Friday, October 8, 2010
by Broderick Perkins
© 2010 DeadlineNews.Com
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Deadline Newsroom - 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 Coalition to Stop Wall Street Home Resale Fees recently applauded members of the U.S. House of Representatives for introducing the Homeowner Equity Protection Act of 2010 (HEPA) (not to be confused with the existing Home Ownership and Equity Protection Act of 1994 (HOEPA).
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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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.
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Perkins is managing editor of HomeAway.com's Gulf Coast Response Center.
Perkins was the first Examiner to cover three beats for the Examiner.com news service:
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