Treating Houses Like Copyright... And Then Securitizing And Selling Off The Revenue From Future Resales

from the ah,-financial-innovation dept

Wed, Aug 25th 2010 10:12am — Mike Masnick

Earlier this year, we wrote about the attempt by some housing developers to demand a cut of every future sale of the homes they built. This was similar to various attempts around the globe to add a resale right for artists, such that they get a cut every time their artwork is resold. It makes no sense for artists (and actually does serious harm to artists), and it makes even less sense for houses. But how did the folks who came up with this plan defend it? By citing copyright law, of course, saying that it was no different than an author or a musician getting royalties from the sales of their works.

Reader Mark points us to another article about this attempt to contractually create a resale right for homes. This article has a lot more details about the plans, put together by an financial firm called Freehold Capital Partners (which the last article called a Texas company, but is now referred to as a New York company -- which is interesting, given that the last article also noted that Texas law probably prohibited this practice). However, this article notes that the whole plan is prefaced not on actually giving the builders a cut of all future sales, but (of course) to securitize and sell off the potential future revenues to investors. Forget securitizing mortgages, now we're talking about securitizing a bizarre contractual resale right that means you have to pay some random investors any time you sell certain houses. Yikes.

Thankfully, plenty of folks are realizing how sketchy this is, and various states have specifically outlawed the practice. The article quotes some developers whining about how much nicer it is to be able to get a big chunk of money from these kinds of deals, but given that the chunk of money comes from a rather questionable process, they shouldn't have relied on it too much in the first place.

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Filed Under: copyright, houses, resale rights, securitization
Companies: freehold capital partners

33 Comments

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RD, 25 Aug 2010 @ 10:22am

Good!
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RD, 25 Aug 2010 @ 10:25am

Good!
Good. Let them try this ridiculous money-grab and attempt to extend copyright-like royalties to all facets of life. After all, some say, why not? Why should only artists get royalties and monopoly protections? Or they will say, why isnt the builder also an "artist" and deserving of the same "rights"? The sooner we get this crap out in the open and finally deal with the problem of "owning" creativity, the better. Maybe now this will reach a level that even the general populace (ie not just tech/net/artist people) will see just what an insane money-grab copyright and "IP" has become.
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TtfnJohn (profile), 25 Aug 2010 @ 10:36am

Re: Good!
Taken to it's illogical conclusion it isn't the general contractor that gets the future cuts protected by the investors who will re-create themselves as a non profit (hehe) rights agency. It'll also be the carpenters, plumbers, electricians both AC and low voltage DC for communications, window installers, landscapers, security installers, the 15 year olds who swept the floors and on and on.

Further, as the "owner" of the house the rights holders will be able to tell me what colour I can paint the house, what I can plant in the garden, what rugs I can use, what I can burn in the fireplace or wood stove (probably the latter given the ever increasing price of heating fuel be it natural gas, fuel oil or electricity) what colour I can paint the rooms, whether I can have a cat or dog or children in order to protect the "rights holders" rights and on and on.

Sheesh, doesn't this sound like renting rather than owning?
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Anonymous Coward, 25 Aug 2010 @ 10:36am

You know, I have a plan. I'm going to build a house. However, instead of selling it to someone, I'm just going to say I still own the house, and they have to pay me a certain amount every month. But not only that, but I'll make them pay all the utilities, even though they don't own the house. And since it's my house, if they damage it, I'll make them pay for the repairs. Maybe I can even build a house that has multiple units in it, and then put more than one family in each. I'm a genius!
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Hephaestus (profile), 25 Aug 2010 @ 10:46am

It sounds like they are trying to create a middle ground between rentals and ownership. Its a really stupid idea on multiple levels.
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ChurchHatesTucker (profile), 25 Aug 2010 @ 10:55am

Re:
Better yet, just design a house and when someone builds one that's similar enough, sue them.
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Anonymous Coward, 25 Aug 2010 @ 10:57am

Re: Re:
I think you missed the point of the comment.
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Phillip (profile), 25 Aug 2010 @ 11:07am

Re: Re:
hint... he was saying this sounds like an apartment complex....
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DCX2, 25 Aug 2010 @ 11:18am

Imagine the day...
...when the manufacturer of a hammer starts requiring royalty checks from builders for every structure created with the hammer...
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Anonymous Coward, 25 Aug 2010 @ 11:23am

This has nothing to do with copyright law, so vilifying copyright law is disingenous at best.

As things typically stand right now in most parts of our country, mineral rights are excluded from title transfer to purchasers of homes. Not once in all the years this practice has been ongoing have I ever heard or read anything even remotely attempting to associate it with copyright.

Why not be straight up and expose this for what it really is, an idea by financial-types trying to figure out how to squeeze more money out of home buyers? In fact, it seems to me that if these financial-types are trying to emulate something, perhaps a more appropriate example would be government assessment of annual property taxes.
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Anonymous Coward, 25 Aug 2010 @ 11:32am

I'm a bit confused as to how this is possible. I mean, okay, when the builder sells they can stipulate a certain percentage on re-sell. However, how can it be guaranteed that the next owner is contractually bound to do this? It sounds like it will break down at that point unless I'm missing something.
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Anonymous Coward, 25 Aug 2010 @ 11:39am

Accelerando
For some reason this reminds me of Accelerando by Charles Stross.
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Anonymous Coward, 25 Aug 2010 @ 11:40am

Re:
However, how can it be guaranteed that the next owner is contractually bound to do this? It sounds like it will break down at that point unless I'm missing something.

The contract prevents the owner from selling it to someone else who does not also agree to the same terms.
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Anonymous Coward, 25 Aug 2010 @ 11:41am

So?
So why should this be illegal? If someone doesn't like the terms, they don't have to buy the house.
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Berenerd (profile), 25 Aug 2010 @ 11:47am

its fine by me....
They want a percentage of the sale cost? then they can pay the same % of the closing costs, my mortgage, any wear and tear on the building, and a % all the upkeep of said house. Deal?
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Anonymous Coward, 25 Aug 2010 @ 11:48am

Re: Imagine the day...
License the use of the nails.

Put a sticker on the outside of the box that states "By opening this container you agree to the hardware license." Of course it's located inside the box.

Have it say that the license is non-transferable and when the house is sold declare that the license terms have been broken.

Demo the house to collect your nails.

Good times!
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Mike Masnick (profile), 25 Aug 2010 @ 12:00pm

Re:
This has nothing to do with copyright law, so vilifying copyright law is disingenous at best.

I didn't make the initial connection. The people putting this plan together did.

Odd that you ignore that and suggest that it is somehow our doing.
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Anonymous Coward, 25 Aug 2010 @ 12:32pm

Re:
Where do you think the idea came from?

IP laws specially copyright will and are instigating bad behavior, is not a surprise people are pushing for ridiculous claims beyond the reasonable when you have an entire class of people who made it ok and don't want to give up any terrain and are doing ok raising the bar more and more each year.

You see those same laws in the middle age ended in blood, people just loose sight of what is proper and start demanding too much from others and that is when they get a smack down and are bitch slapped by the public.

IP maximalists will loose everything, it is not a question of if, but when, they are encroaching on others interests and this will absolutely trigger some kind of response.
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Anonymous Coward, 25 Aug 2010 @ 12:37pm

Re: So?
Stop doing dope and you will understand.
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ChurchHatesTucker (profile), 25 Aug 2010 @ 12:42pm

Re: Re: Re:
Oh.

Still, doesn't hold up. You actually have to maintain an apt. complex (at least currently. We'll see where this leads to.)
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Hephaestus (profile), 25 Aug 2010 @ 1:09pm

Re: Re:
"IP maximalists will loose everything, it is not a question of if, but when, they are encroaching on others interests and this will absolutely trigger some kind of response."

I am glad someone else sees this. See the next of mikes posts Man Trademarks 'Welcome To Parry Sound,' Demands Money From Parry Sound Organizations.

I think we should all do this as a contest, the prizes will be for ...
1) who can piss off the most people
2) who can get the most non-contest members to do the same
3) who can raise public awareness the most about IP law
4) who can get into the news and stay there the longest

It would be alot of fun and could cause the whole IP issue to be more in the public eye. We could even get the yes men to help us.
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Jim Bond (profile), 25 Aug 2010 @ 1:23pm

Transfer fees - treating houses like copyrights
Before making a judgement about transfer fees consider this:
The economy is almost as bad as that of the Great Depression.
Double digit unemployment is everywhere.
New home sales are the lowest since 1963 - 47 years.
Most builders/developers are out of business.
Most homes are worth half of what they were valued at three years ago.

Transfer fees make it possible for an investor - like a bank, Wall Street or the U.S. government to invest in building programs and get repaid their loans over the course of 99 years.
Is it worth paying 1%, five or ten years from now, when you sell your home? Paying the investor 1%, to get us out of the mess we are in now? If 1% is a critical number, why not pay your real estate agent 5% instead of 6%. The agent is not saving the economy, but these investors could.
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Ben, 25 Aug 2010 @ 1:26pm

Real estate in the US
You don't really own anything, read your deed, you're a tenant (in the medieval feudal sense) the crown, that is the county holds the true title and you pay tribute to stay on the land. The term "the American dream" is like the slogan "three on a match" it was created as a marketing tool by the banking industry to help the depressed home sales during the depression of the 1930's, just like "three on a match" was created to make people think that lighting three cigarettes with one match was bad luck. While the banking industry and the government are largely to blame in the collapse of the housing market it was the vapid "get rich quick" property ladder greedy consumer who drove the whole thing!
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Anonymous Coward, 25 Aug 2010 @ 1:46pm

"vilifying copyright law is disingenous at best"

i think the act quite genuine, misplaced maybe, but they sure mean it.
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Steve R. (profile), 25 Aug 2010 @ 1:57pm

The concept of Sale is Being Eliminated
Both copyright along with patents, EULUAs and TOSs can be lumped together under the umbrella of so-called intellectual property. Each of these intellectual property components, over the past few years, have been chipping away at the concept of "Sale", that is the ability of the purchaser to acquire full property rights to products that they have bought.

I guess an important "contribution" of copyright is that sellers claim post-sale control over the content they sell. The real-estate industry, based on this post, is simply copy cating the concept that an "original" owner can somehow retain post sale controls. I wonder if that is the "real" copyright infringement!
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PrometheeFeu (profile), 25 Aug 2010 @ 2:05pm

Why a builder would agree to that is beyond me... think about it: part of what you pay for in a house is future appreciation. So, since you get less of the appreciation, you pay less. However think of the moral hazard. Since you get less of the resale price your incentive to a high resale price is lower. Also, you might want to leave the house sooner as appreciation isnt worth as much to you. Most likely those factors are underestimated in the model right now. It's arbitrage time baby!
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Anonymous Coward, 25 Aug 2010 @ 2:26pm

Ownership Rights
All the above comments miss the true issue with ownership of land.

Land ownership in most states of the US ( I understand Hawaii is different) is denoted by a deed not a title.
A deed is a document created by an attorney and as there are numerous attorneys there may be numerous deeds to any piece of property. Most states have property taxes requiring registration of the deed with the county for tax assessment and laws that you have to pay property tax to own property. Things get real interesting when more than one person claims ownership of a piece of property and all pay taxes on that property.

Point is a deed is not an government acknowledgment of ownership like the title of a car is.

What all the above is is another game being plaid with property ownership originating in the fact that there is no ownership rights in software when it is licensed (sold in a shrink wrap package).
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Anonymous Coward, 25 Aug 2010 @ 3:57pm

Re: Re:
I read your links and no mention of copyright was made. Moreover, as you have previously noted, we do have something known as the First Sale Doctrine.

Resale rights have an established beach head in Europe, as well as a very limited one in California under it's statutes.

Under US Copyright Law there is no such right. If a right to partake of a subsequent sale is created, it would be under general contract law and not federal copyright law.

Thus, the linkage suggested here is off the mark.
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TJ, 26 Aug 2010 @ 2:14am

Ironic since resale rights for artists does not exist in the US (with the exception of California). Ridiculous since the droit de suite (resale rights) is an intellectual property right... there's nothing intellectual about this proposal, nor in how you've linked it to copyright.
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Anonymous Coward, 26 Aug 2010 @ 6:36am

Re: Re: Re:
Sigh.

"Just like authors who write books and musicians who write songs that will be enjoyed for generations to come, those who improve property are also engaged in the creative process, and the economics of the transaction should reflect that reality," a Freehold brochure says."

Do they not teach lawyers how to read these days?
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John, 16 Sep 2010 @ 11:19am

The reality is that Capital Recovery Fees represent a fair and equitable way to spread infrastructure costs over those who benefit. Capital Recovery Fees typically take the form of a 1% fee, paid by the seller each time title to the property transfers, usually for 99 years. The fees are imposed by large-scale developers as a way to spread the significant costs associated with the installation of roads, utilities and other infrastructure over those who benefit. These development projects create jobs and add to the tax base.
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Joe, 22 Mar 2012 @ 7:39pm

Re: Re: Good!
Actually, you haven't seen a homeowner's association agreement lately, have you?
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Joe, 22 Mar 2012 @ 7:50pm

Re:
Until the property is siezed, and then what? The state can laugh at your terms and essentially rip you off of your supposedly-owed money.
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