.”
What changed, and why it is odd
FHFA published “Amendment Reinstating 'Grandfather' Exceptions to Restrictions on Private Transfer Fee Covenants” at 91 FR 12673 on March 17, 2026, effective the same day, with an applicable date nunc pro tunc to July 16, 2012. A technical correction followed three days later.
The agency explained candidly that it had deleted the grandfather clause by mistake in a 2024 rule: “FHFA proposed these changes in the mistaken belief that the transitional 'grandfather' exceptions were no longer necessary…the 'grandfather' exceptions were deleted without thorough consideration of potential unintended consequences.”
The reinstated text, now at 12 CFR 1228.3(a), limits the rule's reach to covenants “created on or after February 8, 2011,” with a further exception for covenants created under a pre-2011 agreement settling litigation or approved by a government body.
The test an association's fee has to pass
“Excepted transfer fee covenant means a private transfer fee covenant that: (1) 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…”
And “direct benefit” is defined:
“Direct benefit means that the proceeds of a private transfer fee are used exclusively to support maintenance and improvements to encumbered properties, and acquisition, improvement, administration, and maintenance of property owned by the covered association of which the owners of the burdened property are members and used primarily for their benefit.”
A “covered association” expressly includes master and sub-associations, each of which is also a covered association.
A transfer fee is a charge on an owner like any other. Our Ohio assessment limits page covers the association's charging power.
The exclusion that catches most Ohio fees
Before any of that matters, check whether the fee is a “private transfer fee” at all. The definition excludes payments
“(2) That defray actual costs of the transfer of the property, including transfer of membership in the relevant covered association.”
A fee that merely covers the cost of processing the transfer — preparing the resale package, updating the membership roll, issuing the statement of account — is not a private transfer fee and the rule does not reach it at all.
A great many Ohio association charges are exactly that, and boards worry about a rule that does not apply to them. The ones that do fall inside are recurring charges that run with the land and generate money for the association on every future sale. Those are permissible — but only on the direct-benefit condition. Our Ohio estoppel and resale page covers the charges that arise at closing.
Where an association's fee goes wrong
The failure mode is the destination of the money, not its size.
A fee funding association maintenance, common-element improvement or association administration is excepted. That covers a working-capital contribution paid into the operating or reserve fund.
A fee that funnels money to a developer, a management company, or any third party outside the direct-benefit definition is not excepted — and the consequence is not a penalty against the association. It is that the GSEs will not buy a loan on a unit in that community. Every buyer in the development needs a portfolio lender or cash.
In Ohio the relevant history is developer-era declarations. A declaration drafted by a developer in 2012 or later may direct a share of each transfer fee to the declarant or an affiliate for a period of years. An association that inherited such a clause at turnover and never amended it is carrying a financeability problem nobody has looked at.
Ohio law is a second, separate layer
The rule says so explicitly:
“This part does not affect state restrictions or requirements with respect to private transfer fee covenants, such as with respect to validity, enforceability, disclosures, or duration.”
So clearing the federal rule is necessary and not sufficient. Ohio's own law on the validity, disclosure and duration of such covenants applies independently, and a fee that satisfies FHFA can still fail under state law or under the declaration's own amendment requirements.
Three questions to answer about your own fee
What instrument imposes it, and when was that instrument created? If the covenant predates February 8, 2011, the rule does not reach it at all under the reinstated grandfather clause. That reinstatement is the practical relief for most older Ohio communities, and it is retroactive to 2012.
Is it a charge for the actual cost of the transfer, or a fee on the transfer? These are different animals and only the second one is regulated.
Where does the money go? If any part of it leaves the association — to a declarant, an affiliate, a management company as its own revenue rather than as a cost reimbursement — that is the part to fix, and it needs fixing before it is discovered by a lender rather than by the board.
The check is quick: read the declaration clause, read the current fee schedule, and trace one recent closing's money from the settlement statement into the association's accounts. Most boards have never done it.
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