Sleazy Real Estate Developers' Latest Scam Could Skim 5 Percent Off Your Home's Value

[Joanne98]

By Slade Smith, AlterNet
Posted on October 7, 2010, Printed on October 8, 2010
http://www.alternet.org/story/148441/

Consider the following scenario: you are in the process of selling your home. You've found a buyer who is willing to pay you $200,000. Your realtor has assured you that everything is going smoothly-- she says the buyer has lined up financing and there were no problems with the home inspection and the appraisal.

Then, days before the closing, your realtor gives you a call. "Uh, something has turned up during the title search that is going to be a problem," she says. "I don't know if you were aware of this, but your property has a private transfer fee covenant on it."

"What does that mean?" you say.

"It means you will have to pay an extra $2,000 fee at the closing," she informs you. "And the buyer is demanding that you reduce the sale price by $10,000 or the deal is off because of this."

Pay $2,000? To whom? The buyer wants a 10 grand discount?? And what the heck is a private transfer fee covenant?

A private transfer fee covenant is a legal agreement attached to a piece of real estate through a filing in the public records that entitles some third party to up to 1 percent of the sale price of the property each and every time it is sold. The covenant typically lasts up to 99 years.

Who creates these covenants? The covenants are typically set up by developers. Typically, 60 percent of the transfer fee goes into the pocket of whoever set it up; 10 percent goes to a broker; and 30 percent goes to a company called Freehold Capital Partners.

http://www.opednews.com/populum/linkframe.php?linkid=119862

[thetonka]

1. Doesn't sound like a scam

Sounds like a nasty loophole in the law that should be closed.

[northernlights]

2. that's why you need to read contracts very, very closely

especially the teeny, tiny print buried somewhere. And hopefully get a decent lawyer who does the same and who actually represents you.

Unfortunately there is nothing illegal about it...it's recent development in the industry seeking to grab whatever they can. Best bet is to buy an older home built before the scam artists came up with this new one. It may not be "perfect" but in the final analysis, none of them are.

[bemildred]

3. Only if you buy one of their crappy houses. nt