NEW YORK, Aug. 31 /PRNewswire/ --
The following is commentary by Victor Fava, MBA:
The National Association of Realtors (NAR) and the American Land Title Association (ALTA) have joined forces in an effort to shut down private transfer fee funding for non-profits, homeowner associations and developers.
Private transfer fees (also called capital recovery fees and home resale fees) have been around for decades and have largely been used to fund homeowner associations, condominium associations and non-profits. More recently, developers of both residential and commercial projects have turned to transfer fees as a way to spread development costs, reduce negative equity and re-start failed projects. According to Freehold Capital Partners, (www.freeholdcapitalpartners.com), a firm that works with developers to help spread infrastructure costs through the use of a type of transfer fee called a capital recovery fee, by imposing the fee developers create a type of development bond, which is an attractive alternative to putting 100% of the costs onto the initial buyer. By selling off the income stream, developers can generate project liquidity, which eliminates negative equity and makes the project more affordable.
A private transfer fee occurs when a private transfer fee covenant is filed in the real property records, either as a separate document or as part of the subdivision restrictions. Future sellers then pay a fee (typically 1% or less of the sales price), each time the property sells. After a specified duration, usually 99 years or less (during which time the typical home will sell 8-10 times) the fee expires.
Supporters of private transfer fee covenants point out that transfer fees provide important funding, and that the only party that will ever pay the fee is someone who voluntarily agrees to do so, and negotiates their price accordingly. Julie Snyder, policy director for non-profit Housing California, observed that transfer fees can "help keep home prices low by spreading costs over all beneficiaries of a project."
On the other hand, Realtors publicly claim the fee will unnecessarily burden homeowners. However, according to Will White, an attorney and chief operating officer for Freehold Capital Partners, the real reason Realtors oppose transfer fees can be found in their own flyer, which refers to a "commission-ectomy", described as where "a buyer or seller faced with a transfer fee asks the Realtor to absorb the fee". Mr. White went on to say, "this has nothing to do with homeowners, and everything to do with commissions."
The title industry also publicly frames this as a homeowner protection issue, yet concedes that they fear having to pay a claim if they miss the transfer fee covenant at closing. One thing is for certain, and that is that the battle lines are drawn.
The debate is between the NAR and ALTA on one side and environmental groups, charities, and developers on the other side. The last time these two sides squared off was in California, where the Realtor/ALTA coalition was handed a stunning defeat. Despite the fact that Realtors pushed hard for a ban on private transfer fees, when the dust settled California political history had been made when the bill backed by the Realtors failed to get a single vote. Instead, California opted for a bill centered around disclosure. The fact that this defeat came despite the millions of dollars these two groups spent in an effort to influence policy-makers is telling.
Stunned by their public defeat, and perhaps sensing a weakness in their message (that their own fees are fine yet 1% is unreasonable) the Realtors and ALTA began a series of state battles based on lightning fast tactics designed to avoid public debate altogether.
In North Carolina a bill originally designed to create early organizational sessions was gutted at the last minute, converted into a transfer fee ban, and passed with neither study nor debate. In Utah, the strategy centered around what is referred to as a boxcar bill, which, just like it sounds, is an empty bill that moves along the political tracks. The transfer fee ban was then dropped in at the last minute. In Delaware, Senator Nancy Cook, when asked to allow enough time to discuss how this funding source could create jobs and reduce negative equity, reportedly responded that this was "life in the fast lane", and proceeded to guide the bill through in less than 48 hours, start to finish. According to followthemoney.org Senator Cook's largest contributor is the Delaware Association of Realtors.
These tactics leave many uncomfortable, and sound reminiscent of the days when special interest groups such the NAR and ALTA could ask for practically any political favor and be assured that it would be granted, regardless of the impact on Main Street. Such heavy-handed pressure to avoid public debate did not find a receptive audience in South Carolina, Alabama, Georgia, Rhode Island, Mississippi, Hawaii, and Texas, where efforts to rush through bans without discussion and debate were rebuffed by lawmakers.
According to Bryan Cohen, general counsel of Freehold Capital Partners, "We understand why the NAR and ALTA want to be involved in the public debate about how to fix this crisis and deal with negative equity. What we cannot understand is why anyone would actually listen to them. Having pushed hard for subprime loans and lax lending standards, all in pursuit of higher fees at the expense of homeowners, these are the last two groups that should be given any credence whatsoever."
Mr. Cohen points to the 2003 testimony of the president of the NAR, addressing the Senate Banking, Housing and Urban Affairs Committee, who urged FHFA to create a "new and innovative approach to funding" consisting of "sub-prime loans to borrowers who have poor credit", together with "a series of hybrid FHA adjustable rate mortgages." Mr. Cohen goes on to say, "The Realtors were the driving force behind the creation of these products, because easy credit means more commissions. These are of course the very same loan programs that led to hundreds of millions in real estate commissions before ultimately bringing the real estate industry, and the country, to its knees. It was greed, pure and simple. Without these programs, Wall Street would have had nothing to sell and mortgage brokers would have had no loans to broker. The evidence suggests that responsibility for this disaster falls squarely on the Realtors."
Lawrence Roberts, author of The Great Housing Bubble, recently told The Wall Street Journal (subscription required) that "the National Association of Realtors and its members definitely deserve a large chunk of blame for the mess we're in now."
In their latest salvo, the NAR and ALTA have asked FHFA to instruct Fannie and Freddie to avoid acquiring mortgages encumbered by a private transfer fee. As reported by Washington Post syndicated columnist Ken Harney, (FHFA proposed ban on private transfer fees could cost homeowners) such a move would undoubtedly impact homeowners nationwide, and for generations to come, because it would limit financing of those properties to non-conforming loans.
Nonetheless, special interest groups such as ALTA and the NAR see this quasi-government intervention as a critical step towards blocking private transfer fees generally, and companies like Freehold Capital Partners specifically, and appear to have no hesitation in asking Washington for help. This is in sharp contrast to ALTA lobbyist Kurt Pfotenhauer's comments to the Wall Street Journal just last year (Title Insurer Fees Draw Scrutiny, by James R. Haggerty), issued in response to the Obama administration's proposal to regulate the title industry through the new Consumer Financial Protection Agency. Mr. Pfotenhauer stated "Regulation of local transactions by Washington bureaucrats is a recipe for frustration and malfunction". Apparently this only applies to regulations seeking to protect homeowners from the title industry, and not vice-versa.
Even more puzzling to many is ALTA's latest tactic of blaming their own negligence as grounds for the relief they seek. In applauding FHFA's proposed guidance, ALTA's Jeremy Yohe stated that "the casual homebuyer would have no clue that these fees are even attached to the property that they are going to purchase." As transfer fee supporters are quick to point out, disclosing the fee is the title company's job, and the only way the homeowner would be left clueless is if the title company failed to do its job correctly. This, supporters say, is the crux of the title industry's opposition.
FHFA is currently accepting comments on the proposed guidance. Whether FHFA moves to protect special interest groups at the expense of consumers remains to be seen. As Freehold Capital Partners' Will White said, "if history is a guide, it is long past time that the GSEs quit listening to anything special interest groups like ALTA and the NAR have to say."
Source: National Real Estate Watch (www.nationalrealestatewatch.com)
Keywords: Freehold Capital Partners Private Transfer Fee Covenant Freehold Capital Partners Home Resale Fee Capital Recovery Fee Private Transfer Fee Covenant FHFA Fannie Mae Freddie Mac Freehold Capital Partners Home Resale Fee
SOURCE National Real Estate Watch