Transfer Taxes Still a Problem

You’ll remember a couple years back when CAR sponsored a bill to eliminate transfer taxes in the state. We were opposed by an unlikely coalition including the Building Industry and environmental groups (who frequently use the process to blackmail developers out of cash). Our legislation failed but we did get a bill passe mandating that the existence of this tax at least has to be disclosed.

With the exception of Lennar Homes, I’m not aware of any other local applications of this type of tax – but as this recent update from NAR points out – it’s becoming more of an issue with local governments strapped for cash and profiteers looking to make an illicit buck of the unwary homeowner.

Standing Up to Private Transfer Fees, Posted by Brooke

Posted: 03 Mar 2010 07:07 AM PST

I’m proud that two years ago my state association, the Texas Association of Realtors®, stood up to an issue that would have increased the cost of housing and complicated closings.  We helped pass legislation that banned the use of most private transfer fees in residential real estate in Texas.

Private transfer fees are a bit complicated, but they’re important to know about.  They are covenants that claim to run with the title to a property.  Every time the property changes hands, a fee is paid to the original property owner or developer who created the covenant.  The fees have been as much as one percent of the purchase price of the property.  In some cases the fees are being paid for up to 99 years!

We’ve recently been made aware that companies dealing with private transfer fees are marketing their products to developers across the country.  They are bundling these fees so they can be securitized and resold on the open market.  If they succeed in developing a “stream” of these fees to make a credible securitization market, then the use of private transfer fees will increase exponentially because the profit incentive will increase.

Bottom line is this…affordable housing is sacrificed to give financial benefit to someone completely disassociated with the real estate transaction.

In 2008, the NAR Board of Directors voted on a policy against the use of private transfer fees.  But ultimately, we know this is a state matter.  That’s why NAR is offering services to state associations to investigate this issue in their states and evaluate whether they would like to pursue legislation against the fees.

NAR has engaged the services of Robinson & Cole, the firm that serves as our consultant in NAR’s Land Use Initiative.  Robinson & Cole will help state associations write legislation concerning the use of private transfer fees, and NAR will pick up the bill.

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