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Source of Title Blog

Freehold Found an Economist to Tout Transfer Fee Covenants
by Robert Franco | 2010/05/06 |

Last month Freehold Capital Partners, formerly Freehold Licensing, issued a press release: The Economics of Private Transfer Fee Covenants.  The source is identified as Dr. Tom McPeak, Ph.D., an economist who claims that he has "always been fascinated by the allocation of land resources."  It was an interesting read, but like most of Freehold's marketing material, it focuses on the theoretical benefits and not the practical, real-world consequences to homeowners.  It dismisses opposing views by calling them "illogical" arguments by biased industry groups. 

Source of Title Blog ::

By now you all know what a private transfer fee is, but if you need a reminder here is a list of my previous blogs on the topic.

Patently Stupid

Freehold Licensing Defends Covenants

To Touch and Concern

Banning Transfer Fee Covenants In Ohio

Freehold Licensing, NKA Freehold Capital Partners, At It Again

Freehold Capital Partners Testifies Before Ohio Senate Committee

First, I'd like to point out the reasons why this whole debate is theoretical.  Freehold boasts on its Website that "the owners of an estimated $500 billion in real estate projects nationwide, including some of the largest, most well respected real estate companies in the United States, have partnered with us to restructure the economics of their real estate projects."  Despite the bold claims, nobody seems to know who these "well respected" partners are.  When I was interviewed for the Washington Post column (yes, I like mentioning that), the columnist told me that he had been unable to identify a single Freehold customer. 

"Manhattan-based Freehold Capital Partners declines to identify any clients or participants in its private-transfer-fee program..."

In addition, Freehold touts the benefits of "monetization" of the income stream created by the covenants to provide "much needed liquidity" for development projects.  Here is how they describe "the power of monetization:"

Reconveyance Fee Instruments represent a fully-collateralized financial instrument with no meaningful risk of default. These desirable characteristics led one major investment bank to remark, "Reconveyance Fee Instruments represent an ideal securitization vehicle."

In a typical monetization scenario, the Instruments are originated, then aggregated into larger "pools", and securities backed by the pool would then be issued.

Developers originating the Instruments would receive the present value of the future income stream, using the proceeds to reduce debt, install infrastructure and lower the sales price.

Investors acquiring shares of a pool would own a long-term income producing asset secured by a real property interest, and which carried no meaningful risk of default.

I won't spend a lot of time on the claim that there is no "meaningful risk of default," but I think that depends on how you define "default."  I believe that there is a real risk that the covenants could be found unenforceable, subjecting investors to a total loss of their investment. But, the most interesting aspect of this plan is the disclaimer that follows.

The is not an offer to sell, buy, market, offer, broker, act as broker-dealer or securitize Reconveyance Fee Instruments. There is no assurance that any particular Instrument will be suitable for sale or securitization or that a public market for Reconveyance Fee Instruments will develop, mature or persist.

We are dealing with a "gee... wouldn't it be nice if..." scenario, here.  It is all hypothetical, speculative, and theoretical.  Also notice that the "major investment bank" who seems to be in love with the idea is not identified.  This isn't the first time Freehold and its supporters have touted support for its product without naming sources.  In comments to previous blogs we have seen claims that the product has been blessed by large multi-national, and top-rated law firms... who, again, are unidentified.

At this time Freehold has nineteen attorneys, including numerous attorneys with 25+ years of real estate law practice, an attorney of 20+ years experience that owns a title company, as well as graduates of Stanford Law, Princeton, Yale, etc.  The statute has been reviewed by large multinational firms for clients doing projects over one billion dollars in Texas, and those firms, without exception, have concurred with our interpretation.

and...

I am no expert in servitude law by any means, but I did review a legal opinion from a top rated national firm that was retained to evaluate the covenant from an enforceability perspective, and it concluded that the covenant was enforceable.

I have invited both of the posters to share those reports, but I still haven't received anything.  In my blogs, I have cited case law that leads me to conclude that the covenants will be ruled unenforceable when they are eventually challenged in court.  All I get in response are claims that other brilliant, unnamed attorneys disagree.  I'd love to read one of these opinions so I can see how they arrived at their conclusions, but nobody has provided one and I can't find anything published on the topic.

But, at least Dr. McPeak's article supporting the economics of the covenants is not anonymous.  What does he have to say about them? 

From a typical developer's perspective, a private transfer fee represents an alternative to putting 100% of development costs onto the shoulders of first-time buyers. In addition, if the future income stream could be sold off, much needed liquidity would be brought to the project.  In return, the developer can lower the sales price, pay down bank loans, and even restart failed projects (creating jobs).

From the buyer's perspective, the willingness to pay a fee in the future in return for a lower initial price will result in lower acquisition costs, reduced carrying costs, and reallocation of the savings (i.e. does the buyer pay down high interest credit card debt with the savings). In addition to the quantifiable savings, a buyer may consider intangible issues such as the portion of the transfer fee that goes to non-profits, and whether the Buyer can qualify for the lower priced home (with a transfer fee) but would be unable to qualify for the higher priced home (without a transfer fee).  All of these variables go into the decision-making process and both buyer and seller make an economic decision based upon their respective perceptions of the market value of the trade.  If these perceptions match, a bargain is struck and the transaction is Pareto-efficient.

The assumption is that the seller will lower the sales price. 

Why do I think this is all theory and not a realistic view of the practicalities of the real estate market?  Well, for starters, Dr. McPeak states that "if the future income stream could be sold off, much needed liquidity would be brought to the project."  Clearly, Dr. McPeak has been sucked in to the the "gee... wouldn't it be nice" world of Freehold.  Unfortunately, it doesn't seem that this "monetization" is even possible yet.

Next, he states that "The assumption is that the seller will lower the sales price."  He then continues to say that "this assumption is well-founded because economic theory suggests that buyers armed with the facts will not pay the same for a home with a transfer fee as they will pay for the same home without a transfer fee."  While I agree, it is still but a "theory," as he admits. 

Finally, Dr. McPeak goes on to criticize those who do not support Freehold's position. 

It would be illogical to argue otherwise.  (Having said that, the illogical nature of this argument does not appear to have prevented organizations from making the argument.)  As is often the case, economics lies at the heart of the decision.  Realtors apparently see transfer fees as a threat to commissions and the title industry see transfer fees as a potential liability for which they will be held responsible.  Each entity is responding in an economically predictable way by protecting its own interest.

I have to ask the question that should be on everyone's mind right now?  Is Dr. McPeak biased?  Because these arguments so closely mirror the Freehold comments posted on Source of Title, I have to wonder if he was paid for his opinion.  But, even assuming he was not, I cannot accept the premise that Realtors and title agents are biased just because they have a vested interest in the real estate transactions.  Isn't it possible that these organizations are concerned because they really understand what is at the heart of the real estate deal and they know that based on their experiences that these covenants are just plain bad news for consumers and the real estate market in general?

Now let us turn to the real world, practical consequences of a private transfer fee covenant. Just because Dr. McPeak correctly points out that "buyers armed with the facts will not pay the same for a home with a transfer fee as they will pay for the same home without a transfer fee," it doesn't lead to the conclusion that the buyers will be armed with the facts.

Even if we assume that everything goes as it should and the title commitment discloses the covenants, you have to consider when the title commitment is provided to the buyer, if ever.  If we look at the transaction chronologically, here is what typically happens in the real world.

  1. Seller lists the home with a Realtor.  The Realtors do not do title searches, thus would not be aware of the covenant at this time.
  2. Realtor find a buyer, who views the home and decides whether or not to make an offer.  Buyers do not do title searches, thus would not be aware of the covenant at this time.
  3. A price is agreed upon and the contract is signed, contingent on financing. Whether the financing will be approved will likely depend on the appraisal. Again, the buyer is likely still unaware of the covenant.
  4. Buyer applies for a mortgage with the bank.  Banks do not do title searches, thus would not be aware of the covenant at this time.
  5. Bank orders the appraisal.  Appraisers do not do title searches, either.  Hmmm... what if the appraiser is unaware of the covenant?  The appraisal will be based on comps, some of which may be in the same development, others may be nearby (where there is no covenant). 
  6. Bank orders title work.  Finally, the title company will do a title search, and they should, admittedly, find the covenant.  Of course, this assumes that they do a full search, something that is not always done.  

    If the buyer is getting an owner's policy of title insurance, he may be provided a copy of the title commitment.  But, it still isn't clear if this will be sufficient to disclose the fee to the buyer.  It may just include language such as "subject to Conditions, Covenants, and Restrictions filed at..."  Even if the title agent used more specific language, like "subject to a transfer fee covenant filed in the Conditions, Covenants, and Restrictions filed at...," this is still unlikely to alert a buyer to the fee.  After all, how many people would understand what a transfer fee covenant is?

    If the buyer does not get an owner's policy, they are most likely just out of luck, unless a diligent title agent points the fee out at the closing.  But, by this time, they are AT THE CLOSING!  Would they even be permitted to renegotiate the price at this late stage of the transaction?  Presumably, they have already obtained financing and the contingency does not apply.

So, it seems quite likely that the buyer could get all the way through the closing without any actual knowledge of the fee and the price paid for the home would not be a "lower sales price" that accounts for the covenant.  Even if someone, somewhere along the line provide a copy of the covenant to the buyer, it is unlikely that an ordinary purchaser would understand it.  It reads something like this:

"Within, and for the benefit of, the subdivision and the Lots therein, Declarant has created a master subdivision plan, set aside parkland and common areas, and constructed streets, drainage and other improvements, (jointly and severally "Improvements"), which a party taking possession of any Lot stipulates all and singularly benefit said Lot. In consideration therefore, the Owner of any Lot in the development ("Owner"), by acceptance of a Deed therefore, whether or not it shall be express in the Deed, and for the foregoing benefits and other good, valuable and independent consideration, receipt of which is acknowledged by acceptance of the Deed, and as a covenant running with the land, is deemed to covenant, agree and shall be obligated to pay Declarant or assign(s), upon each transfer of title to a Lot in the Subdivision, a "Conveyance fee" equal to one percent of the Gross Sales Price of the Lot (including any improvements thereon). No Conveyance fee shall be levied upon the transfer of a Lot (a) by the Declarant; (b) by a Builder; (c) by a co-Owner of a Lot to a person or entity who was a co-Owner of the Lot immediately prior to such transfer; (d) by a Grantor to any entity wholly owned by Grantor; provided, upon any subsequent transfer of any ownership interest in such entity, a Conveyance fee shall become due; (e) by an institutional lender pursuant to a mortgage that is superior to Declarant's lien or upon foreclosure of a mortgage that is superior to Declarant's lien; (i) for transfers made on or before the first occurrence of (i) Jan. 1, 2010 or (ii) completion of improvements on ninety percent of the total Lots within the subdivision (g) if the Lot being conveyed is unimproved. For purposes hereof, the term "Builder" refers to a person or entity who purchases a Lot in the Subdivision from Declarant for the purpose of constructing a residential dwelling thereon and who is regularly engaged in the business of constructing homes for sale to individuals, and the term "Gross Selling Price" of a Lot shall mean the total consideration paid by the purchaser of the Lot, as is (or ordinarily would be) indicated on the title company's closing statement or, if a contract for deed or similar instrument, as indicated in the contract for deed or similar instrument, including consideration paid for all improvements on the Lot."

You could even make it bold and in all capital letters and the practical consequences to the consumer would be lost on most buyers - especially when this is only a part of a multi-page legal document.

But, even if we give the benefit of doubt to Freehold and assume that everyone will be aware of the covenant from the beginning (say a very knowledgeable Realtor is familiar with the development and discloses it to all parties), including the appraiser... how will the appraiser account for the covenant in determining the value?  Appraisers mostly rely on comps.  A special adjustment would have to be made for the covenant.  Unfortunately, the amount of the future transfer fee is unknown; it will depend on when the home is next sold and how much it has changed in value at that time.  Surely, an economist, such as Dr. McPeak, could devise a formula to precisely account for the covenant.  However, appraisers are not economists and I think it would be a challenge for them to do so.

Appraisals can vary from appraiser to appraiser; perhaps even by more than the amount of this future transfer fee.  I believe that it would not take long before the difference in valuation would be lost anyway.  This would make it likely, in my opinion, that homeowner's will be paying as much for the home with the covenant, as they would without.  At that point, this just becomes another fee... that will burden the property for 99-years.

Another practical consideration is the effect that this covenant will have on the homeowner's ability to sell the property.  Even if we assume that everyone will be aware of the covenant and the value of the home can be precisely determined, surely there are still many homeowners that will not understand the complexities of the covenant and the impact on the value of the home. It would be quite logical for buyers to shy away from homes burdened by the covenant just because of the nature of the burden.  Homeowners may not understand how the transfer fee has been accounted for in the appraisal; how it will impact their ability to sell the home in the future; or even how much it would cost them when they want to sell. This likely means that it would be more difficult, and take longer, to sell a home with this kind of covenant burdening the title. 

We just don't need to create a condition that will hamper future real estate transactions.  The real estate market has already been damaged enough.  Of course, the developer doesn't care about that... once they sell the home, they get their money, especially if Freehold is able to monetize the covenants.

And, where would these covenants ever end?  I spent about $30,000 remodeling my home a few years ago.  Now that prices have declined, could I agree to take a lower sales price and force future owners to pay me a 1% every time the property sells for the next 99 years?  Could the next guy do the same thing?  And, the one after that?  I just can't imagine the complexity of dealing with multiple private transfer fees on the sale of a home.  Imagine trying to place a value on a home encumbered by three or four private transfer fees to different individuals. At that point, comps go out the window.  But, logic tells me that if the developers are permitted to add such a convoluted encumbrance to their projects, savvy individuals could do the same thing.  And once they get the idea, they will. 

Lastly, I think the cumulative impact of missed covenants is also an important concern. Eventually, a private transfer covenant will be missed - things do get missed no matter how diligently the parties work.   That is one of the reasons we have title insurance.  What happens if the fee isn't paid on a transaction?  It becomes a lien against the property and would have to be paid on the next sale.  So, here is what that would look like. 

Assume that the home sells for $300,000 and nobody paid the $3,000 fee to Freehold.  Freehold has stated that they favor not holding the title company liable, and that there would be a lien for the $3,000 that will have to be paid next time around. 

So, on the first sale, the covenant went undetected and the buyer presumably paid the full fair market value without taking the covenant into consideration.  If we assume that the covenant should have a 5% impact on the sales price, the buyer paid about $15,000 more than he should have. 

Next, assume that five years later, the house has appreciated to $347,782.22 (a modest 3% per year).  When that homeowner sells the property, and the lien and covenant are discovered, he will owe $4,831.53 for the covenant that was missed ($3,000 plus 10% interest per annum). Furthermore, he will have to reduce his sales price by $17,389.11.  This represents the amount that the home is worth with the covenant, $330,393.11 (the same increase of 3% per year based on what the home should have sold for last time - $285,000). 

Lastly, he will owe $3,303.93 for the transfer fee he is responsible for when he sells the property.

Thus, when a fee is missed, the next owner suffers a heavy loss.  In the example above, the cost to the homeowner totals $25,524.57... or, $22,220.64 more than the 1% fee that Freehold calls a "de minimus fee."  If this seller purchased an owner's policy when he bought the home, he might be covered - if there wasn't a generic exclusion for "Conditions, Covenants, and Restrictions" in his policy.  If he doesn't have an owner's policy, he is most likely out of luck. The question is, do we really want to allow these covenants when they could subject an unsuspecting homeowner to this kind of loss?

This is where the theoretical world of economists diverges from the real world.  Real estate professionals understand the practicalities of the real estate market and they seem to uniformly agree that these covenants are bad for everyone, except the developers and Freehold, of course.

Freehold is attempting to create value where non exists.  They state, "when a property owner 'unbundles' the various property rights it usually results in the parts being worth more than the whole."  But, as we all know, when you are told that you can make money for doing nothing, it is probably too good to be true.  I think that is the case here. 

 




Rating: 

Categories: Appraisals, Title Industry, Title Problems

4925 words | 5148 views | 14 comments | log in or register to post a comment


"real estate professionals"
"Real estate professionals understand the practicalities of the real estate market and they seem to uniformly agree that these covenants are bad for everyone". Robert, surely you jest! Are you telling me you believe every piece of propaganda "professional" associations put out? Everyone knows that the real estate professionals you speak of have an agenda and usually the complete truth is not part of it. Whether it is trying to put FSBO's out of business by trying to control the MLS (there are many more examples of the idiocy of this group) or the title insurance business completely controlling the industry because of some arcane anittrust laws don't allow true competition. How many actual insurance insurers exist? Four, maybe Five that control the market? Again, you sure have spent a lot of time on a company that has taken money from NOONE and has guaranteed developers and investors NOTHING. Why don't you start spending some time on the upcoming "cash for caulkers" program. There will be plenty of actual scams to report on in this arena and others. I also notice that there doesn't seem to be much "fire" from you readership on this topic based on the views vs. comments. Maybe they are telling you something. If the Freehold concept works than a lot of the kinks have been worked out. If not, no harm no foul. But you really are good at cutting and pasting! I give you that.  
by Paul Daniels | 2010/05/08 | log in or register to post a reply

Freehold people crack me up...

Believe me, Paul, I understand that the title insurance industry has problems.  I have been one of the most vocal critics you will find.  When the land title associations are wrong, I don't pull any punches.  But, this time the American Land Title Association happens to be right.... along with the National Association of Realtors, the Ohio Land Title Association, the National Association of Independent Title Agents, the Ohio Association of Independent Title Agents, and the Ohio Bar Association.  I think it is also important to point out that everything I have seen in the media has been opposed to these covenants, too.

But, I am amused that you dismiss all of the views of real estate professionals because they "have an agenda."  Why is it that you don't see "an agenda" being pushed by Freehold and the developers??  Heck... they are directly compensated from these covenants!  And somehow, they are more credible??  Really??

As always... I appreciate the comments.  If you disagree with my point of view, please feel free to explain in substantive terms what you think I got wrong.  But if all you can do is complain that EVERYONE who disagrees with you has "an agenda," there really isn't much to debate.  Maybe they do (I certainly don't), but that doesn't make them wrong.

 

 
by Robert Franco | 2010/05/08 | log in or register to post a reply

Robert
Robert, Just pointing out that everyone has some sort of agenda. You act as if the NAR and ALTA are "pure as the driven snow". Do you suppose that "everything" you have seen in the media (which is nothing, except for one article and a bunch of obscure blogs)was driven by the NAR's one-sided opinion on the matter? If you consider what you have seen on the internet as actual media (outside of the Washington Post), you are the one the cracks me up! Also, all of these "opinions" against transfer fees (which already exist and being utilized in various scenarios)sure do have a lot of "mays" and "coulds" in them. Nothing substantial about that! These associations are just giving their opinions. Absolutely nothing wrong with that, but please don't market these opinions as FACTS as you are prone to do. Come on man, wake up. 
by Paul Daniels | 2010/05/09 | log in or register to post a reply

You should try reading my blogs...

Me??  Do you really believe that I think ALTA is "pure as the driven snow??"  You should try reading my blogs before you criticize me; rather than just show up to attempt to discredit me when I write about Freehold. 

Take a look at ALTA Propaganda, ALTA's Position on Abstractor Liability, Does ALTA Support Offshoring, and Utterly Disappointed.  These are a but a few of the blogs in which I have expressed strong negative opinions of ALTA.  I'm not a big fan of the NAR, either; see Help the Starving Realtors Fund In fact, transfer fee covenants is one of the VERY FEW things about which I agree with the ALTA or NAR. 

And, there have been other news reports besides the Washington Post column. Local news stations report on these covenants when they pop-up (see Hidden transfer fees tied to real estate; payout lasts 99 years).  Commonwealth Magazine has also written a piece on private transfer fee covenants. 

If so many of these covenants exist and are being utilized in various scenarios, why don't you share with us where they are and who is utilizing them?  Why is it that Freehold "declines to identify any clients or participants in its private-transfer-fee program?"  If these things are so great, you would think that all of these really happy people would be shouting about how successful they were.

 
by Robert Franco | 2010/05/09 | log in or register to post a reply

this is getting fun
Robert, Not trying to discredit you. Just pointing out the fact that you are pointing to totally one sided articles for your "I told you so" moment (all two of them). Did you really use the "99 year payout article" as one of your credible articles?! If you dig a little deeper, the people the "so called reporter" interviewed did not even have a transfer fee on their home! It is easy to get someone up in arms when you tell them there is a fee on their home that they don't know about! Commonwealth Magazine?!!! And the Washington Post article was barely even that. I am not a journalist but again, it was more of a group of opinionated talking points rather than a hard hitting piece of journalism. I think zero comments from the original article speak volumes as well. It really was pretty nonsensical. The other blogs are just copying and pasting the original article and changing some of the actual article to stir up emotions. If you read the comments, it is obvious they are from some very angry people who think everyone is trying to screw them. No matter what the subject may be. Come on man. Based on your other blogs, I have come to expect a little more from you.  
by Paul Daniels | 2010/05/09 | log in or register to post a reply

Where is the substance?

It is easy for you to say that you disagree with everything, but you really haven't given us anything to back up your claims.  You said that these covenants "exist and are being utilized in various scenarios," but you still haven't told us where they are being used and who Freehold's clients are.  If they are being utilized successfully, give us some specific examples? 

I've done my best to explain why they just won't work from a practical standpoint... you have done nothing more than disagree. 

If you dig a little deeper, the people the "so called reporter" interviewed did not even have a transfer fee on their home! It is easy to get someone up in arms when you tell them there is a fee on their home that they don't know about!

I noticed this... the developer withdrew the covenants.  Why do you suppose that was?  If these covenants are so great, why would the developer do that?  It doesn't appear that they have been too successful, even where they have been attempted.

 
by Robert Franco | 2010/05/10 | log in or register to post a reply

SB 666/HB 1298- MARYLAND- PROHIBITION AGAINST TRANSFER FEES

It happens that I went to an agents seminar last week that was hosted by Old Republic Title. As part of the seminar they went over some new legislation that was recently enacted. One of the "hot buttons" that has been followed very closely in Maryland is that of Transfer Fees.   Even prior to the passage of these bills we were advised in a bulletin from ORT that Transfer Fees would not be covered under any title policy that we offer, either for lender or owner.

I was pleased to see that the legislators elected to ban this practice (though I can't say I have ever seen such an agreement).  They passed the legislation as an emergency measure and the law took effect immediately upon passing. 

I won't be surprised if more and more states take this issue up as an emergency issue.  I admit I have not read all of the posts here in SOT relating to this issue but what I have read just makes me shudder. 

 
by CHARLENE PERRY | 2010/05/10 | log in or register to post a reply

Title people crack me up

It is listed as an "exception" on the Schedule B of the title commitment. Just like any other deed restrictions, HOA, etc. A normal closing. No different.

This insures that the title companies never have to actually pay a claim. Hence the very low claim payouts for the industry.

I know that you have a very well thought out "canned" response to this question, but gonna ask it anyway.

What is the need for title insurance and why so expensive? Oh yeah, it is very expensive to maintain good records, etc, etc. etc.  And "the public is too stupid to do their own research, therefore someone HAS to do it for them". This is the common answer I have seen for many real estate issues on these blogs. We HAVE to do this to protect the public from their own stupidity!

A 1% fee(that was negotiated at purchase of property) at eventual sale of property makes you "shudder"?!!!!! That definitely cracks me up.

 

 

 

 

 

 
by Paul Daniels | 2010/05/10 | log in or register to post a reply

Title Insurance

Paul it sounds like you have at least a copy of a title policy there in front of you.  Read it and you will have your answer.  Ideally you have a copy of an enhanced policy which covers not only past issue but future issues as well.

 

Charlene

 
by CHARLENE PERRY | 2010/05/10 | log in or register to post a reply

I have been asked to pass this one

I got this e-mail from Jeremy Yohe, Director of Communications for ALTA. He asked me to post it here. 

 

Charlene,
 
I read the posts on Source of Title from time to time and noticed the argument regarding the negative impact of private transfer fees on real estate. You mentioned that Maryland recently passed legislation that bans the use of these. I don’t have a subscription to SOT, but here’s a list of other states that have passed legislation banning PTFS: Florida, Iowa, Maryland, Missouri, Kansas and Utah. Texas and California have legislation limiting the use.
 
There are seven other states with legislation introduced or passed one house of their legislature that would ban PTFS: Alabama, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Ohio and Rhode Island.
 
17 states all told have looked at this issue. So it looks like legislators in several states are taking the stance that these are harmful to consumers.
 
 
 
Thanks,
Jeremy
 
 
cid:image001.jpg@01C8958F.69622200
 
Jeremy Yohe | Director of Communications | American Land Title Association | 1828 L St N.W., #705 | Washington, DC. 20036| Ph: (202) 261-2938 | Fax: (202) 223-5843 / (888) FAX-ALTA (239-2582)
 
Visit ALTA online at www.alta.org for news and resources for the Title Industry.
 
2010 Annual Convention
Oct. 13–16
Manchester Grand Hyatt
San Diego, Calif.
 
 
by CHARLENE PERRY | 2010/05/10 | log in or register to post a reply

Legislators
Well, I sure do feel all warm and fuzzy that the Director of Communication for ALTA has concern for the consumer (you are kidding me right?). ALTA and all other associations are created to protect the "interests" of the specific industry they represent. Nothing more nothing less. Sure is funny that regarding this issue you guys are completely fine with "legislators" voting to ban something with little or no education about the issue. A very organized effort between the NAR and ALTA has been successful in some of the states. Fortunately, others have actually asked valid questions to fully understand both sides rather than just vote for a ban on something that they are only hearing one side of story (in most cases). But I am a realist and that is how it goes with money and politicians. You do realize that it is just a matter of time before more of them realize how much money their state can make by limiting private title insurance and wanting to implement a government run program (see Iowa and New York). So before you poke your chest out too much just remember that you guys are going to be in the crosshairs soon. Just a thought.  
by Paul Daniels | 2010/05/10 | log in or register to post a reply

You clearly do not understand title...

Paul, you seem to be under the mistaken impression that issuing title insurance is as simple as it is for auto insurance.  Unfortunately, it isn't that simple.  You can't just enter some information into a computer and have it spit out a title policy.  For an excellent description of everything that a title agent does to earn their premium, see Typical Title Insurance and Closing Steps of a Home Purchase Transaction in an Escrow Closing Jurisdiction.

That being said, I agree that the title industry is in need of some reforms. As I said in an old blog, "there is something to be learned from our friends in Iowa." The title industry doesn't have the same standards that it once did.  There are too many short cuts that are not good for consumers.  When the legislature gets around to addressing those issues, I'll be there to support them.

I cannot agree with you that just because legislatures chose to ban private transfer fee covenants, that they were not educated about the issue.  I interned in the Ohio Senate while in law school and the committee hearing this issue is comprised of some great legislators.  They have held (are still holding) hearings and I'm sure they will be well informed when they make their decision.  You can't honestly believe that everyone that disagrees with you is uneducated, can you?

 
by Robert Franco | 2010/05/11 | log in or register to post a reply

I agree

Robert,

I definitely do not believe that anyone who disagrees is uneducated. Ohio is a little different in that, both sides have been able to communicate. If the ban passes after a truly open forum of equal opportunity, I have zero problem. I have a problem when legislation is put together (in this case by the NAR) and slidden into the docket without the knowledge of the affected parties. Unfortunaltely, this is how a lot of these "bans" have made it through.  This is very easy to accomplish unless the other party has a 24 hour watchdog monitoring legislative issues in every state (which is obviously difficult). This is why the early bans were so easy to get through.

I also truly understand that there is legitimate pushback until the issues are clearly outlined and "fixed" on the PTF side.  That is on Freeholds shoulders to clearly define what they are trying to accomplish and how they plan on doing it that is acceptable within the law. Until then, it is pretty easy for ALTA and NAR to garner support. Which I understand.

 

 
by Paul Daniels | 2010/05/11 | log in or register to post a reply

Is this really new and patentable?

I see no essential difference between the present scheme and the old lease in fee concept brought to the new world by the Dutch.  There were several decades of civil disobediance and  public conflict when the old patroons attempted to collect their rents from the land owners under the leases in fee.   In many cases families who had been in possession of improved farm land for over one hundred years were evicted or threatened with eviction because of failure to deliver a few bushels of good merchantable wheat as required in the original lease.  The reserved rents were not mentioned in deeds of conveaynce and  often title searches only went back a hundred or a hundred and fifty years.  

The move to outlaw leases in fee and reserved rents took over a hundred years in New York with the vested property rights being abolished being protected by the Constitution and by strong political influence in the state capital.  Eventually statutes were adopted abolishing tenure and the reserved rents were practiaclly abolished.  The legislature required that any such rights must be periodically claimed of record in the respective County Clerk's Offices by written notice recorded by the claimed beneficiary and recorded with notice against all parties the interest was claimed against, I believe that the required period is the same as the Stateute of Limitations for adverse possession and a new period of adverse possession starts running upon recordation.

In addition retained interest in fee (tenure) was abolished in all future conveyances.  I believe that the Freehold idea is not unique, new or patentable and that it is currently outlawed in New York State.  In addition the sale of any real property for residential purposes subject to such a reservation, covenant or restriction would appear to require a filing with the New York State Attorney General and would not qualify for offering under the New  York State Real Property Law or as a security offering under the Martin Act.

Freehold wants to make a killing with their patented brainstorm.  Cut them off at the Patent Office and see how far the scheme will go if there is no profit in it for Freehold, even in states that eventually allow the concept.  I believe that without a well funded entity pushing and defending the scheme it is unlikely that many courts will find such a burden enforceable.

 
by Thomas Spinrad | 2010/05/18 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
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