Hidden Fee Allows Housing Developers to Collect Money for 99 Years

Tuesday, September 14, 2010
Homeowners looking to sell their property would be wise to make sure they’re not on the hook for paying the original developer of the home thousands of dollars once the sale goes through. Developers are increasingly adding “resale fee” covenants into sales agreements of newly built homes as a way of making money again and again for up to 99 years.
 
Under a resale fee, the home seller must pay the developer 1% of the sales price no matter how many times the property changes hands within the 99-year period. For example, the resale of a $500,000 house allows a developer to collect $5,000 from the fee, which developers prefer to call a capital recovery fee or private transfer fee. The fee applies no matter how many times a house is sold.
 
The fee may not even be contained in the sales contract, but rather in an addendum called the declaration of covenants, conditions and restrictions. Real estate brokers don’t always know about the fee, putting the onus on the seller to determine if they’ll be responsible for paying the resale fee.
 
As if this development wasn’t bad enough, one company, Freehold Capital Partners, which claims to have signed up more than 5,000 developers, wants to package the resale fees and market them to investors…just like bundling of subprime loans that led to the current recession.
-Noel Brinkerhoff
 
Resale Fees That Only Developers Could Love (by Janet Morrissey, New York Times)

Comments

Doc JR 11 years ago
The main purpose of the transfer fee program is to create financing to get the real estate and building industries back on their feet again by generating jobs to revitalize the economy.  A secondary benefit is to help spread out the costs of the infrastructure facilities over 99 years instead of charging the costs to the first homebuyer. In California there is a Mello Roos tax which is added to the annual property taxes, payable each year equal at approximately 1% of the original cost of the property plus your normal property taxes. A transfer tax paid ten times over 99 years would be considered a huge bargain. A transfer fee is a way to create financing in a destroyed real estate market. A financial source, such as Wall Street or the U.S. government, lends a builder funds to re-start their existing projects. They fund these projects because they will earn back their invested dollars from the transfer fees. The transfer fees do not go into the builder’s pocket – they pay back the investor, (Wall Street – The U.S. government). In most regulated states there are no surprises about hidden transfer fees when you purchase or sell a home. It is a recorded document that all parties sign-off on at point of sale – with full disclosure by all parties. The purpose and fiduciary duty of a title company is to insure that all parties are fully aware of these fees. There are no surprises.  

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