Sleazy Real Estate Developers' Latest Scam Could Skim 5 Percent Off Your Home's Value [View All]

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AlterNet / By Slade Smith
Sleazy Real Estate Developers' Latest Scam Could Skim 5 Percent Off Your Home's Value
You may never know that your property came with a transfer fee covenant attached, until just before you try to sell it.
October 7, 2010

Consider the following scenario: you are in the process of selling your home. You've found a buyer who is willing to pay you $200,000. Your realtor has assured you that everything is going smoothly-- she says the buyer has lined up financing and there were no problems with the home inspection and the appraisal.

Then, days before the closing, your realtor gives you a call. "Uh, something has turned up during the title search that is going to be a problem," she says. "I don't know if you were aware of this, but your property has a private transfer fee covenant on it."

"What does that mean?" you say.

"It means you will have to pay an extra $2,000 fee at the closing," she informs you. "And the buyer is demanding that you reduce the sale price by $10,000 or the deal is off because of this."

Pay $2,000? To whom? The buyer wants a 10 grand discount?? And what the heck is a private transfer fee covenant?

A private transfer fee covenant is a legal agreement attached to a piece of real estate through a filing in the public records that entitles some third party to up to 1 percent of the sale price of the property each and every time it is sold. The covenant typically lasts up to 99 years.

Who creates these covenants? The covenants are typically set up by developers. Typically, 60 percent of the transfer fee goes into the pocket of whoever set it up; 10 percent goes to a broker; and 30 percent goes to a company called Freehold Capital Partners.

Why does Freehold Capital Partners get a cut? They claim they invented this legal strategy and are attempting to patent it. They also are trying to convince Wall Street to securitize the fees, so they and the developer can get a lump sum up front on the future income stream based on an actuarial guess on how many times and for how much a property will sell in 99 years. Think of the J.G. Wentworth commercial "It's my money, and I want it now!"

From your perspective as a seller, here's what this transfer fee means to you:

1. You pay $2000, which goes to the developer and Freehold.
2. They give you nothing in return.

But it gets even worse...

http://www.alternet.org/economy/148441/sleazy_real_estate_developers%27_latest_scam_could_skim_5_percent_off_your_home%27s_value_/