With the real estate market reeling from credit crisis to foreclosure bonanza, the re-emergence of the private transfer fee is causing controversy. The fee also called a reconveyance fee and is a wholly private fee imposed with the land.
Essentially, the fee is akin to home owner association fees. When a developer requires the fee to be paid, a buyer must pay in order to close the deal. It’s a kind of lien that requires 1 percent of each future sale to go back to the originator of the fee. The fee may be imposed for 30 years or forever.
For developers, the fee can help with the costs of improvements made over the course of time the developer spent working on the property. Many homebuyers are turning to this time of financing because it reapportions the burden of infrastructure costs. Instead of the buyer taking the cost on 100 percent, with private transfer fee financing, a lower initial price may be achieved.
According to economist Dr. Tom McPeak, the fee provides a way for, “a property owner to reduce the sales price in return for a future income stream…it reduces carrying costs, and it allows the buyer to along these benefits in a subsequent sale.
However, not everyone sees it as a win-win situation. The fee has actually been banned in several states including Oregon and Florida, while still other have limited its use. The Washington Post reports that many critics see the fee as tainting houses and will lower their values in the long run.
Because the fee is largely unknown to many, there could be problems in the future as well. Buyers may not be willing to pay such fees.
Freehold Capital Partners of Manhattan is already working on a patent-pending system to use these fees and create bonds of future cash flows which can then be sold to money managers. The move resembles the selling of mortgages which led to the real estate crisis in the first place.
Freehold maintains the fees will help developers who need cash as well as consumers in paying for development costs. The majority of states do not have restrictions on these fees.
Written By Lani Shadduck
HULIQ.com
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