The use of private transfer fee covenants has been controversial from the start. The idea originated in California and started to spread, causing many states to preemptively ban their use. Illinois joined the ranks of 17 states late last month to outlaw most private transfer fees in Illinois.

Here’s how they work: Developers place transfer fee covenants on a residential property deed.  The covenant stipulates that whenever the property is sold to another party, a fee must be paid to the original developer who put the covenant in place. A property with a covenant may become stigmatized for resale and the transfer fee could complicate the overall closing process.

The Illinois Association of REALTORS® initiated and supported Senate Bill 3747, a measure that blocks the use of most private transfer fees in Illinois. Take a look at the video below for more details on the ban of private transfer fee covenants.