Freehold Capital Partners recently entered into a written agreement with Fidelity National Title Group (which covers an estimated 60% of the title insurance market) that requires Fidelity to obtain a signed separate disclosure of a private transfer fee covenant at closing. Freehold, the nation's leader in helping real estate developers utilize private transfer fees (PTFs), is advocating for a national disclosure standard requiring the inclusion of a stand-alone disclosure form to be filed in the office of the public records for the buyer to sign at the time of closing. Freehold supports a disclosure alternative to the current guidance under review by the Federal Housing Finance Agency (FHFA) that seeks to restrict Fannie Mae and Freddie Mac from insuring mortgages on property that is encumbered by PTFs.
A private transfer fee (PTF) is a real estate financing tool that allows developers to more fairly apportion the high upfront infrastructure costs of building new developments like sewer lines, roads and water pipes. PTFs are legal covenants that attach to the property. Each seller during the covenant period – usually 99 years – pays a 1 percent fee to a trustee when they sell the property.
"We firmly believe that clear and prominent disclosure will enable the private transfer fee financing tool to be utilized to benefit consumers," said Bryan J. Cohen, Esq., General Counsel and Executive Vice President of Freehold Capital Partners. "Our agreement with Fidelity was a key step in ensuring uniform disclosure throughout all 50 states."
The disclosure form at the center of the Freehold/Fidelity agreement mirrors the disclosure form required by California in its well-balanced approach to transfer fees, which can be found in California Civil Code Section 1098 et. seq. A federal disclosure bill (H.R. 6332), patterned after California's statute, was introduced into the House of Representatives on September 29, 2010. This disclosure bill should alleviate the concerns raised by critics and the FHFA.
Clear and prominent disclosure ensures that the future obligation is easily discoverable through ordinary diligence; that homebuyers and sellers are knowledgeable and take the fees into account in their negotiations for a fair sales price; and that those entitled to the fee's income stream – including homeowner associations, developers, investors and community non-profits – all are paid in a timely manner.