Freehold Capital Partners Comments on San Antonio Express Article by Jennifer Hiller

May 28, 2010, 12:45 ET from Freehold Capital Partners

NEW YORK, May 28 /PRNewswire/ -- Freehold Capital Partners ( comments on the March 29, 2010 San Antonio Express article (the "Article") by reporter Jennifer Hiller, styled "Home Sellers: Fees Might Be Hidden."

1.  The Article misstates Freehold's position regarding the basis for enforceability of private transfer fee covenants in Texas.

Ms. Hiller wrote:

"Texas law restricts private transfer fees but says some groups [including charities] can collect them.  Freehold Capital Partners has interpreted this to mean that if a portion of the fee – 5 percent – goes to charity... the developer and Freehold can keep the rest."

In Texas, private transfer fee covenants are governed by Texas Property Code 5.017 (TPC 5.017).  A plain reading of the statute, an opinion from a national law firm, and numerous Texas real estate attorneys, have all confirmed that TPC 5.017 only prohibits payment by the "transferee" (e.g. buyer) of residential property. (TPC 5.017 places no restrictions on commercial property.)  In passing TPC 5.017, Texas legislators addressed concerns about residential buyers needing to bring additional funds to the closing table.

Contrary to the Article's representation, Freehold has never contended that the charitable fee found in every Freehold instrument is necessary to render our instrument enforceable under Texas law.  Instead, every Freehold instrument allocates 5 percent of the fee to non-profits as a way to build stronger communities.  This allocation to non-profits was incorporated into every Freehold instrument long before TPC 5.017 came into existence.

2.  The Article incorrectly implies that the fee "might" be hidden.

The instruments are filed in the public records and appear on the title commitment reviewed by the buyer during the ordinary title review period contained within a standard earnest money contract. The instrument is a separate document, with a bold 14-point notice on the first page, and is not "buried" inside another document.

In addition, we entered into an agreement with Fidelity National Title (which owns Chicago Title, Alamo Title, Commonwealth Title and Lawyers Title), which includes a separate disclosure, signed by the parties at closing. (See also Fidelity Texas Bulletin No. 2009-13.R.b and National Bulletin RC-15A). Clearly the fee cannot be, and is not, hidden, and any suggestion to the contrary might make for an intriguing headline, but it does not reflect reality.

3.  Private transfer fee covenants represent a fair and equitable way to pay for infrastructure.

The reality is that private transfer fee covenants (more accurately called Capital Recovery Fees, since the purpose of the fee is to allow developers an alternative way to recover capital costs, in lieu of placing 100% of the burden onto the first time buyer), are a fair and equitable way to finance long-term improvements to real estate projects.  As the California Building Industry noted during the debate over transfer fees in California,

"You can't put all of the costs on home buyers and still sell at an affordable price.  REALTORS never complain that a house is too expensive, and that's precisely what happens when builders lump all of their costs into the price of the first home. If builders weren't allowed to pass along costs in a transfer fee, they'd have to make up for it by adding thousands of dollars to their homes' initial selling price, shutting out buyers. Why shouldn't the second and third buyers share the costs?"*

Julie Snyder, Policy Director for non-profit Housing California remarked,

"transfer fee financing ... helps keep home prices low by spreading costs over all beneficiaries of a project."*

4.   The issue isn't about whether or not the costs associated with infrastructure and improvements will be paid – the issue is how the costs will be paid:  upfront – or over time.

For those consumers who prefer to pay 100% of the cost of infrastructure and improvements up front, and to finance those costs, and then pass the costs on to the next buyer, in lieu of paying a Capital Recovery Fee, numerous alternatives exist.  However, for those buyers who prefer to pay less up front, and to pay lower closing costs, and less interest during their period of ownership, accomplished by means of a mechanism for fairly apportioning costs over those who will use the infrastructure and other improvements, Capital Recovery Fees represent an attractive option.  

Disclaimer: Nothing herein shall be deemed legal advice, and no reliance shall be made thereupon.


SOURCE Freehold Capital Partners