Flip Tax for Residential Co-ops Must be Retained

The Federal Housing Finance Agency (FHFA) is proposing a guidance (rule) that would restrict Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from investing in mortgages in buildings with private transfer (Flip Tax) fees.  The FHFA Rule, if enacted, could:

  • Effectively halt sales in buildings with a Flip Tax
  • Create instability as buyers and sellers would face new difficulties in a housing market where financing may already be scarce
  • Limit transfers because these apartment sales may not be able to secure financing that is Fannie Mae eligible
  • Create inefficiency in the marketplace as buildings whose financing is Fannie Mae eligible may be viewed more favorably than comparable properties

Many of Riverdale’s cooperatives have benefitted from the use of flip tax income for some time.  Doing so helps enable the improvements and capital projects that are necessary for the perpetuity of each property.  The authority and autonomy that each building or its Board of Directors currently has to enact a flip tax based upon the needs and desires of individual cooperators must not be undermined.  The judicious use of flip tax revenue has historically (and effectively) bolstered capital reserve funds, funded building maintenance, allowed for the repair and replacement of building systems and additional building wide improvements – all of which benefit not only the residents but the surrounding neighborhood by elevating property values, as well.

FHFA is may be principally concerned with the private transfer fee covenant when a project developer or their designated third party receives the proceeds of transfer fees, not when a fee goes to improve the operation of an individual building.

There should be no blanket regulation adopted.  The two concepts must be clearly articulated as distinct from one another and co-op owners, co-op boards and their managers need to take note of the impending regulation and inform their representatives in Washington, D.C. that they are opposed to restricting loans to co-ops that use their flip taxes for the benefit of all of their residents.

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