Home Buyers Only Finding Out About Resale Fees When It's Too Late

from the sneaky,-sneaky dept

Mon, Sep 27th 2010 10:27pm — Mike Masnick

We've been covering the growing practice of adding a "resale fee" to homes, that give developers a copyright-like extended control over a piece of your house long after the house has been sold. The idea is that they can get 1% of any future sale -- which of course makes the house worth less to both buyers and sellers, as they know right away, that 1% of the sale (and any future sale) goes elsewhere. The main company behind this concept is called Freehold Capital Partners, which is really trying to take those fees and securitize them, so the developers actually get a lump sum upfront (making it attractive to them) and you get random investors collecting whatever fees they can get.

The NY Times also covered this story recently, and added the fact that these resale fees are often totally hidden from buyers, such that they either don't find out about them at all until they later try to sell their homes, or mixed in with the closing process, by which point they've more or less committed to buying the property. Meanwhile, the story also notes that HUD has stated that these deals violate regulations, and it won't finance mortgages that include them. A growing number of states are outlawing such deals, and the federal government is looking into them as well -- meaning that the investors who are buying into these sorts of things may discover that their investment is worthless. You would think after the last mess created by trying to securitize a part of the residential real estate market and pawning off the risk on less and less sophisticated buyers that people would know to stay away from such things -- top to bottom. However, it seems like some will always try to find ways to game the system.

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Filed Under: houses, resale fees
Companies: freehold capital partners

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Anonymous Coward, 27 Sep 2010 @ 10:50pm

Culture Of Scheming
The US financial system is infected with a culture of scheming, almost from top to bottom. That is where the global financial crisis came from, and that is where the present poor performance of the US economy is coming from. It will not be long before the next disaster, cooked up by the schemers, happens. The US economy will stagger from disaster to disaster, on an overall downward path, until there is a mighty national reckoning and the schemers get jailed for long stretches.

Locking up the crooks who invented resale fees would be a good start. Get on with it.
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Random Blowhard, 28 Sep 2010 @ 12:01am

The mighty national reckoning will be full blown economic collapse ala Argentina 2001. Why? Goldman Sachs is the only financial institution that is real world solvent if mark to market/reality was used to value their 'assets'. When extend/pretend/bailout ends, it's Game Over.
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Richard (profile), 28 Sep 2010 @ 1:40am

China
What is China going to do when it discovers that all the dollar assets it has acquired (in exchange for all the goods it has sent to the west) are worthless??
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MrWilson, 28 Sep 2010 @ 1:53am

Seems fraudulent if not disclosed upfront and included in the closing papers and requiring a signature from the buyer/future seller. Unfortunately, it'd cost a lot to take the company to court in order to get it voided as unconscionable under contract law, especially if you're not the first purchaser.
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NullOp, 28 Sep 2010 @ 4:29am

Fee?
Before I would begin any transaction on a home I would tell the seller there will be NO resale fee of any kind. In a sale as large as a home or auto, you have to be able to walk away without regret. Anyone that would agree to a resale fee is obviously over committed to the property.
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abc gum, 28 Sep 2010 @ 4:37am

Re: China
Meh ... many of those "goods" are less than worthless.
Melamine pet food, toxic drywall, lead paint babay toys ...
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OtherKevin, 28 Sep 2010 @ 4:49am

Re: Fee?
It's not just regret that you have to worry about. In most cases when dealing with a private seller you have already put down several hundred or even several thousand dollars in good faith money that you could stand to lose if you back out. If you are buying a new build direct from a developer they usually require you to put down $5000 or more up front before they even break ground, and if you walk away then you've lost that too. If those resale fees don't come up until closing time then you could potentially lose a bundle of cash and open yourself up to lawsuits. Even if you're in the right, it still costs money to defend yourself.

Like everything else in the real estate market, the solution is simply full disclosure, up front and before there is an offer made.
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abc gum, 28 Sep 2010 @ 4:55am

Re:
It is rather funny, an analogy intended to show the stupidity of royalty payment for every digital copy, has actually become a reality itself.

Also, the digital goods model they are attempting to emulate has recently been declared to be only a license. Does this mean that you do not actually own that home. The mortgage payments are setup in a way that implies ownership. Smells like fraud no matter how you sniff it.
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Anonymous Coward, 28 Sep 2010 @ 5:02am

The legacy of copyright, where do you think people got that idea?
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Berenerd (profile), 28 Sep 2010 @ 5:20am

Re: Re: Fee?
Actually...if you state before that down payment that you will not agree to any resale fees, then at closing, they pop up, the builder has to refund your deposit and eat the cost of the house himself as you stated beforehand there would be no resale fees.
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Sajjon, 28 Sep 2010 @ 5:22am

Big Deal
So what if they grab 1% for designing and building a home each time it sells. Real estate agents get 3% each (buyer/seller) for putting your home on a website!..theres 6% nobody's bitching about..and another 4k-6k for a lawyer to fill out some standardized legal documents for closing. At least the designer/builder actually did something for the money.
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Steve R. (profile), 28 Sep 2010 @ 5:26am

The concept of "Sale" is Being Eliminated
One more article documenting the incremental demise of "Sale" where the seller claims a perpetual post-sale right over the product. We increasingly see assertions that products are never really "bought", but merely leased or licensed.

Recently CNET ran this disturbing article: The end of software ownership--and why to smile. There is nothing to smile about.
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abc gum, 28 Sep 2010 @ 5:39am

Re: Big Deal
How about a fee on every automobile sale, bicycle or lawnmower. Look out you garage sale grannies, time to go to court cause you didn't pay a fee on that vacuum you sold.
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Richard (profile), 28 Sep 2010 @ 5:52am

Re: Re: China
Like the old east european joke "we pretend to work and they pretend to pay us"
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Anonymous Coward, 28 Sep 2010 @ 5:52am

Re: Big Deal
I was just about to comment about Realtors. They are some of the worst scum of the earth I've ever seen. The collect ABSURD "fees" for what? Like you said, putting a house on a stupid website. And people keep dealing with them.

For Sale By Owner. It's the only way to go. Say you want $200,000 for your home, if you deal with a Realtor, you'll need to sell it for $206,000 and the buyer will have to pay $212,000, give or take. Sell it yourself, for $205,000. You get $5,000 more and the house sits on the market for $7,000 less.

Which do you think will sell faster? A house for $205,000 advertised by the owner or a house for $212,000 advertised by a realtor? Considering all a realtor pretty much does is take a few photos and toss it on a website...my money is on the for sale by owner home.
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Danny, 28 Sep 2010 @ 6:09am

Re:
Reminds me of those "fees and charges" that get tacked onto cell phone and internet bills.

"Unfortunately, it'd cost a lot to take the company to court in order to get it voided as unconscionable under contract law, especially if you're not the first purchaser."

And that is exactly why they do it. Just like record companies offer "pre-settlement" offers to people (pretty much "pay us Y or we will take you to court for Yx") this is simply a scheme meant to make more money in an f'd up economy where people trying their hardest to remain relevant.
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Anonymous Coward, 28 Sep 2010 @ 6:30am

Re: The concept of "Sale" is Being Eliminated
One more reason to only ever use free/libre/open-source software.
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Danny, 28 Sep 2010 @ 6:44am

Re: Re: Big Deal
Ah but that is where the "safety" of having a realtor comes in.

I do agree that all a realtor does is pretty much take some pictures, put up a website, and do a few tours of the home. But they, just like any other middleperson trying to justify their existence, have sold themselves to buyers on the idea that dealing with a realtor is a protective measure. "Why take a chance on a such a big investment?" "Would you risk the next 20 years paying off a home that's of poor quality?" "Why don't you allow us to verify and confirm the condition of the house?"
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Sean T Henry (profile), 28 Sep 2010 @ 6:56am

I could see
It could be reasonable to include this clause for the first owner ONLY. If you have the house built and are told up front we can take $5000 off the building price if you agree to pay us %2 of the selling price if sold in the next 3 years if the house is sold after 3 years and before 99years the fee is only %1 this fee will not be transfered to the second buyer.
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Hephaestus (profile), 28 Sep 2010 @ 7:28am

Re: Re: China
you forgot radioactive steel, fish canned in motor oil, tea leaves with mercury, tooth paste with anti freeze ...
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Andrew, 28 Sep 2010 @ 7:49am

Re: Big Deal
4k-6K for a real estate Atty? how about 4 to 6 hundred! What if I design and update my kitchen, do I get a percentage of that value of the resale of the house for my work? The builder/developer created a product. I buy it, I own it. Care to pay Ford 1% of the resale of your next car? They designed and built it after all.
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The Groove Tiger (profile), 28 Sep 2010 @ 8:27am

Re: Re: Re: China
And the latest in children toys: a bag of broken glass!
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jimbondre, 28 Sep 2010 @ 9:05am

Transfer fees
Don’t believe everything you read in the New York Times. Transfer fees that are “totally hidden from buyers,” is more than an exaggeration. In most states, if not all, there is the Department of Real Estate, which requires full disclosures to buyers and sellers regarding transfer fees. This is a separate document that they are required to execute to purchase the home. The details of the fees appear on the deed or mortgage papers. A title company has a fiduciary duty to disclose this fee to all parties in a real estate transaction.
A 1% fee could get the real estate industry going again and create millions of jobs. If the 1% is a “deal breaker” to the seller - pay a 5% real estate commission rather than 6%.
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Anonymous Coward, 28 Sep 2010 @ 10:03am

Re: Fee?
Telling them won’t do any good. The contract almost certainly has the clause "This contract is the only agreement between the parties and there are no other past or contemporaneous representations..." This clause is very good at making it very difficult to challenge such a thing in court absent fraud duress or other such means. READ THE TERMS AND CONDITIONS PEOPLE!
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MrWilson, 28 Sep 2010 @ 10:11am

Re: Re: Re: Big Deal
The argument for having a realtor is the same for patent portfolios, lawyers, and nuclear weapons: If the other guy has one, you need one too. It's a great argument if you're a realtor, patent attorney, regular attorney, or defense contractor.
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Anonymous Coward, 28 Sep 2010 @ 10:15am

Re: Transfer fees
But the 1 percent would be every time it is sold. The real estate agent commission is only once. Yes, many people use real estate agents, but not every person wants to-what if someone down the line wants to sell their house without a real estate agent? Many people do just that (especially during a boom when real estate is NOT worthless).
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Luis, 28 Sep 2010 @ 12:08pm

Easy solution to this in future sales through reworking your sale contract. Just lease the property for 1 year at the price of the actual home. Then provide the option to buy the home for one dollar at the end of the year lease. That penny will be fun to give to the original seller. As long as the stamp costs more than what they will recieve, this approach is the best way to go about future sales.
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akston, 28 Sep 2010 @ 2:33pm

I'm not clear on why these kinds of things aren't covered by fraud law outright.

Oh, yeah, right - the country's basically run by the mafia state/banking complex.
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Anonymous Coward, 28 Sep 2010 @ 4:41pm

Re: Big Deal
Yes but I can choose to not use a real estate agent. If this is allowed, a person will have no choice but to cough up the 1 percent.
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Anonymous Coward, 29 Sep 2010 @ 7:26am

Re: Re: Re: Re: China
I believe you've violated the tradmeark on the ever popular children's toy 'bag o glass' marketed by SNL. This is a clear and willful violation, and even a moron standing still could potentially be confused by the two similar products.

Please cease and desist all your promotional efforts for your 'bag of broken glass', turn over all your bank accounts, your website, your first born daughter (as long as she's over 18...), and your wife (if she's hot). If you comply with our demands, we may not sue you at this time (but we reserve the right to sue you into oblivion in the future once we've got all we can out of you with baseless threatening letters).

Thanks for your time, and we look forward to hearing from you.
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Joe, 16 Apr 2012 @ 12:31pm

Re: Re: Fee?
I could see people suing to get those fees back and an injunction requiring disclosure to future buyers IN ADVERTISEMENTS. Add on legal fees and this could be very nasty for someone trying to defraud their buyer like this. That's the exactly correct word, too. Imagine selling a car, and at the last minute (after prices were agreed) that it's a lemon? Yeah, I could imagine people raising Cain over that.
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Joe, 16 Apr 2012 @ 12:41pm

Re: Re:
Yeah. I hear all about "Author's rights" AKA "Droit d' suite" or "right to follow" or "resale rights" but what about buyer's rights? Or the "right to own"? You paid full price and then they try to take back a portion of your property now (using retroactive laws) but don't want to refund you the differences in value!

If this kind of law went into effect on paintings in the USA for example, artists would have to *give away* paintings hoping that someone would eventually sell them for a lot of money. This would hurt the majority of artists when they need it most! :( A better plan would be to keep a portion of the paintings (or in the case of prints, the original and copyright) and then have the heirs make their money off of reprints and selling originals. I would feel cheated if I tried to sell something that I took a risk on since most paintings don't beat inflation. Anyone got references on that? It's obvious to anyone who's looked at art prices but I'm not sure if anyone's ever published a comprehensive study on this. Resale fees seem like such a self-defeating greedy money grab when not disclosed from the beginning. Art dealers are very quickly discovering a couple phrases: Private sales exemptions, Hong Kong
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