The American Land Title Association recently released a press release commending U.S. Representatives for introducing legislation to protect homeowners from private transfer fee covenants - The Homeowner Equity Protection Act of 2010. The bill, sponsored by U.S. Representative Maxine Walters, would prohibit private transfer fees "if the transfer for which the transfer fee is imposed involves a federally related mortgage."
Further, it provides that "no provision of State law or regulation that imposes more stringent limitations on transfer fees or transfer fee covenants shall be construed as being inconsistent with" this prohibition.
To date, 18 state legislatures in Arizona, California, Delaware, Florida, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, North Carolina, Ohio, Oregon, Texas and Utah have recognized the dangers of Wall Street Home Resale Fees and have restricted their use. And, the Federal Housing Finance Agency has issued a guidance that would prevent Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from investing in mortgages with these fees.
A press release from the Coalition to Stop Wall Street Home Resale Fees states that "while traditional covenants have an accepted and beneficial role in the housing market by benefiting the land, Wall Street Home Resale Fees are predatory legal instruments that threaten American homeowners by forcing them to pay a premium for the right to sell their own property."
“The Home Equity Protection Act of 2010 is a strong step forward that would help consumers across the country, preventing unwarranted and spurious increases in the costs of homeownership,” said Evan Fuguet, Senior Policy Counsel at the Center for Responsible Lending. “Unlike conveyances that support the community, affordable housing or the environment, these private transfer fees have no added benefit for homeowners and home buyers, and are reminiscent of the irresponsible fee-packing behavior we witnessed during the heyday of abusive subprime home lending ."
I completely agree with ALTA, the Coalition to Stop Wall Street Home Resale Fees, and the Center for Responsible Lending. I would very much like to see the Homeowner Equity Protection Act of 2010 pass. However, it is not the only new bill addressing this issue.
U.S. Representative Phil Gingrey has introduced The Homebuyer Enhanced Fee Disclosure Act of 2010. This is basically a lifeline to Freehold Capital Partners, and a dangerous one for Americans.
The Gingrey bill states that:
Congress finds that transfer fee covenants represent an important economic tool with the potential to make homeownership more affordable and benefit local communities by positively restructuring the economics of real estate transactions by apportioning certain infrastructure and overhead costs over time.
Sounds like it was written by the Freehold marketing team, doesn't it? The bill basically just requires a notice to be filed in the county recorder's office... where the covenants are already recorded. It does require a boldface title, "Payment of a Transfer Fee Required," and some other information about the covenant. But it is pretty much useless - it still doesn't ensure that any homebuyers would ever get actual notice!
Now for the dangerous part. "A transfer fee covenant that imposes a transfer fee of not more than 1 percent of the gross sales price for the affected property, effective for a term of not more than 99 years," and complies with the disclosure requirements, "shall be presumed to be valid." I'm sure it is no coincidence that this presumption would apply to the Freehold covenants.
Unlike the Waters' bill, which allows for more stringent state regulation, the Gingrey bill does not! This opens the dangerous door to preemption of state law which could mean that the Freehold covenant may be valid - even in states which have already banned them. I'm sure this was part of the plan.
I wonder if Gingrey really intends to stomp on states' rights? After all, 18 states have already said that these covenants are harmful to their citizens. I'm sure more state bans are in the works, too.
And, it isn't just the states that Gingrey is thumbing his nose to - does he realize that the Coalition to Stop Wall Street Home Resale Fees includes veterans, labor unions, real estate investment organizations, and consumer rights groups? That is a pretty diverse group of potential voters. And, if anyone knows of any organizations that are in favor of private transfer fees, please let me know.
The following groups are members of the Coalition:
- Center for Responsible Lending
- Vote Vets
- National Association of Realtors (NAR)
- Institute for Liberty
- Consumer Federation of America
- Property Rights Alliance
- Americans United For Change (AUFC)
- American Land Title Association (ALTA)
- American Federation of State, County, and Municipal Employees (AFSCME)
- National Real Estate Investors Association
- Service Employees International Union (SEIU)
- US Action
- Labor Council for Latin American Advancement
- Transport Workers Union
- Office & Professional Employees International Union (OPEIU)
- Massachusetts Affordable Housing Alliance
- International Federation of Professional and Technical Engineers (IFPTE)
- Georgia State Trade Association of Nonprofit Developers
- Hawaii Advocates for Consumer Protection
- Interfaith Housing Center of the Northern Suburbs
We know the argument that Freehold keeps making - the opposition to their covenants is coming from trade organizations that have a vested interest in protecting their fees. Even if that argument had any validity, how do they explain Vote Vets, the Center for Responsible Lending, The American Federation of State, County, and Municipal Employees, The International Federation of Professional and Technical Engineers, etc? The only organization out to protect their fees is Freehold.
But if that isn't enough... the Gingrey bill does even more for Freehold specifically. The Gingrey bill provides that "no property shall be subject to more than one transfer fee covenant." Guess who has a patent pending on the private transfer fee model? Yup, it is Freehold. Since the Freehold covenant is typically filed before a new subdivision is developed, that would mean that not even legitimate homeowners' associations would be able to add a transfer fee covenant!
So, the Gingrey bill could mean that Freehold's covenants are valid even in the states that have banned them, Freehold gets a monopoly on transfer fee covenants, and their covenants are presumed to be valid under federal law. Might as well call this "The Guaranteed Riches for Freehold Capital Partners Bill of 2010."
Though the bill states that "transfer fee covenants represent an important economic tool," it appears that Rep. Gingrey is the only tool involved in this bill. Hopefully, our representatives will see through this ridiculous bill. We need our representatives to represent us - not greedy profiteers on Wall Street. Haven't they learned that yet?
We need to let our representatives in the federal government know that the Waters' bill, The Homeowner Equity Protection Act of 2010, is the bill they need to pass. It is the only one that protects homeowners from equity stealing covenants and it preserves the states' rights to pass more stringent legislation.