Plunging property values have already made breaking even difficult for home sellers and now a new Wall Street financial tool called a private transfer fee has people crying foul.
Also known as capital recovery fees, the requirement is being inserted into home deeds in new housing developments across the country. The fee requires home owners who sell their property to pay 1 percent of the sale price to the developer of the community every time the home is sold over a period of 99 years.
“It’s bad for consumers,” said Jeremy Yohe, director of communications for the American Land Title Association and a member of the Coalition to Stop Wall Street Home Resale Fees. “It’s basically stealing equity from homeowners in a time when home prices already are taking a beating.
“Whether or not the home depreciates in value, you still have to pay that 1 percent,” he said. “They’ve created a system that siphons off a little bit of money from every transaction. It’s not like a homeowners association. There’s no value in it at all.”
The Wall Street firm Freehold Capital Partners markets the private transfer fee instrument. Freehold typically receives a percentage of the 1 percent from the developer, Yohe said. The contracts also can be bundled and sold to investors.
Representatives from Freehold did not return calls for comment on the issue but the company Web site touts the fee as beneficial to all parties involved.
“The project developer/owner can more fairly apportion costs and, in consequence, lower the sales price,” the Web site claimed. “Since a portion of the significant capital investment in the project can be recovered over time, current and future buyers will enjoy lower acquisition costs, which means lower closing costs and lower monthly interest payments.”
Opponents claim the fees are not disclosed to the original buyer and are unknown to sellers until they are at the closing table during settlement.
Eighteen states, including Maryland, have banned the practice but it is legal in. Virginia and the District of Columbia.
“We’re opposed to them, but we have not seen them in the District yet,” said Ed Krauze, vice president of public policy for the Washington D.C. Association of Realtors. “We are on the lookout for them, and we are also considering pro-actively dealing with them through legislation. We’re keeping our eye out for them.”
There could be a number of harmful consequences, including complications for appraisers and title officers, Yohe said.
“An appraiser isn’t going to know that a private transfer fee is attached to a property, so they might not be able to accurately give the value of a house because the price initially is artificially brought down to pay for this fee,” he said.
It is unclear how common this practice is but Freehold’s Web site stated it has agreements with “the owners of hundreds of billions of dollars in real estate projects nationwide.”
