Our understanding is that a number of interested parties, including developers and others in his state, went to Representative Gingrey.  We have never met with or talked to him or his staff, though of course we applaud him for H.R. 6332. Representative Gingrey is well respected, and he sits on the Committee for Commerce, Trade and Consumer Protection.  I think few would dispute that he cares about commerce, trade and consumer protection – all three of which are balanced by his bill, which provides consumers with the information they need to make an informed choice without destroying what a great many see as a fair and equitable way to fund infrastructure.  Here is what othes have said...

• "When developers in our state impose a transfer fee as a means of recovering significant capital improvements, they can reduce the up front costs to the purchaser, negative equity is eliminated, projects become viable, homeownership becomes more affordable, and jobs are created.  When a developer can sell off this future income stream, project liquidity can be restored, bank debt can be paid down, and jobs are created.  This has a positive ripple effect throughout the community."  Texas Representative Richard Raymond, in letter to FHFA (Sept. 01, 2010).  http://www.fhfa.gov/webfiles/16725/73_Richard_Pena_Raymond_Rep_Tex.pdf

• "Private transfer fees, a relatively recent financing tool, are a way to bankroll multimillion dollar development concessions without necessarily affecting a home’s initial purchase price.”  Jim Sanders, Sacramento Bee (May 21, 2007)

• "To the extent the existence of a [transfer fee impacts the value of property, as long as the fee is fully disclosed the market will adjust to the fee.” (-Cal. Senate Staff Analysis.  April 17, 2007).

• "You can’t put all of the costs on homebuyers and still sell at an affordable price." California Building Industry Association.  Source:  BUILDERS, REALTORS SQUARE OFF ON TRANSFER FEES. May 16, 2007. Inman News.

• "If builders weren’t allowed to pass along costs in a transfer fee, they’d have to make up for it by adding thousands of dollars to their homes’ initial selling price, shutting out buyers." California Building Industry Association.

• "Transfer fees represent an alternative to other financing mechanisms that can affect home affordability."  California Building Industry Association.

• “Reconveyance financing ... helps keep home prices low by spreading costs over all beneficiaries of a project.” Julie Snyder.  Policy Director for non-profit Housing California.

• "REALTORS never complain that a house is too expensive, and that’s precisely what happens when builders lump all of their costs into the price of the first home.  Why shouldn’t the second and third buyers share the costs?”  - California Building Industry Association.

There is a tremendous segment of the population that sees transfer fees as a fair and equitable way to provide consumers with very real choices about how they pay for infrastructure and other improvements. 

I realize that the title industry, like you, is decidedly AGAINST giving consumers a choice.  After all, not only have you made your own position clear (that since you know what’s best for consumers, they definitely should not be allowed to make their own decision), but the title industry has always been about denying consumers a choice, monopolistic cartels, price fixing, government protection at the expense of homeowners and more.

 In virtually every state, consumers have no choice when it comes to title insurance.  In most states, every company charges the same rate, and there is no competition, an anti-competitive situation which has been accomplished wth tens of millions in lobbying dollars. In other words, there is NO CONSUMER CHOICE.  Unlike ALTA's attack on transfer fees, the foregoing isn't just a bunch of self-serving rhetoric lacking a factual basis. Just google title insurance choice fleecing etc., or, better yet, just look at the book:

The American Title Insurance Industry: How a Cartel Fleeces the American Consumer

http://www.nyupress.org/books/The_American_Title_Insurance_Industry-products_id-5124.html

This is just one of many sources, including CNN, Money, Forbes, etc., that have highlighted the massive equity theft we know as the title insurance cartel.  This industry is NOT driven by competition, consumer choice or adding value.  Instead, it is driven by lobbying dollars, cartels, and a complete absence of choice.  For the title insurance industry to say that transfer fees strip equity is the ultimate hypocrisy.

When it comes to transfer fees, some very intelligent, well meaning, pro-consumer people actually prefer giving consumers the right to make informed decisions.  Clearly you are not in that camp, which is fine – but not everyone believes that they need someone like you and ALTA to make their decisions for them.

Regarding your post, you asked how Freehold explains the "coalition" that the special interest groups (ALTA and the NAR) put together.  The explanation is easy.  The Coalition has crafted an easy populist message:  it just happens to be untrue.

ALTA says that the fee “lines a developers pocket”, “provides no benefit to the land”, is "hidden inside complex documents that run hundreds of pages" and “strips homeowners of their equity”.  Who would support a fee like that?  I certainly wouldn’t… and I'll bet I could build a coalition based on those premises. In other words, this is ALTA doing what ALTA does best:  misleading the public and the policy-makers in order to protect their fees.

In reality, streets, utilities, wastewater lines, etc., all clearly benefit the land. Reimbursing developers for these capital improvements is not a windfall, and it does not “line the developers pockets”. Instead, it allows buyers to pay less (and indeed the market forces the price lower, as the critics concede), and it spreads infrastructure costs. (Refer back to the quotes above).

As to the fee being “hidden inside complex documents running hundreds of page”, this too is more of ALTA’s efforts to say something other than “protect our fees”.  Closings can obviously contain a hundred pages of documents (with the loan itself running into 40 or 50 pages in some cases), but the transfer fee instrument itself is a stand-alone document, boldly titled, and typically consists of very few pages. There is nothing HIDDEN about it.  If it were hidden, how would it ever get paid?  What investor would buy a “hidden fee”.  Its nonsense.  In addition, doesn;t this alleged "problem" go away with a disclosure bill?  Of course it does.

ALTA alleges that the fee "strips homeowners of equity".  Bizarrely, they also argue that the fee supresses home prices.  Which is it?  How does it lower home prices yet still strip consumers of their equity?   If true, it would be an amazing feat of economic alchemy. 

On the other hand, as the above book clearly explains, ALTA is the expert when it comes to equity stripping and influence peddling.   They strip equity by the billions, dwarfed only by the Realtors.  The reality is that studies prove (not "speculate" - but "prove") what logic tells us:   no one will pay the same price for a home with a transfer fee as they would for the same home without a fee.  If you get a lower purchase price, how is equity stripped?  The answer, of course, is that it isn't.  It is only "stripped" when you pay unnecessary fees in return for no offsetting reduction.  (Think:  Realtor Commission and Excessive Title Premium).

In fact, even the NY Times article concluded with a quote from the homeowner that she had no problem with a transfer fee, and would just negtoiate a better price.

Unfortunately, ALTA, with the help of the spin-doctors at Hildebrand Strategies, are constantly posting bogus articles masquerading as legitimate public opposition, and they have crafted an easy message about “Wall Street Fees” and “greedy developers”.  Its just like your phrase about "greedy profiteers".  Clearly you haven't looked up the word profiteer. It means one who makes an excessive profit from a scarce good.  It is meaningless in the context of this debate, but  doesn’t it sound nice and populist… who cares if its accurate…

The inescapable reality is that consumers ALWAYS have a choice about whether or not to pay a transfer fee.  If they prefer to pay 100% of the costs of infrastructure up front, and to finance these costs, and to then pass them along to the next buyer, then numerous choices abound.  On the other hand, if the price they pay today is acceptable to them, considering the future fee they will pay when they sale, then it seems rather arrogant of you to say that you are so much smarter than they are, and therefore you should decide that deny them a choice “for their own good”.

I like to watch TV.  And I have always been irritated that when my favorite shows go to commercial break, the volume is so much louder than the show I was watching.  I know why they do it - money.  They want to get more attention, so they turn up the volume.  I guess I have a choice, I can watch a different network.... but, the shows I want to watch aren't available on any other network.  I guess I could just choose to watch other shows, but all networks seem to do this.  I guess my choice is just to not watch TV.  Not really much of a choice is it?

Thankfully, Congress recently passed the Commercial Advertisement Loudness Mitigation Act (CALM).  Its about time!

I guess it is strange, really, but that is very similar to the choice presented to consumers with private transfer fees.  If a developer places a private transfer fee covenant on a new subdivision, what choice does a homebuyer have?  I guess they could choose to buy in another subdivision, but it seems to me that if a developer can get a future revenue stream (or cash up front if these ever get securitized) for doing nothing more than filing a document in the recorder's office, all new subdivisions will soon have them.  One of these days, you will have to buy a 99 year old home, or rent - not really much of a choice, is it?

If you really want homebuyers to have choices, the only real choice is the Waters' bill - don't let homes get burdened with a 99 year transfer fee that does nothing for the homeowner.  Let them buy any home they like without having to worry about owing thousands of dollars to some long-dead developer, or some investor on Wall Street. 

Funny how title insurance keeps getting demonized to make Freehold's point.  It seems as if the argument is "two wrongs make a right."  But there are flaws with the comparison.  First, title insurance isn't always required.  A homebuyer could get a loan from a local bank that keeps their loans; some will still loan money with an attorney's title opinion.  Around here those can be obtained for about $200.  But, granted, most lender's do require title insurance.

In Ohio, a loan policy on a $500,000 home would be $1,550.  The transfer fee on a Freehold covenant would be $5,000.  That is a pretty big difference.

Eighteen states have already declared that these covenants are harmful to homeowners, and the real estate market.  The danger with the Gingrey bill is that the state's could lose the right to make that decision. 

Nice try, but your argument is still not convincing.  I understand your desire to make a profit for doing nothing, but it is wrong to do it at the expense of every future owner of the property for 99 years.  There is something inherently wrong with charging a fee to to people whose great grandparents may not yet even be born. These people aren't even alive yet, so someone has to protect their interests - that would be what the 18 states with bans have already done, and it would only be strengthened with the Waters' bill.  Here's to hoping it passes!

I sent an e-mail that that uninformed Congressman from Georgia (using my former Georgia address), wherein I stated that this is one of the most unfriendly consumer bills I have ever seen, and where did he get such a bright idea.

Let's see if he replies.

More to come.

Donna

Further, you conveniently ignore the fact that these instruments expire after 99 years, thus adding to the already overwhelming pool of homes without a transfer fee.

That is the point.... if developers can get paid for simply filing a covenant on a new subdivision, they will all be adding them to their new developments.  One of these days, the only choice a homebuyer will have is to buy a 99 year old home or pay the transfer fee.  Not really the choice most want.

People want to the choice to buy the home they like best - the one in the nicest neighborhood, the one in the best school system, the one with the cool wrap around front porch, etc... What ever it is that homeowners want, they don't want to have their choices limited by which ones have transfer fee covenants attached to them.

The Gingrey bill isn't about disclosure... it only requires a notice filed in the public records, where these things are already required to be filed.  It certainly does not ensure that any homeowner will get actual notice.  All it really does is give you and your cronies a second chance to argue that your covenants are valid because this federal law may preempt state law. 

Your argument just doesn't work mathmatically... if you are taking a cut of the transfer fee (30%, I believe I read somewhere), then someone must be losing something somewhere along the line.  If these transfer fees were supposed to pay for the development, the developer should be getting the money... but when you factor in your fee and whatever the fees are to securitize them and provide a return for investors, clearly you are taking more out than the developer puts in.

I also have an issue with the "discount" the homeowner gets when they buy.  I don't think a fair price can be calculated.  In an open market prices are already openly negotiated and appraisals can vary from appraiser to appraiser (especially in a market like we have now).  So, when the buyer asks for his discount and the developer says "I already factored that in to the list price," who is really going to know if they are really getting an appropriate discount. Adding this layer of complexity just makes it that much more likely the buyer will get screwed.

Like I said... nice try.

Especially when you're trying to base arguments on a book written by someone who never knew a thing about title insurance before he started researching for his book contract, and uses data that is simply wrong at best (and wrong-headed at worst).

1. Title insurance premiums do not have a 97% gross profit margin.  While only about 3% may be placed into reserves, the rest go to maintaining title plants, paying salaries, covering losses, etc.  And before anyone brings up the books quoted "5% traditional loss ratio", you should research current losses - now between 12 and 15%.  On top of this, these ratios are paid by insurance companies that are already only getting about 15% to 20% of the actual premium, and the remainder is retained by the agents who actually realize 90% of the costs in the business.  Ask any long time agency owner and they will tell you, the profits in title insurance are pretty slim when you compare them to everyone else's.

2. If you pay $10,000 less up front, you're likely going to have to sell for $10,000 less (relatively speaking, after appreciation) later, on top of the $5,000 transfer fee.  In fact, it really doesn't matter what you initially pay, or what you ultimately sell for, you still have to pay the transfer fee out of your proceeds - even if you're not getting less equity in the long run, that's still what it looks like to the seller who just got $5,000 less from his home sale than he expected.

Finally, the elephant in the room that no one is talking about is the fact that most builders practically own every step of their supply line anyway.  Even if their long term infrastructure improvements run into the millions of dollars, the vast majority of those dollars are simply circulating through their own ledgers - they're paying themselves for their own labor.  This is what is so amazing about all the talk about transfer fees and RESPA's required use provisions - everyone gets bogged down on $1,000 here and $5,000 there, when in fact a builder's ultimate profits run far, far higher than any of the distractions being talked about.  If you want to find a cartel, that's where to look.