Watch Out for Capital Recovery and Private Recovery Fees

Amidst the debacle of mortgage financing that led to a financial meltdown, the recovering market in the US has brought its own controversies in this period. The resale market, valued in excess of USD 100 billion every year has paved way for a silent and smooth movement of money to builders and other construction corporations across the US.

The Purpose of the Fees

Imagine this – Every time a real-estate property is being sold, the original builders (not the landowners mind you) will be paid a fee proportional to the transacted amount involved in the sale. Even though it sounds like an intelligent way for maximizing the revenue for the construction conglomerates, a second look at the policy reveals the harm that it can cause to the entire market and the consumers involved in thousands of real estate transactions every year.

Every time a consumer invests in buying a home, they look at the appreciation value of the enterprise so that they are left with something that has grown in monetary value along with them. The builders these days are attempting to include a clause – a transfer fee that has to be paid to them, every time a real estate property that they developed is being sold, allowing them to capitalize on property sales, regardless of profit or loss on the part of the consumer. This transfer fee is regardless of the appreciation or depreciation of the value of the real estate being sold.

Almost 100 Years of Fees

If you are buying a $100,000 house and selling it for 105,000 to another party then you will end up paying $1050 to the developer of the project. If the party who buys from you sells it for $110,000 then he will end up paying $1100 to the same developer and the cycle continues for all resale transactions for a period of 99 years.

Who Gets the Money

This money needs to be paid to the investors who backed the real estate developers during the initial development of the project. Failure to pay the amount will make the reselling a legally invalid contract. The reasoning being given by the principal advocate of the transfer fee scheme – Freehold Capital partners of New York is that “private transfer fees represent an adaptation in how to pay for development costs” incurred by builders “at a time when funding is not available” to them on “reasonable terms.”

With a contract for 99 years on every piece of real estate that is being sold the developers stand to reap the benefits for decades to come.

The people looking to move their families for career changes will be hit the hardest – people working for the defense forces in particular. Every time they sell a property, not only do they have to pay a transfer fee but the buyer of the property has the right to claim a certain reduction in cost pricing to negate the amount that he will have to pay to the developers when he intends to sell the property a few years down the line.

The FHA’s Involvement

The FHA – Federal Housing Administration has raised their voice against this fee that is against the rules. If Fannie May and Freddie Mac also join the fray then it will effectively stop this scheme from being implemented. Similar transfer fee programs had been implemented in different areas at different times only to be met with opposition from the consumers leading to the scheme being removed by the developer.
With such a big segment of consumers being affected many coalitions have taken up arms against this scheme and to prevent it from being implemented.