The Texas House of Representatives and Senate have overwhelmingly voted for a bill that would ban private transfer fees on real estate. The legislation bans new private transfer fees that are written into neighborhood deed restrictions typically at a rate of one percent of a home’s sales price. The idea behind the origination of these fees is perpetual income for the developer whereby the transfer fee is paid to the original developer each time the property changes hands over the next 99 years.

Developers who have existing transfer fees in place must file a notice of the obligation in the County property records by January 31, 2012 and continually update those filings every three years, or the transfer fee becomes void. This new legislation however, does not apply to community and homeowner assocations.

Most homeowners are completely unaware of the existence of private transfer fees until such time as they go to sell their home. These fees are usually discovered in title searches, but the vast majority of homebuyers and homeowners fail to read their neighborhood covenants, deed restrictions, or title committment before signing on the dotted line. Homebuyers nearly always must agree to community convenants and restrictions as part of a standard purchase contract in the State of Texas.

By enacting this legislation, Texas is soon to join 33 other states that have effectively banned or restricted such private transfer fees. While private transfer fees are not common in Texas, they have been marketed to developers as an alternative income stream to help offset down markets.