Private Transfer Fees: A new way for developers to screw you

Ever heard of a “private transfer fee”? It’s a private covenanted mandate (a lien on the underlying real estate) that sends 1% of the selling price of a property back to the original developer… for the next 99 years. It’s either a great way for developers to spread out increasing development costs or a sneaky way for them to monetize property for decades, depending on who you talk to. It’s being called a good idea. It’s been banned or restricted in 6 states- including California and Texas- and retroactively removed by one Utah developer.

What it is NOT: A government transfer tax, a homeowner association or environmental protection covenant, or negotiable- it would be tied to the underlying real estate.

Created by Freehold Capital Partners in Manhattan, the private transfer fee program has signed up real estate projects worth up to $488 billion from around the country. Freehold says there are plans to “securitize” the transfer fees and sell them as bonds. Wow.

Governments don’t know what to do. The National Association of Realtors and the American Land Title Association are asking legislators to prohibit or limit them. The National Association of Home Builders is raising an eyebrow.

Freehold maintains that the transfer fee will allow developers to spread out infrastructure costs rather than charge the initial buyer for everything. And of course it creates a steady stream of future revenue.

At this point the private transfer fees are legal and happening around the country. Look for it in the contract.

Photo Credit: meironke

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