(10/6/2010) - A real estate industry coalition is cheering Congress for
picking up the banner in the fight to end private transfer fees, fees that
give builders and developers a perpetual stake in a property at the expense
of the homeowner.
The legislation, if passed into law, would ban private transfer fees,
which critics consider a new predatory scheme forcing homeowners to pay for
the right to sell their own properties.
"We applaud U.S. Rep. Maxine Waters (D-California) and the bill's
co-sponsors for introducing a powerful bill today that will protect
consumers from predatory transfer fees that depress home prices and
steal equity from homeowners," said Kurt Pfotenhauer, CEO of the American
Land Title Association.
The association, along with Consumers Union, the Center for Responsible
Lending, the National Association of Realtors (NAR), the Consumer Federation
of America and a host of other groups, has banded together to boost efforts
to end the deed covenant provision, also known as "Wall Street Home Resale
Fees."
"This bill is an important step in enhancing consumer protections against
these for-profit fees and safeguarding our already fragile real estate
market from further abuse," Pfotenhauer added.
According to the coalition, builders and developers, most often those working with
Freehold
Capital Partners, sometimes attach to a new home sale deed something
called a "private transfer fee" or "property transfer fee" (not to be
confused with property transfer taxes).
The charge, about 1 percent of the selling price, typically paid by the
seller, bounces back to the developer each time the property changes hands
-- for 99 years.
The coalition also says disclosures about the tax aren't
always clear.
The Federal Housing Finance Agency (FHFA), concerned that
the fees are self-serving and used to fund private continuous streams of
income, recently proposed a rule that would restrict federal housing
agencies from purchasing mortgages on houses sold with the fees.
The FHFA overseas Fannie Mae, Freddie Mac and Federal Home Loan Banks,
each of which plays a key role in the housing finance system.
The coalition says it's not just the exorbitant cost. The developer
distributes profits to Freehold, which in turn is attempting to bundle the
fees into securities, and sell them on Wall Street. Another deal designed to
allow investors to cash in on future earnings.
Sound similar to deals that brought Wall Street to its knees during the
Great Recession? Luckily, few
investors are buying.
Proposed HEPA legislation would ban the fees at a federal level and
follow restrictions already in place in a dozen and a half states.
Freehold counters, pointing out legislation to ban the fees in California
was defeated in committee because some legislators saw the
fees as valuable to developers and the building community, hard hit by the
recession.
The company argues the fees allow the project developer/owner to more
fairly apportion costs and, in consequence, lower the sales price for the
buyer.
"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," according to Freehold.
Another piece of legislation, introduced by U.S. Rep. Phil Gingrey
(R-GA), "The Homebuyer
Enhanced Fee Disclosure Act of 2010 (HEFDA)" would not ban the fee, but
require adequate disclosure and require that a notice of the fee be filed
with the county recorder.
The coalition maintains the fee is nothing more than a "stealth tax" that does little more
than guarantee a revenue stream for developers or investors without
providing benefits to home buyers.
"Encumbering housing transactions with fees that may not be properly
disclosed may impede the marketing ability and the valuation of properties
and adverse the liquidity of securities backed by mortgages on those
properties," said FHFA acting director Edward DeMarco.
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