Do I really have to pay the “flip tax” resale fee when I sell my condo?

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Question:

I bought a condominium in a homeowner’s association a few years back. Now I’m ready to retire and sell, but a friend of mine warned me that I’ll have to pay 1% of the proceeds back to the homeowner’s association. At first I thought “No big deal,” until I did the math. If I succeed in selling my house for $350,000, that’s $3,500 I’ll have to part with, on top of all the other costs of selling and moving! Before I go digging through my paperwork to see whether this is in there somewhere, is it even legal?

Answer:

Although federal legislation was proposed a few years back to outlaw these resale fees, often referred to as “flip taxes,” it failed. The reason was that  many condo and homeowner associations (HOAs) rely on money raised by transfer fees in order to remain financially healthy, with the result that the comments against the legislation overwhelmed those in favor.

It is possible that there are restrictions or prohibitions on this practice in your state’s laws, however. Talk to an attorney for details.

Barring that, it looks like you’ll need to read through your condo paperwork after all -- particularly the master deed, bylaws, and amendments. Don’t look for the word “flip tax,” however. It’s not usually used in a legal document, where you’re more likely to see the word “transfer fee” “resale fee,” “resale contribution,” or something similar. Fees of between 1% and 3% are fairly typical. And if it's written into one of these master documents, chances are it's legal.

If you don't find mention of your fee in one of these documents, however, it might be worth consulting a lawyer (one whose hourly rate won't eat up your $3,500 too quickly). If the 1% fee was adopted recently by the HOA board, it's possible that it did not have the legal authority to take such a measure.

See "Homeowners' Associations (HOAs) and CC&Rs: Know What You're Getting Into" for more information.

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