Freehold Capital Partners Clarifies New York Times Story

The New York Times on Sunday, September 12, 2010, published a feature story on private transfer fees (PTFs), with a specific focus on Freehold Capital Partners efforts. (A Fee Only A Developer Could Love, by Janet Morrissey).

We are encouraged by the fact that private transfer fees (also called home resale fees or capital recovery fees) are being examined by the news media as a potential solution to the primary challenges facing our nations residential and commercial real estate markets: negative equity and jobs. We believe our product provides a solution to these challenges that benefits all stakeholders involved: developers, homeowners and communities.

The institutional opposition to our product exhibited by the National Association of Realtors and the American Land and Title Association is motivated purely by self-interest. As we state in the article, Realtors oppose the fee because homebuyers might pressure them to lower their commissions (typically up to 6 percent of the sales price), and title companies are worried that they might face legal claims if they miss the fee during a search. We understand their concerns, but they do not discount the merits of private transfer fees.

Freehold Capital Partners welcomes a vigorous debate about the role and effectiveness of private transfer fees as an innovative financing tool and how best to ensure proper disclosure and transparency during the home sales process. And while we believe the New York Times presented a balanced account of the product, there are several clarifications we believe are necessary.

We are not a Finance Company:

We partner with developers to help them create PTFs. We are not a finance company, nor are we a broker-dealer. Instead, in partnership with our clients we help restructure the economics of a real estate project by creating an asset (the future income stream) and segregating it out from the project. Much like a development bond, the asset then has the potential to be sold for its present value. In consequence, the developer can spread infrastructure costs and lower the cost of homeownership.

Private Transfer Fees are not like Subprime Loans:

PTFs are not packaged like subprime loans. Rather, they are more akin to Mello-Roos bonds, over $8 billion of which have been sold with minimal risk of default. Unlike subprime loans, a transfer fee is not dependent upon a homeowners ability to pay, nor does it require complex modeling.

We are a Strong Advocate for Proper Disclosure:

The story features Rebecca and Trent Dupaix as homeowners who were unaware that a private transfer fee was recorded on their property. As the article pointed out, not only did Freehold suggest inclusion within the sales contract, but the title company missed the Instrument. This issue (title company negligence), while rare, is the crux of the title industrys objection. The article included a link to the Instrument itself and, contrary to rumors and misinformation spread by the title industry, the instrument is boldly titled, and not embedded within complex documents that run hundreds of pages.

Freehold is a strong advocate for proper disclosure and transparency so that homeowners understand the fee, its intent, and the benefits it provides, including a lower sales price for the homebuyer. As Mrs. Dupaix states,

a resale fee wouldnt necessarily turn her off of a home if the price were right.

we would have negotiated to get the price lower.