Shining a Light on Home Resale Fees
Jun 7, 2011
At the height of the housing crash, developers found themselves strapped for cash to build new developments. Over the last few years, a few financial firms rode to the rescue of developers, but with a questionable catch. In exchange for a percentage of the take and other undisclosed benefits, the developers agreed to insert provisions into home sale contracts that required that every time the home is sold for the next 99 years, a percentage of the sale price (usually 1%) would be paid to a third party.
Covenants in home sale contracts are nothing new: for instance, homeowners’ and condo associations frequently levy resale fees on property. However, these fees benefit the property and its value in the form of maintenance, infrastructure and amenity improvements. The transfer fees at issue here do nothing to benefit the property or its rightful owner. In fact, the opposite is true: since these transfer fees are calculated as a percentage of the sale price each time the property is sold for the next 99 years, any improvements made by the original and subsequent homeowners that increases its value further enriches a third party at the expense of homeowners’ equity in the property. Further, a prospective buyer would be remiss not to leverage the home transfer fee as a bargaining chip, thereby reducing the sale price and further decreasing the sellers’ realized equity in his or her own property.
As if all this were not enough, the third parties who stand to benefit from these fees do not want to wait 99 years to collect billions in resale fees on the property of others, so they are attempting to bundle these fees into securities and entice Wall Street investors with the promise of future cash on the backs of homeowners.
The practice of attaching resale fees that do nothing to benefit the property or its owner raises the question of whether the homeowner enjoys full property rights as long as he or she is forced to hand over a portion of the equity — and the fruits of any improvements the homeowner makes to the property – to a third party with no ownership interest in the land.
Many homeowners have no idea their property is subject to a transfer fee, as Freehold Capital Partners, the chief proponent of the fees, has refused to release the list of properties currently affected. Currently, 27 states have restricted the use of home resale fees and in the remaining states, at the very least, homeowners deserve transparency about whether their property includes these fees and what the implications may be.