Private Transfer Fees – A No Go in Delaware

Private Transfer Fees are typically created by recording deed restrictions that compel a buyer to pay a fixed amount or a percentage of the sales price to a former owner of the property at the time of transfer of the property.  Thus, a former owner of a property can collect a transfer fee from successive buyers for years after the former owner relinquished ownership. 

However, pursuant to Title 25, Section 319 of the Delaware Code, such a fee for any transfer fee recorded on or after July 27, 2010 is prohibited.  The law provides that any transfer fee recorded after July 27, 2010 shall not run with the title to the property and is not binding or enforceable against any owner or subsequent owner, purchaser, or mortgagee.  The law further provides that any lien to secure the payment of a private transfer fee under a transfer fee covenant recorded on or after July 27, 2010 is void and unenforceable. 

The law also specifically states that §319 does not mean that a transfer fee recorded before July 27, 2010 is presumed valid and enforceable.  There are various legal theories against transfer fee covenants (Rule Against Perpetuities, unconscionability, failure of consideration, etc.).  Moreover, there are federal lending rules that disqualify mortgages on properties with private transfer fees from being sold to Fannie Mae or Freddie Mac, or used as collateral for Federal Home Loan Bank advances.  The law provides a list of fees that are not considered private transfer fees. 

Some of the fees that are not considered private transfer fees are as follows:  payment of purchase price; purchase money mortgage; installment sales contracts; real estate commissions; loan payments and associated lender fees; rental payments; payments under options to purchase and/or right of first refusal; governmental charges; condominium fees; and payment for re-sale certificates.

For more information, please contact the real estate attorneys at Elzufon Austin & Mondell, P.A.


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