Private Transfer Fees...A Distressing New Trend In Real Estate

More and more I am hearing about the possibilty of placing private transfer fees on the transfer of real estate through the imposition of private transfer fee covenants. In an article that hit the PR Newswire today,Private Transfer Fee Covenants Give Buyers a Choice About How To Pay for Rising Infrastructure Costs , the writer makes an argument that Private Transfer Fee Covenants provide a good way for infrastructure costs to be spread over the life of the development rather than being carried only by the first time buyers in the development. I would note that the source of this article is Freehold Capital Partners. Freehold Capital Partners has attempted to patent the idea of Private Transfer Fee Covenants in the past.

I'd recommend anyone interested in this issue to take a look at two blog entries from the Source of Title Blog. One entry is entitled Banning Transfer Fee Covenants in Ohio. The other entry is entitled Freehold Licensing, NKA Freehold Capital Partners, At It Again. I'd also direct people to a white paper issued by the American Land Title Association that discusses the negative consequences of Private Transfer Fees Covenants. In this white paper, the American Land Title Association points out that these negative consequences include the fact that (i) private transfer fee covenants steal equity from consumers, (ii) private transfer fee covneants cost consumers money, (iii) private transfer fee covenants depress home prices, (iv) private transfer fee covenants have no positive effect on consumers property tax liability, (v) private transfer fee covenants increase procyclicality of real estate markets, and (vi) private transfer fee covenants reduce transpacrency and exploit the complexity of real estate transactions.

I understand the America Land Title Association has issued proposed legislation that prohibits transfer fees. I am not aware of any such legislation that has reached our legislature in North Carolina. However, I do understand that this topic is on an upcoming agenda North Carolina Bar Association's Real Property Council so a movement may be under way soon.

Even if legislation banning Private Transfer Fee Covenants is not enacted, legal arguments will still exist that Private Transfer Fee Covenants are invalid and unenforceable. Also, there are other possible ways for landowners subject to these covenants to try to attack them. After seeing the article supporting Private Transfer Fee Covenants hit the wire today, I felt obliged to post as soon as possible that it would be wise to take a look at this thing from all angles rather than just believing what is in that article verbatim. In the near future, I will post further on what effect this push for Private Transfer Fee Covenants may have on real estate and real estate litigation in North Carolina.