Gov. Tim Pawlenty this week signed into a law a bill that bans private covenant transfer fees in home purchase contracts.

The Minnesota Land Title Association and the Minnesota Association of Realtors lauded Pawlenty’s action, calling the Transfer Free Covenant Act a pre-emptive strike against so-called “Wall Street resale fees.”

Association representatives said the legislation is needed because private transfer fees have popped up in real estate sales in Texas, California, Ohio and, close to home, South Dakota.

They called the emerging practice a dangerous financial scheme that threatens to undermine home buying by delaying or scotching deals and raising purchase costs.  

Minnesota becomes the 11th state to restrict use of Wall Street Resale Fees by passing legislation, the associations said.

“[Pawlenty] stood up for Minnesota homeowners, and showed greedy Wall Street investors that their dangerous financial schemes won’t be permitted in our state,” said David Welshons, Land Title Association president.    

Proponents of private transfer fees contend they actually lower housing costs over the long run because they reimburse a developer or other party for their costs in putting up a housing project. In other cases, the fees can be earmarked for special charities, they said.

But Sen. Linda Scheid, DFL-Brooklyn Park, the author of the bill in the Senate, called arguments for the private transfer fee “disingenuous.” She said state lawmakers quickly closed ranks to unanimously support the Transfer Fee Covenant Act because the fee transfer practice is “shocking and outrageous.”  

She contended the fees are an unnecessary money-making scheme at a time when many communities are reeling from mortgage foreclosures.

The bill, in both its House and Senate versions, did not receive a single “no” vote.