Developers Spiking Homeowner Contracts With Hidden Resale Fee Covenants

Last April, Techdirt pointed out that a financial firm in Texas was trying to attach “private transfer fees” to homes, so that developers would get a little bit of each sale as it passed among owners in the years to come. It sounded crazy then–imagine having to pay royalties on clothes or furniture whenever you resold them–but the firm is aggressively expanding its plan and has signed up more than 5,000 developers across the country, reports the New York Times. If you buy a new house in the next decade, look for a “resale fee” covenant hidden in a separate document that might not be included in your closing papers or even require a signature.

The Times says that one goal of including these resale fees is to pool them into new securities that can be sold on Wall Street. They could offer new revenue to struggling developers, but the real winner is the Texas financial firm masterminding this scheme, Freehold Capital Partners:

Someone selling a home for $500,000, for example, would have to pay the original developer $5,000. If the home sold again two years later for $750,000, the second seller would have to pony up $7,500 to the developer, and so on. Even if a home declines in value, the seller still must pay the 1 percent fee. Freehold gets a cut of the resale fee; if the fees are securitized, it retains a percentage of the cash generated from the securitization.

Freehold’s principals and lawyers have been aggressive in sales pitches to developers, but have declined to give details on their clients, securitization efforts or the company itself. Freehold moved its corporate office from Round Rock, Tex., to New York this year as it stepped up efforts to securitize the resale fees.

Update: If you want to stay on top of this issue and throw your voice in with others who are against such private transfer fees, check out

“Resale Fees That Only Developers Could Love” [New York Times] (Thanks to gstitz!)
“Developers Trying To Treat Houses Like Copyright; Want A Cut Of Every Future Resale” [Techdirt]