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Title Talk Newsletters
Private ‘Transfer Fee’ Law Enacted
 
In an effort to discourage the creation and use of private transfer fees in New Jersey, the Legislature has enacted P.L. 2010, c. 102 (eff. ca. Dec. 9, 2010), which is intended to regulate so-called private transfer fees. The law will be codified as N.J.S.A. 46:3-28 et seq.  
 
            What is a private transfer fee and why has the Legislature intervened? A scheme has been developed in some states whereby the owner of land records a declaration of covenants. This document provides that upon the transfer of title to the land, a fee (typically equal to 1% of the consideration) must be paid to the owner who originally recorded the declaration. The covenants purport to run with the land, so that the fee must be re-paid when each successive transfer of ownership occurs. The fee, if unpaid, is characterized as a “lien” by the declaration.   Although there are no known instances of such covenants being recorded in New Jersey, organizations exist which attempt to induce landowners, such as developers, to participate in the scheme. (The fee is shared by the landowner and the organization, which is appointed “trustee” under the declaration.) Many in the real estate industry believe that private transfer fees unnecessarily encumber land titles, thereby making conveyancing more difficult, while providing no corresponding socio-economic benefit.  The Legislature has apparently adopted a similar view.  The law was enacted with the support of the American and New Jersey Land Title Associations, among other concerned organizations.
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            The statute defines a private transfer fee obligation as:       
 
“a declaration or covenant recorded against  the title to real property, or any other contractual agreement or promise, whether or not recorded, that requires…the payment of a private transfer fee … upon a     subsequent transfer of an interest in the real property”.
 
Note that the law excludes dues owed to condominium and homeowners’ associations; real estate taxes and assessments; fees payable to lenders; options to purchase; brokers’ commissions; etc. 
 
            The act provides that private transfer fee obligations recorded or entered into after the law’s effective date (ca. Dec. 9, 2010) are “void and unenforceable”. Private transfer fee obligations created before Dec. 9, 2010 are beyond the scope of the statute; however, the same are not necessarily valid or enforceable. Furthermore, anyone who records or enters into a document imposing a private transfer fee obligation after Dec. 9, 2010 is liable for damages arising from the same. If a property is encumbered by a private transfer fee obligation, the seller is obligated to disclose its existence to the purchaser prior to closing  
 
            From the title insurers’ viewpoint, recorded declarations of covenants which contain private transfer fee provisions will be excepted from coverage. Affirmative insurance against enforcement of same may be provided on a case-by-case basis, in accordance with the statute. Title companies will generally decline to become involved in the collection of fees allegedly owed thereunder. 
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