This was news to me tonight and I had to rebroadcast. If such a rule were passed I imagine there would be a large singular correction in New York City real estate values. Funding would effectively dry up for a large chunk of inventory, effectively curbing demand.
Under the proposed rule, Freddie Mac and Fannie Mae would be forbidden from investing in mortgages in buildings where there is a flip tax or transfer tax. Since a large amount of buildings in NYC have such charges, any buyers looking at these units would be precluded from a conforming mortgage, if this were passed.
Flip Tax Regulation Could Hit NYC Market Hard
By: Jill Urban
A new proposed federal regulation could change the way condos and co-ops do business here in the city. NY1’s Jill Urban filed the following report.It’s a proposed federal regulation that has the real estate industry buzzing — a new rule that, if passed, could change the way condos and coops in New York do business and could drive property values way down.
Eva Talel, a partner at Strook & Strook & Lavan, is a real estate attorney who specializes in coops and condos and NY1 recently asked her to explain.
“The proposed legislation would essentially prohibit Fannie and Freddie and the federal home loan bank from investing in mortgages where the building, be it a coop or condo, has a flip tax,” says Talel.
Since a majority of the buildings in New York have a flip or transfer tax, this could jeopardize the stability of the local real estate market.
Last year, The Federal Housing Finance Agency proposed the guideline in an effort to prevent developers from requiring buyers to pay them or a trustee a fee whenever a property is re-sold. But this good intentioned regulation overlooks the fact that in New York City, the flip and transfer taxes are generally paid to the buildings themselves and are almost always used for maintenance and capital improvements.
“They are going to have to find a source for money to replace what used to come from flip taxes and the transfer fees. Maintenance or common charges would go up, special assessments will have to be imposed,” explains Talel.
Those increased monthly expenses would drive property values down and hit homeowners pocketbooks during what is already a tough economic time.
The proposal was put on the table last year and then during an open comment phase close to 3,000 comments were made, including ones from groups like the Real Estate Board of New York who all offered a simple solution:
“Carve out flip taxes where the money goes back into the building. That’s all that is really required in order to make this bill palatable and non-punitive,” says Talel.
Even though the comment phase has closed, Talel still urges anyone with a comment to email the agency at email@example.com or by sending a letter to:
Alfred M. Pollard, Esq.
Federal Housing Finance Agency
1700 G Street NW
Washington, DC 20552
ATTENTION: Public Comments Guidance on Private Transfer Fee Covenants (No.2010-N-11)