- August 09, 2011
- All Texas Issuing Offices
- Passage of HB 8 on Private Transfer Fees
The Texas Legislature has passed and the Governor has signed HB 8, the Texas version of the national Model Act severely limiting private transfer fees. Although the Bill was carefully worded by a group of drafters from the Model Act Committee, several changes were made to deal with requests made by a number of parties.
Sec. 5.202. CERTAIN PRIVATE TRANSFER FEE OBLIGATIONS VOID
(a) Except as provided by this subchapter, a private transfer fee obligation created on or after the effective date of this subchapter is not binding or enforceable against a subsequent owner or subsequent purchaser of an interest in real property and is void.
There are a number of exceptions to the ban on private transfer fees: see bold print for major points and parenthetical comments for Texas translation.
NOTE: The following sections of the bill are quoted for your information. Title Companies will not be interpreting whether or not a transfer fee is properly exempted. As a matter of practice, fees to property owner associations and their management companies as well as fees paid directly to a charitable entity are exempt. Lender fees, real estate commissions and recording fees are also exempt. Generally speaking, fees paid for assigning a contract are not private transfer fees and are not prohibited.
(b) For purposes of this subchapter, the following payments are not considered private transfer fee obligations:
(1) consideration paid by a purchaser to a seller for an interest in real property transferred, including, as applicable, a mineral interest transferred, including additional consideration paid to a seller for the property's appreciation, development, or sale after the interest in the property has been transferred to the purchaser, if the additional consideration is paid only once and that payment does not bind successors in interest to the property to any private transfer fee obligation; (Texas: Purchase price)
(2) a commission paid to a licensed real estate broker under a written agreement between a seller or purchaser and the broker, including an additional commission for the property's appreciation, development, or sale after the interest in property is transferred to the purchaser; (Texas: real estate commissions)
(3) interest, a fee, a charge, or another type of payment to a lender under a loan secured by a mortgage on the property, including:
(A) a fee payable for the lender's consent to an assumption of the loan or transfer of the property subject to the mortgage;
(B) a fee or charge payable for an estoppel letter or certificate;
(C) a shared appreciation interest or profit participation; or
(D) other consideration payable in connection with the loan; (Texas: Lender fees)
(4) rent, reimbursement, a fee, a charge, or another type of payment to a lessor under a lease, including a fee for consent to an assignment, sublease, encumbrance, or transfer of a lease;
(5) consideration paid to the holder of an option to purchase an interest in property, or to the holder of a right of first refusal or first offer to purchase an interest in property, for waiving, releasing, or not exercising the option or right when the property is transferred to another person; (Texas: options and rights of first refusal)
(6) a fee payable to or imposed by a governmental entity in connection with recording the transfer of the property; (Texas: Recording fees to county clerk; Other States: a transfer or mortgage tax)
(7) dues, a fee, a charge, an assessment, a fine, a contribution, or another type of payment under a declaration or other covenant or under law, including a fee or charge payable for a change of ownership entered in the records of an association to which this subdivision applies or an estoppel letter or resalecertificate issued under Section 207.003 by an association to which this subdivision applies or the person identified under Section 209.004(a)(6), provided that no portion of the fee or charge is required to be passed through to a third party designated or identifiable in the declaration or other covenant or law or in a document referenced in the declaration or other
or law, unless paid to:
(A) an association as defined by Section 82.003 or 221.002 or the person or entity managing the association as provided by Section 82.116(a)(5) or 221.032(b)(11), as applicable; (Texas: Condominiums and Timeshares)
(B) a property owners' association as defined by Section 202.001 or 209.002 or the person or entity described by Section 209.004(a)(6); or
(C) a property owners' association as defined by Section 202.001 that does not require an owner of property governed by the association to be a member of the association or the person or entity described by Section 209.004(a)(6);
(8) dues, a fee, a charge, an assessment, a fine, a contribution or another type of payment for the transfer of a club membership related to the property;
(9) dues, a fee, a charge, an assessment, a fine, a contribution, or another type of payment paid to an organization exempt from federal taxation under Section 501(c)(3) or 501(c)(4), Internal Revenue Code of 1986, only if the organization uses the payments to directly benefit the encumbered property by:
(A) supporting or maintaining only the encumbered property;
(B) constructing or repairing improvements only to the encumbered property; or
(C) providing activities or infrastructure to support quality of life, including cultural, educational, charitable, recreational, environmental, and conservation activities and infrastructure, that directly benefit the encumbered property; (Texas: payments to charities as long as the payments are used on matters that touch and concern the property) or
(10)a fee payable to or imposed by the Veterans' Land Board for consent to an assumption or transfer of a contract of sale and purchase. (Texas: VLB assignment fees)
(c) The benefit described by Subsection (b)(9)(C) may collaterally benefit a community composed of:
(1) property that is adjacent to the encumbered property; or
(2) property a boundary of which is not more than 1,000 yards from a boundary of the encumbered property.
(d) Notwithstanding Subsection (c), an organization may provide a direct benefit under Subsection (b)(9) if:
(1) the organization provides to the general public activities or infrastructure described by Subsection (b)(9)(C);
(2) the provision of activities or infrastructure substantially benefits the encumbered property; and
(3) the governing body of the organization:
(A) is controlled by owners of the encumbered property; and
(B) approves payments for activities or infrastructure at least annually.
(e) An organization may provide activities and infrastructure described by Subsection (b)(9)(C) to another organization exempt from federal taxation under Section 501(c)(3) or 501(c)(4), Internal Revenue Code of 1986, at no charge for the minimis usage without violating the requirements of this section.
For properties to which PTFs have been attached prior to January 1, 2012, a notice of existence of the PTF must be filed on or before January 1, 2012 or the PTF is void as to the properties covered by the fee. The person claiming a PTF must also re-file the notice described by this section not earlier than the 30th day before the third anniversary of the original filing date described by Subsection (a) and within a similar 30-day period every third year thereafter.
Because PTF covenants create an obligation to pay the fee for a period up to 99 years, title companies and other real estate professionals have rightly been concerned with finding the party to whom such PTFs may be paid and actually having the payments made and credited. Accordingly, HB 8 also provides that the PTF claimant must accept the payment within 30 days after it has been tendered or the PTF is void as to that property.
The bill language is: Sec. 5.204.
(b) If the payee of record fails to comply with Subsection (a):
(1) the payment must be returned to the remitter;
(2) payment of the private transfer fee may not be a requirement for the conveyance of an interest in the property to a purchaser; and
(3) the property is not subject to further obligation under the private transfer fee obligation.
Section 205 of the bill applies to all contracts of sale entered into on or after January 1, 2012. This section provides that such contracts must provide notice of the existence of PTF obligation. This section has a late effect date to allow the Texas Real Estate Commission time to revise their promulgated sales contract. Until then, the current contract remains in effect.
The attorney general may institute an action for injunctive or declaratory relief to restrain a violation of this law.
Please take special note. The bill provides that it becomes effective immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. The bill passed the Texas House 135-1 and the Texas Senate 31-0. Therefore other than the provisions applicable to the notice required in the real estate sales contract and the notice for preexisting PTF covenants, the bill is effective in banning Private Transfer Fees (subject to the exceptions discussed above) as of June 17, 2011.
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