WASHINGTON—A proponent of private transfer fees says a new disclosure will make these fees more transparent to homebuyers but critics aren’t buying it.
Private transfer fees (usually 1% of the sales price) have to be paid by the seller every time a property sold over a 99-year period.
Freehold Capital Partners claims the PTF disclosure will give the buyers a chance to negotiate a lower price for the house that will compensate the 1% transfer fee.
Critics claim the disclosure provided at the closing table comes too late in the process. “It is impractical because the buyer is in no position to renegotiate at that point,” said Kurt Pfotenhauer, chief executive of the American Land Title Association.
The Consumer Mortgage Coalition noted that consumers receive many disclosures in purchasing a home. “Even if the PTF is disclosed, the fee is so counterintuitive that many consumers may not understand such a disclosure,” the industry group said.
An estimated 12 million homes have been sold with private transfer fee covenants.
Promoters like Freehold claim PTFs provide a source of liquidity for builders to pay down loans and restart construction.
The Wall Street firm encourages builders and developers to use PTF covenants and buys the rights to the expected income stream.
Last year, Freehold Capital Partners secured an agreement with Fidelity National Financial that requires the title insurer to provide a separate PTF covenant disclosure at closing.
“We firmly believe that clear and prominent disclosure will enable private transfer fee financing tools to be utilized to benefit consumers,” said FCP general counsel Bryan Cohen.
The ALTA CEO said Freehold is “recirculating” the disclosure because the Federal Housing Finance Agency is considering restrictions on Fannie Mae and Freddie Mac purchasing mortgages or securities with private transfer fees. The comment period on this proposed guidance ended Oct. 15.
Pfotenhauer pointed out that Fidelity provides the “consumer beware” disclosure, but the title insurer is not liable for any loss or liability if the PTFs are not collected or paid to Freehold.
ALTA claims that transfer fees are “predatory” and designed to strip equity from home sellers. The National Association of Realtors also opposes private transfer fees.
In many sales, the 1% fee is deducted from the Realtor’s commission. Realtors call this a “commissionectomy.”
In a comment letter, the Consumer Mortgage Coalition said the FHFA should move forward with its proposed guidance and stop Fannie and Freddie from purchasing mortgages with PTFs.
“Private transfer fee covenants can constrain the consumers ability to sell a home or borrow against it,” CMC executive director Anne Canfield said.
But CMC does not want the ban to be retroactive, which would force the GSEs to divest loans with PTF covenants.
“FHFA’s guidance is helpful because it will prevent the future creation of new private transfer fee covenants, even though it cannot affect pre-existing covenants,” the CMC letter says.
Meanwhile, the feud over private transfer fees has moved into the halls of Congress.
Rep. Phil Gingrey, R-Ga., has introduced a bill (H.R. 6332) that requires disclosures that mirror a California PTF disclosure form.
“This disclosure bill should alleviate the concerns raised by critics and the FHFA,” Freehold said.
Rep. Maxine Waters, D-Calif., has introduced a bill (H.R. 6260) that prohibits the collection of private transfer fees by for-profit third parties on all federally related mortgages.
“We congratulate Rep. Waters and the co-sponsors for introducing this much-needed, consumer-protection bill,” Pfotenhauer said.
