(08/20/2010) Erate Exclusive - Uncle Sam wants to put the kibosh on a deed covenant provision that gives
builders, developers and others a continuous stake in the property -- a
stake that pumps up the cost of a home.
Builders and developers 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 amount, about 1 percent of the selling price, typically paid by
buyer, occurs each time the property changes hands.
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.
FHFA and critics of the fee say, buyers who don't carefully read
settlement statements don't realize they are paying the fee. Buyers who do
question the cost find there's little they can do to circumvent the fee,
short of walking away from the deal -- a drastic approach for only a few
buyers otherwise bent on closing.
"A builder or developer should not have the power or authority to
essentially levy an ongoing tax for their own private good the way a
government entity does for the public good. It seems patently unfair that
once title is transferred from a builder or developer to a buyer that there
could be an opportunity to profit again from a sale or transfer down the
line. This would create a lien or encumbrance which must be fully disclosed
to all potential buyers and justified by the builder/developer as having to
offset a legitimate expense," said Nancy Osborne, chief operating officer of
Erate.com, a Santa Clara,
CA-based financial information publisher and interest rate tracker.
Proponents of the charge say the beneficiary can be a charity or
government agency set up to provide housing for underserved communities.
The money does sometimes go to community or homeowners associations, but
more often the cash recipient is the builder or developer.
Against the fee levied against new homes is a group that includes the National
Association of Realtors, the American Land Title Association,
American Federation of State, County and Municipal Employees, Service
Employees Industry Union and the Center for Responsible Lending, which has
petitioned to stop what they say is a "stealth tax" that does little more
than guarantee a revenue stream for developers or investors without
providing benefits to home buyers.
Eighteen states have acted to restrict the fee on new homes, joining the FHFA's proposed rule to oust the
fee by preventing its agencies from purchasing or investing in mortgages on
houses with the fees are embedded in the covenants. The FHFA overseas Fannie
Mae, Freddie Mac and Federal Home Loan Banks, each of which plays a key role
in the housing finance system.
"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 backs by mortgages on those
properties," said FHFA acting director Edward DeMarco.
A public comment period runs 60 days, until about mid-October, after
which it's a good bet the agency will pull the plug on private transfer
fees.
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