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Apparently, developers feel they haven't been getting theirs. With new home development stalling, developers seem to think that the only way they can increase profitability is to build it into their work. Behold then, the latest financial scheme from the housing industry: a flip tax that gets paid to the developer every time the home gets sold. Not surprisingly, developers are embracing the private transfer fee -- a sort of lien attached to a newly built house (or land), reports the Washington Post. Every time that house is sold over a 99 year period (thank God we're not talking about 100 years!!), 1 percent of the price gets kicked back to the original developer and, in some cases, is shared with their investor partners. When you figure that the average homebuyer these days keeps a house for about 6 years, that's one hell of a revenue stream for developers and their investors!
Reportedly, a New York company, Freehold Capital Partners, is signing up developers for this fee scheme left and right, though it refused to tell the WashPo just how many clients it now has. It's Web site, however, claims the owners of $300 billion in real estate projects have now gone into business with it.
And as if we haven't learned a lesson about slice-and-dice packaging of mortgages, Freehold Capital apparently wants to "securitize" pools of transfer fees that can then be spun off and sold to investors.
Now this is, as you might imagine, controversial. So much so, some states have apparently either limited or banned these "private transfer fees." OK, I should have known you'd want to know which ones: Kansas, Oregon, Florida and Missouri, just plain ban the practice, according to the paper, while Texas and California have some restrictions on it.
But most states do not address the issue of these fees at all, so it is something you the potential home buyer should look for before signing a contract for a new home. That's vital because the fees (which are paid by the seller) are not subject to negotiation. If you end up selling a house one day that has one of these private transfer fee deals attached to it, you either pay a trustee at closing or, sorry, no sale!
Developers think this is a swell concept because they can, over years, get back some of the initial upfront costs of the project without having to have the first buyer of the property cough up the entire amount. However, others argue that, in the long run, homes with transfer fees attached will actually become more difficult to sell, which, if you happen to be the current homeowner, is not such a good thing!
If you think you may be able to fight this in court someday, think again. Not so easy, apparently.
On the PR Newswire this past weekend, one expert on private transfer fees delivered a commentary of sorts. Says attorney RJon Robins, a member of the Florida Bar's Real Property, Probate & Trust Law Section, "...absent a specific statutory prohibition, a well-crafted private transfer fee covenant will likely be enforceable, particularly when undertaken in connection with a real estate development project."
Charles Feldman is a journalist, media consultant and co-author of the book, "No Time to Think-The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate related issues for several years.
How on earth are people able to get away with this? It can't possibly be legal. A permanent lien on a property for no justifiable reason?