California Passes Law Prohibiting Property Transfer Fees

California recently passed a bill that prohibits the creation of real estate transfer fees requiring subsequent owners to pay designated fees each time the property is transferred, unless the fees provide a “direct benefit” to the property.

The bill adds a new Section 1098.6 to the California Civil Code which expressly provides that real property transfer fees created on or after January 1, 2019, are void as against public policy.  However, this prohibition does not apply to property transfer fee covenants that have a “direct benefit” to the property, as defined under Federal Housing Finance Agency (FHFA) regulations.  Under the FHFA regulations, which apply to Fannie Mae and Freddie Mac, “direct benefit” generally means that the proceeds of private transfer fees are used for the maintenance and improvements to the property and for cultural, education, and charitable activities that are conducted to protect the property, among other uses.

Excepted property transfer fee covenants that have a “direct benefit” to the property do not need to be recorded with a notice advising that federal restrictions associated with private transfer fees may make it more difficult to obtain home financing, as currently required by California law for existing property transfer fee covenants.

The full text of the new law is available here.