Bill Introduced To Ban Home Resale Fees

from the no-sale dept

Mon, Oct 4th 2010 9:45pm — Mike Masnick

For a while now, we've been covering attempts by some banker-types to get housing developers to add a resale fee to homes so that if and when you resell your house, you have to pay a percentage of the sale price back to the developer. Of course, the real plans is for the main company behind this plan, Freehold Capital Partners, to securitize and sell off these fees, giving developers a chunk of money upfront. As with any such thing, what this really does is drive down the value of your home and make it more difficult to sell. And, these terms are often slipped in with little to no notice.

A bunch of states have banned these fees, but now a federal bill has been introduced in the House to ban such things nationwide, as a predatory transfer fee. I'm not sure an overall ban makes sense, but at the very least, these sorts of deals (and their serious implications) should be made clear to home buyers well before they decide to purchase a house.

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Filed Under: fees, home development, resale fees
Companies: freehold capital partners

51 Comments

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Anonymous Coward, 4 Oct 2010 @ 9:55pm

Why wouldn't such a ban make sense?
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Scote, 4 Oct 2010 @ 10:23pm

Yeah, I'm sure a nationwide ban does make sense. Why wouldn't you want a ban on such fees? Why not add them to **everything**? From cars to CDs? Better to ban the concept now before everything salable is encumbered.
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Anonymous Coward, 4 Oct 2010 @ 10:40pm

This is an agreement between the buyer and the seller. If the buyer doesn't want to agree, don't buy.

If it's being "snuck in there" and it's fraud, then we already have laws against fraud.

If it's not fraud, then why should it be illegal?
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cc (profile), 4 Oct 2010 @ 10:49pm

Re:
Because it's yet another dead-weight monopoly rent paid to someone who does nothing to deserve it, that increases the price of your property while decreasing its value?

In more TechDirty terms, it's a legal loophole that limits your rights on something you own, like DRM or like your typical walled-garden variety devices.
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Lutomes (profile), 4 Oct 2010 @ 11:11pm

Help me understand these.
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Lutomes (profile), 4 Oct 2010 @ 11:17pm

Help me understand these.
Lets say Alfred owns a house, and sells to Bert - who down the track sells to Charlie.

Alfred places a clause in the sale of the property to Bert saying when Bert Sells a % of the price gets paid to Alfred.

That "should" be legal, as long as its in writing in the contract signed etc (real property, not consumer goods / eula junk). Bert knows this when he bought and would have paid a lower price.

Bert sells the property to Charlie and has to pay his dues.

IF Bert does include a clause in his contract saying that Charlie has to pay % to Alfred - again it should be allowed, its in the contract as signed. Charlie knows this and would have paid a lower price.

Now if Bert does NOT include a clause in the sale contract with Charlie: Charlie should never be able to get sued over Alfred loosing money. Charlie's only contract is with Bert - and as long as there were mortgages on the property registered by Alfred then Charlie is in the clear (IANAL).

If Alfred wants to get trigger happy with the lawyers he could go after Bert - but thats as far as it should go. No legislation required.
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Anonymous Coward, 4 Oct 2010 @ 11:21pm

Contrary to the beliefs of most Americans, there is no natural law that guarantees you the right to make a profit for no reason what-so-ever.
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cc (profile), 4 Oct 2010 @ 11:24pm

Re: Help me understand these.
It's "house copyright", really. It completely destroys the first sale doctrine on property you legally own using a stupid legal loophole. It *should* be banned.

The older TechDirt story Mike linked to says:
"The fee, written into neighborhood restrictions, would encumber the property for 99 years and throw 1 percent of the sale price back to the developer -- or his or her estate or another investor -- and Freehold each time the home changes hands."
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cc (profile), 4 Oct 2010 @ 11:27pm

Re: Re: Help me understand these.
That's not exactly what I meant. I need sleep.
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Anonymous Coward, 4 Oct 2010 @ 11:29pm

Re: Re:
They built the house, that's what they did to deserve it.

It's not a legal loophole, it's a contract made between two willing parties. If the parties are not willing, it's fraud. We have laws against fraud.

A home developer generally has no monopoly over homes. If this bargain is unacceptable to people, then the market will correct it because nobody will buy homes with such a clause in the contract. They will instead go across the street to another developer and buy a home without it. If people do freely enter into such a bargain, then that's what the market wants, and therefore it's what people deserve and should be encouraged.
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Anonymous Coward, 4 Oct 2010 @ 11:41pm

I think home resale fees make as much sense as music replay fees, but I guess the financial devils didnt arm themselves with enough lobbyists at this time, and the music devils did.
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cc (profile), 4 Oct 2010 @ 11:51pm

Re: Re: Re:
Yes, they built the house and sold it. Why do they deserve to get paid *every time* it gets sold? If they want to get paid over and over again then they should rent it, not sell it.
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Anonymous Coward, 5 Oct 2010 @ 12:04am

Re: Re: Re: Re:
Why do they deserve to get paid *every time* it gets sold?

As is pointed out many times on Techdirt, the market isn't about what you deserve, it's about what you can get. If they can get it, good for them.

If you don't want a house with these restrictions, don't buy a house with these restrictions. Want to profit from like-minded people? Go get some land, buy some wood, build some houses, and sell them outright.
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Christopher (profile), 5 Oct 2010 @ 12:25am

Re: Re: Re: Re: Re:
I notice that you won't make an account to post on this issue. Cowardly and a sign that you are just another corporate shill who is spouting nonsense.
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cc (profile), 5 Oct 2010 @ 12:32am

Re: Re: Re: Re: Re:
If it was that simple and consumers always made the right decisions and were always provided with enough choice, then consumer protection laws wouldn't be required.

But such laws *are* required, and this bill would make a good addition to them.

Also FYI, most people on TechDirt don't believe that unchecked profiteering is necessarily a good thing. If "the market isn't about what you deserve, it's about what you can get", then even ACS:Law's extortion practices would have credence...
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Anonymous Coward, 5 Oct 2010 @ 12:58am

Re: Re: Re: Re: Re: Re:
You know as well as anyone that anything involving non-contract law is deemed "not the free market" here so your ACS:Law example is moot.

If you can charge extra for T-shirts just because they are "official" why not this? My landlord is "unchecked profiteering" because I get no equity for all the rent I pay. We should outlaw that too!
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Anonymous Coward, 5 Oct 2010 @ 1:01am

Re: Re: Re: Re: Re: Re:
Thanks for the insight into my identity "Christopher." Your bravery in listing a potentially-true common first name with your posts will go down in history, written about in epic ballads for performance on the lute by future generations of traveling minstrels.
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cc (profile), 5 Oct 2010 @ 1:20am

Re: Re: Re: Re: Re: Re: Re:
ACS was clearly an exaggeration, but: EULAs.

It's one thing to charge extra for official t-shirts, and a completely different thing to ask for money every time the t-shirt is resold (also, ew!).

Btw, as philosophically sound as a *completely* free market may sound on paper, I am not a huge fan of the idea. Some regulation is definitely required to keep things from blowing up, and consumer protection laws are needed to protect the people who are caught in the middle of the all the cutthroat capitalism/competition.

And as for your landlord, he's not transferring ownership of the property to you, so he doesn't owe you equity by any stretch of the imagination.
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KSA, 5 Oct 2010 @ 1:36am

disclosure!
I'm not sure banning the practice is the best option. If full disclosure was required, I could forsee a situation in which house buyers were given more favorable loan conditions based on the fact that they would give the original owner a percentage of the profits should they sell in a predetermined time frame.

Point is, with full disclosure, this could put people who would otherwise not be able to afford a home, into said home. Still there should be a requirement to make sure buyers fully understand the future implications.
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Anonymous Coward, 5 Oct 2010 @ 2:41am

"A home developer generally has no monopoly over homes. If this bargain is unacceptable to people, then the market will correct it because nobody will buy homes with such a clause in the contract."

Nope, the other very real result will be that every developer will add those clauses creating a market where there is nowhere else to go.

Besides that fee is not the result of work done, but a parasitic approach to business, it will be outlawed because not even politicians like to be fooled, it affects their houses too, their families and others.

People can't produce more land, people can't go to other places if they have roots somewhere, people can't just choose developers, there are not that many and they would all collude to do the same things because this is free money, will they reduce the value of the property, will it add value to it? no but every time someone do a reform and the value goes up the developer without expending any resources will get a cut from others work that is just immoral and so is copyright from which the concept came from, nobody likes parasites and they have a real disgust for them when it is about their money.
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Anonymous Coward, 5 Oct 2010 @ 3:31am

My understanding was that these clauses weren't being revealed until the final contract negotiations. By that time a person is already on the hook for some of the money. If they back out at that point they stand to loose money. If these fees are up front and you can back out risk free then the market would correct itself.
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Michael Kohne, 5 Oct 2010 @ 3:45am

Banning makes sense...
A ban does, I think, make sense because most people (even if you give them a disclosure) will not really understand what's going on until they go to sell the house and find out that no one wants to buy it. Just banning this practice in regular home sales makes perfect sense.
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Pete Austin, 5 Oct 2010 @ 3:51am

This is only re-introducing part of the feudal system
"Socage was one of the feudal duties and hence land tenure forms in the feudal system. A farmer, for example, held the land in exchange for a clearly-defined, fixed payment to be made at specified intervals to his feudal lord"
http://en.wikipedia.org/wiki/Socage
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Anonymous Coward, 5 Oct 2010 @ 4:01am

it should be banned, otherwise, where will it end??
the electrician?
the plumber?
the landscapers?
the guys who leveled the ground?
the painter??
the movers????

shouldn't they all get a cut????

no the shouldn't, they were paid to a job, and should NOT get paid when you sell your home to someone else. its an entitlement mindset, something for nothing
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Mike Kelly, 5 Oct 2010 @ 4:14am

Puh-lease
These things have no place in an honest and forthright business deal. I for one am getting sick of the sense of entitlement that some people hace and this is yet another result of that sense of entitlement. I think they should be banned. Just because something is technically legal does not make it right.
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abc gum, 5 Oct 2010 @ 4:57am

Re: Re: Re: Re: Re:
"As is pointed out many times on Techdirt, the market isn't about what you deserve, it's about what you can get. If they can get it, good for them"

It's all about the context - isn't it?

And ... isn't it fraud if the fee is hidden? Oh, it's not hidden, because they tell you about it at closing - you know, when it would cost you more to back out than just pay the fee.
Yeah, that should be illegal.
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Anonymous Coward, 5 Oct 2010 @ 5:00am

Re: Re: Re: Re: Re: Re: Re:
But Christopher's real name is Gandolf....
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Berenerd (profile), 5 Oct 2010 @ 5:15am

Re: Re: Re: Re: Re:
The big issue is, when you have a house built, 95% of the time you have paid for the land already, plus put a down payment on the house (else the builder wont build) and that down payment is non-refundable. Now when you go to get the mortgage if that clause is in the deal 90% of the mortgage companies wont lend to you. Now you are out tons of money, and contractually obligated to pay the builder. On top of that, if you DO get funding, down the road you ability to now sell the house is limited because not everyone will be able to get a mortgage from the few lenders that will allow it. This means after you paid your mortgage, if you go to sell it you not only pay the tax on the income but then you get to pay 1-5% or more to the builder who built it who didn't pay to maintain it, do any upgrades or have any risk what so ever. Its wrong...

That and builders don't have any politicians in their pocket like the big label companies.
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Steve R. (profile), 5 Oct 2010 @ 5:31am

The concept of "Sale" is Being Eliminated
The BIG issue is that the concept of "sale" is being diminished. We live in a world of increasing absurdity, you "buy" a product with onerous terms-of-service that absolve the product producer of any liability, place all liability for the use of the product on the "purchaser", invalidate the "purchaser's" property rights, and - to top it off - require that each subsequent "purchaser" pay a fee!!!
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Ryan Diederich, 5 Oct 2010 @ 6:05am

Of course...
I disagree with an overall ban as well, as long as they can practically enforce a rule to make the fee clearly visable LONG BEFORE the sale approaches closing.

Somehow, I dont think it would be very easy to enforce such a law, the fee people would say that the people should have known about the fees, how can the buyer contest?
Therefore, an overall ban is basically the only way to do it.

My ideal situation would be an overall ban, with some allowances when everyone is informed of the fees.

"You cant do it unless you do it this way"

is much more comfortable to me than

"You can always do it unless you do it this way"
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Hephaestus (profile), 5 Oct 2010 @ 6:42am

Re:
Do you want us to end up like Australia? With every piece of art having a fee going back to the original artist. They did pass that didn't they?
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Hephaestus (profile), 5 Oct 2010 @ 6:46am

Way to many lawyers .... with to much time on their hands ...
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JEDIDIAH, 5 Oct 2010 @ 6:49am

Nip this one in the bud...
What's more important is that it is a basic attack on fundemental property rights. More than anything, this is why there is likely great legislative interest here. It is something that could ultimately "interfere with business" in a big way. It's like bogus patents but it's something that the average business shark can understand.
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Anonymous Coward, 5 Oct 2010 @ 6:54am

As a current Home Shopper I have actually put a "NO Builder Transfer Fee" section in my offers. Thanks to Techdirt and for sounding this off. This little subsection says that if a fee exists and is not disclosed the sale is off and I am due a full refund.
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Sean T Henry (profile), 5 Oct 2010 @ 7:02am

Re:
The reason that the ban might not make sense is that in times on a housing market slump it could be good to have the fees. Before you go off on me the reason that it could be good is the developer can sell the house at a lower price and include this fee to make up the difference. So to make it easier to sell a $200,000 house they could take $20,000 off the price and have a fee of %10 of the selling price so if the house sells for its original price of $200,000 the fee would be $20,000.

Now in that situation it would be reasonable and work where the ban should come in is to restrict how far out the fees can apply. The fee should only be allowed to apply to the original purchaser and end there also the fee should be explicit and upfront.
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Albert Jenkins, 5 Oct 2010 @ 7:12am

Remember
Do you remember when you could purchase something and it was just yours? No hidden fees or some financial loophole to fleece people. I'm talking a straightforward transaction. I built this house. It costs $500K do you want to buy it? You buy it with all the costs included. Later you add an addition and raise the value to $750K. You then sell it and make a little money without having a 3rd party benefit for doing nothing but adding a hidden fee.

Who's equity is it? If you buy something you should own it. Not this BS.
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Anonymous Coward, 5 Oct 2010 @ 7:26am

Re: Re:
Not that I believe these fees make any sense, but most certainly they are not "rents" in that they derive from private contracts, and not from government grants that may support such "rents".
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out_of_the_blue, 5 Oct 2010 @ 7:28am

The most telling features are: it's new, and ADDED.
This isn't a deal worked out to reduce cost now in prospect of deferred income for the builder, it's just brazenly tacked on and kept hidden, so it's fraud. It encumbers property in a new way, showing fraud again. We don't need any more smart people figuring out new ways of getting unearned income. Yes, we have laws against fraud, but laws are mostly public notice of what's unaceptable practice. This fits that. Ban it at federal level too.
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Anonymous Coward, 5 Oct 2010 @ 8:34am

Re: Re: Re: Re: Re:
It should be banned because such a term should not have a legal weight to it.

Ownership is unconditional. If I pay full price for something, it's mine. I can use it however I want without any restrictions from the original creator. That includes selling it without paying them a cent.
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Anonymous Coward, 5 Oct 2010 @ 8:42am

Re: Help me understand these.
Not necessarily true. If Bert's contract requires him to include the clause, but he sells to Charlie without the clause, Albert has recourse against Bert and the future owner(s)since Albert has an interst in conveyance of the title. That clouds the title. Not a good thing.
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TtfnJohn (profile), 5 Oct 2010 @ 8:55am

Re:
You forgot the neighborhood kid who cuts the grass, the meter reader, the guy that drops the spam, I mean flyers, on the doorstep, the cable and telephone guys and on and on and on,.

Don't you understand that they're all entitled? Each and every blessed one of them back to the guy that built the first mud hut somewhere in Africa?

Now that's how it's supposed to work. None of this freehold crud that's mucking up the system and makes companies lay awake at night dreaming up new ways to separate you from your money.
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Chris Rhodes (profile), 5 Oct 2010 @ 9:06am

Distasteful, but not Wrong
As long as they are up front about the fee (which apparently they aren't), I don't think the practice should be banned. Getting into the habit of banning everything someone finds distasteful is extremely destructive, especially when every new law that gets put on the books either (A) has unintended consequences, (B) will be abused by someone at a later date, or (C) both.

I'll exercise my right to vote with my dollar, however, and I'll be damned if I ever buy a house with such a clause.

Personal responsibility is out of fashion, I suppose.
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Anonymous Coward, 5 Oct 2010 @ 9:28am

Man, so many ways to get paid to do/produce absolutely nothing: copyright, patents, the stock market, home resale fees...

No wonder the world economy has hit rock-bottom.
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Anonymous Coward, 5 Oct 2010 @ 9:44am

Re: Distasteful, but not Wrong
The problem is the covert manner in which the fee has been included in contracts. A few years down the road after the fee rights have been sold a few times, the existence of such fees is going to wreak havoc when a buyer tries to get title insurance which is usually required to get a mortgage. A federal ban of transfer fees is in the public interest.

And while they are at it they should also ban declarations of covenants, conditions and restrictions that are not part of the original contract that do not require signature acceptance to be part of the contract.
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Chris Rhodes (profile), 5 Oct 2010 @ 10:31am

Re: Re: Distasteful, but not Wrong
The problem is the covert manner in which the fee has been included in contracts.

Hence, me: As long as they are up front about the fee (which apparently they aren't)

"Public interest" is also very a broad term, and pretty much can be used to encompass anything you want it to. Will the unintended consequences of legislation be in the "public interest" too?
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Another User, 5 Oct 2010 @ 11:11am

What would happen?
So what if the house burns down and is rebuilt differently. The reseller clause in the original agreement. Would the contractor still get a fee of a house that is no longer their or completely different? I think it is a good idea to ban the practice for people that sign before they read contracts but I think it would be even better if people would completely understand what they are getting into and that the clause would only go so far.
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Anonymous Coward, 5 Oct 2010 @ 11:17am

Re: Re:
Under no circumstances can it be "good to have" home resale fees. They are completely wrong in every way, period amen.
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Anonymous Coward, 5 Oct 2010 @ 11:21am

Re:
"""If it's not fraud, then why should it be illegal?"""

I would consider it to be fraud (or fraud in the inducement) since it is quite often not agreed to up front, nor even disclosed in the traditional paperwork.
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Anonymous Coward, 5 Oct 2010 @ 8:17pm

Re:
Why not?

Musicians get paid repeatedly for jobs they've already been paid for.

Actors get paid repeatedly for jobs they've already been paid for.

Writers get paid repeatedly for jobs they've already been paid for.
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Anonymous Coward, 5 Oct 2010 @ 9:05pm

Contracts throughout the history of the US legal system have been the province of the states, and not the federal government. For example, in federal court litigation involving diversity jurisdiction as the reason why a case is being decided in federal court and not state court, the law applied by the federal court when it comes to interpreting a contract is the law of the state having cognizance over the contract.

Federal officials interjecting themselves into purely state contractual matters is quite troubling indeed, leading almost certainly to a future challege on federalism grounds.

It is bad enough that the federal government is attempting to insinuate itself into all aspects of our daily lives, and even worse when it attempts to displace state law where no federal question is even presented.
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john, 5 Oct 2010 @ 10:12pm

Re: Re:
Actually the Australian scheme is only on the resale of art works purchased after the schemes beginning (june of this year) and there is an option for artists to not partake- For many artists getting a max first sale price is a better option. The scheme makes little sense but it is nothing like (or as bad as) the UK scheme.

As for houses; As long as the buyer has a free choice,As long as there are alternative houses on the market that do not have this resale contract I can not see much problem.
Though it is hard to see the advantage to the seller , could it be because vendor arranged fiance to the sub-prime has become a dearer and harder to get?
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