A bill that would halt the controversial collection of private real estate transfer fees in all 50 states has been proposed to outlaw the action. Maxine Waters (D-CA) offered the legislation in Congress as part of an amendment to revise a law approved nearly four decades ago.
The bill was proposed after a coalition of groups lobbied to have the practice outlawed, and is included as an amendment to the 1974 Real Estate Settlement and Procedures Act. The nation’s giant mortgage lenders, Fannie Mae and Freddie Mac are both working to adopt policies that would stop the lenders from purchasing a loan with private transfer fees attached to them.
“This is the kind of thing that if savvy investors smell is going to mess up the housing market further,” said Andrew Langer, president of the Institute for Liberty, a Washington D.C., based group whose organization lobbied to outlaw the fees. “It’s a way someone outside makes a profit for generations at the expense of homeowners and buyers.”
Seventeen states have already passed laws to reject the use of private transfer fee charges in real estate transactions.
Under the bill’s wording, legislation would eliminate federal mortgage guarantees or purchases. “No person shall demand or accept a transfer fee pursuant to a transfer fee covenant that is recorded in any state if the transfer for which the transfer fee is imposed involves a federally related mortgage loan and such transfer occurs after the effective date under section 3 of the Homeowner Equity Protection Act of 2010,” the amendment reads.
“No person shall enforce or seek to enforce any lien purporting to secure the payment of a transfer fee pursuant to a transfer fee covenant recorded in any state in connection with any transfer involving a federally related mortgage loan if such transfer occurs after such effective date.”
A New York based investment firm, Freehold Capitol Partners, has been leading a move to sell real estate transfer fee securities to investors, who would finance real estate developments and then collect the fees every time a home or other property is sold for a period of 99 years. Under the covenant, which are in effect in some developments already 1% of the purchase price would then be paid to investors every time a home sells.
“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,” said American Land Title CEO Kurt Pfotenhauer. “We applaud Congresswoman Waters 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.”
The coalition was mounted to fight the use of the securities, which are attached to new homes that are developed by builders that partner with Freehold. The company says that it gives new home builders a way of financing projects in these tough economic times.
The fees are collected by closing agents when homes are sold included in the “Declaration of Covenant” or “Private Transfer Fee Covenant” in the county where the project is built, seldomly viewed by real estate purchasers or agents, presenting the likelihood of problems for home buyers and sellers when a transaction is scheduled to be closed.