The practice of imposing transfer fees on home sales is coming under scrutiny as developers and outside investors use them as a new income stream.
On Thursday, a new coalition launched to discourage the practice, and the issue could come up in the state legislature.
Often unnoticed by consumers, private-transfer fees are recorded by covenant or written into the sales contract of a home. The fees require a percentage of a home’s sale price to be paid to a private third party each time the property is sold, typically for a period of 99 years.
“Pretty slick way to make money,” said Kurt Pfotenhauer, president of the American Land Title Association, which is among the organizations forming the Coalition to Stop Wall Street Home Resale Fees. “Consumers are rarely aware of these covenant fees.”
The coalition is urging U.S. Treasury Secretary Tim Geithner to ban the fees. Other members of the coalition include the National Association of Realtors, the Center for Responsible Lending, the Property Rights Alliance and the Institute for Liberty.
There are 17 states that restrict the use of transfer fees. While Colorado still permits them, legislation to regulate them could be proposed next year.
But crafting a bill is tricky because sometimes transfer fees are used to benefit the communities in which they’re imposed, said Chris Payne, an attorney with Ballard Spahr LLP who likely will author the bill.
“An association of homeowners can charge a transfer-fee assessment for the benefit of the project,” Payne said. “Homebuilders can impose transfer fees for other beneficial purposes like supporting a wildlife fund or a fund that can be used for conservation efforts.”
Leading the push to add fees to home-purchase contracts is New York-based Freehold Capital Partners. The company partners with real-estate developers and homebuilders to structure a 1 percent “Capital Recovery Fee” by filing Declaration of Covenant or Private Transfer Fee Covenant in the real property records.
In May, the company announced it had a deal involving a $360 million real-estate project in Colorado but did not name the developer or the project.
Freehold representatives did not return phone calls for comment. The company’s website says developers using its “patent pending” system can recover development costs and keep home prices lower.
“When financing for development is tight, it is viewed as an alternate source of financing to get projects done,” said Tom DeVine, a real-estate attorney with Faegre & Benson LLP. “A developer can sell his interest in the transfer fee to Freehold, which will sell it on Wall Street. The objection (to legislation) is that if we prohibit these fees, it will remove a potential source of financing for homebuilders and developers.”
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
