September 13, 2010

Real Estate Developers Seek to Embed 99-Year Resale Fee

Real estate financing firm pushes capital recovery fees

Just when you thought buying a house or commercial property was expensive enough, there's a new fee to be wary of. The New York Times reported Monday, September 13, that a new fee is in the works, and if that's not bad enough, one of its major proponents is pushing the idea that it has the potential to be securitized and resold - just like mortgages.

Called a capital recovery fee or private transfer fee, this is a charge written into the sales contract - often into documentation that does not require a signature - that must be paid by the seller - every seller - for the next 99 years, each time the property is sold. Homeowners frequently are unaware of the fee - until the time comes that they must resell - and adding one percent of the sale price of the house to the expenses that must be paid at closing is not proving popular with them.

Freehold Capital Partners is spearheading the effort, as well as leading the push for securitization; in fact, it moved its corporate offices from Round Rock, Texas, to New York as it focuses on the securitization aspect.

While some developers are eager to take part in anything that will bring in funding, others are wary - perhaps rightfully so. A coalition of real estate trade groups opposes such fees, and is taking action to try to stop them. The Department of Housing and Urban Development has issued a letter stating that such fees violate its regulations, and that it would not issue mortgages on affected properties; the Federal Housing Finance Agency is considering a prohibition for some mortgages; and 17 states have already taken steps against them.

Reprints Discuss this story
This is where the comments go.