NAR seeks federal ban on private transfer fees

A coalition of consumer advocates, unions and real estate industry groups is seeking a federal ban on private transfer fee covenants, a technique used to finance the capital costs of some new developments through fees that are collected every time a home changes hands.

Proponents say the technique -- also known as reconveyance financing -- can make new homes more affordable by spreading the costs of building a subdivision's infrastructure out over time. The fees, usually 1 percent, "run with the land" and are typically in force for 99 years.

Critics -- including the National Association of Realtors, the American Land Title Association, the Center for Responsible Lending and the American Federation of State, County and Municipal Employees (AFSCME) -- have banded together as the "Coalition to Stop Wall Street Home Resale Fees."

In a letter to Treasury Secretary Timothy Geithner and other high-ranking members of the Obama administration, the coalition claimed private transfer fees rob homeowners of equity, harm their property's value, and lay the groundwork for legal disputes that threaten smooth property transfers.

The Federal Housing Administration will not insure mortgages for properties encumbered by such fees, and regulators overseeing Fannie Mae and Freddie Mac at the Federal Housing Finance Agency are expected to weigh in on the issue soon.

In addition, the coalition said 17 states have banned or restricted private transfer fee covenants, including Arizona, Oregon, Texas, Florida, Illinois, Minnesota and North Carolina.

In California, homebuilders were able to head off major restrictions on private transfer fees sought by Realtors, but the state now requires upfront disclosure of the fees.

Freehold Capital Partners, a company that partners with real estate developers to structure a 1 percent "capital recovery fee" into residential, retail, hotel and commercial and office developments, claims reconveyance financing more fairly apportions capital expenses over the life of a project instead of forcing first-time buyers to pay all the costs.

Property encumbered by a 1 percent fee should sell for less than a property with no fee, the company said, and a buyer paying less today will have lower acquisition costs, lower carrying costs over time, and the ability to sell for less -- which benefits future buyers as well.

"The savings are modest, but the fee is equally modest," Freehold says on its Web site.

The right to collect the payments in the future can be securitized and sold, the company says, providing developers with "liquidity today" -- a practice that's led opponents to dub the fees "Wall Street home resale fees."

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