The newest rip off in housing.

[dixiegrrrrl]

Would you be willing to pay the original builder a fee when you resell your home?
That's an obligation some developers are trying to slap on homeowners in their communities.


"But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. !!!! And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets."


snip...............

"The company's plan is to monetize that future income -- essentially allowing developers to get paid now rather than later. To do that, Freehold would bundle together the estimated income from the future fees and sell that package to investors. It claims this new "asset" would be worth about 5% of the original home prices."

so not only will your mortgage be turned into a derivative, so will your "tax" to the builder.
which he will get every time the house is sold.

More, much more:

http://money.cnn.com/2010/08/23/real_estate/home_resale_fee/index.htm?hpt=T2

[no_hypocrisy]

1. I don't know how a present owner can burden a future owner with a 1% fee to the builder.

If each owner agreed, it's stupid, but probably legal.

[unblock]

3. any seller can put a covenant into the contract and refuse to sell unless the buyer agrees

it's up to the buyer to walk away if the covenant is objectionable. or negotiate reasonable compensation for accepting the covenant.

[dixiegrrrrl]

5. It is written into the builder's contract.

Which the home purchaser apparently must sign.

tho the "in perpetuity" issue might be cause for legal questions.

Other questions:

If I buy a home from a builder and sign, how does that obligate the person who buys from me?
and if it does obligate the person who buys from me, would that not mess with my ability to sell my home in the future because of the "tax" falling onto the next buyer?
Would YOU buy my home if you had to inherit the "fee".?

Since the fee is " a percentage" of the cost of the home, is it going to increase over time per each sale?
worse yet, if housing prices go flat or down, would the bonds that these fees are based on pay less?

New rip off for investors ( who are rarely told what the bonds are comprised of), for home buyers.

Remember how many investors got shafted by the mortgage bonds going south when all the defaults happened.

[no_hypocrisy]

7. How about this?

You bought the house from the Builder 10 years ago, you signed his contract, and now you're ready to sell. You put the covenant in my sales/purchase contract. I see it and question you about it.

Couldn't my attorney either cross it out with your attorney's approval or just refuse to include it during the three days for amending the contract?

[whopis01]

8. My guess would be that the original buyer has a contract with the builder that obligates them

to ensure that the future buyer agrees to the same contract.

Or alternatively the original buyer could be responsible for the payments every time the house is sold regardless of whether or not they are the ones selling the property (as a penalty for not passing the obligation on to the new buyer).

Either way this is just insane.

[jtuck004]

9. No. You obligated yourself to this when you purchased the property.

The only party that could release this is the original party to the other side of the contract.

It has the same effect as a lien on the title.

But it's a crock, and it's just wrong. This deserves federal action to stop this.

The thing that is attractive is that people don't look 20, 30, or 50 years down the road when they sell it. All they see is that they get this property a little cheaper when THEY buy it. They won't see (or perhaps care, at least now, how it will affect their sale later...)

[truedelphi]

21. Who will see to it that this is banned by Federal Action?

What with Congress already being owned by the Major Big Interests.

And Americans really don't think about things too much. If they are told that everyone is leasing cars, they start leasing the cars they drive.

Look at all the insane amounts that people pay each month to their Condo or Homeowners' Associations.

[jtuck004]

22. If enough citizens would raise a ruckus about it,

and Elizabeth Warren was confirmed, they might attach a rider to a bill which would stop this silly kind of crap.

The person I was answering was asking if they could more or less just ignore it, and I was suggesting that they could not,
and that the only relief might be legislative action.

But you are quite correct, Congress (and the Fed, Treasury, etc) behave as if they are pre-owned by those who
have interests in direct competition with most taxpayers, and there seems little motivation to change it.

[FBaggins]

23. No need to ban it (and possibly no ability to), but all you need

is to require appropriate disclosure. It has to appear prominently on the listing and the customers have to sign a seperate disclosure form with some calculations of how much less the home will be worth compared to similar homes without the covenant.

Then let people make up their own minds... it might be worth it for some of them.

Given the state of new home sales these days, anything that drives people to consider the competition will likely wither on the vine all by itself.

[no_hypocrisy]

15. Not to beat a dead horse, but . . . .

How can this run in perpetuity? Would the "covenant" terminate upon the ultimate destruction of the structure? If the purchaser tore down the existing building and rebuilt?

[kelly1mm]

16. Covenants run with the land, not the building. nt

[louis-t]

2. I will watch for this in my business, and

ask the people who deal with builders if they are seeing this.

[bemildred]

4. Yet another reason not to buy new housing. nt

[tech9413]

14. I've only bought a few properties in my 57 years

In two cases they were new construction. The other was a townhouse where the builder went broke before they finished the project. We spent more than a few days going over the contracts and had a lawyer going over the terms and implications to avoid any of those hidden hooks. Had we not done that, we could have got tied up in similar conditions. The only tough one was the existing townhouse. The HOA agreed to a settlement for improper roofing that left the owners to pay more than 50% of the cost for roof replacement. My bad, I didn't research the builder to check their track record or common construction problems during that period. Got stuck with an additional $12K for roof replacement on a 7 y/o building. Oh, and there were those improperly installed Pella windows that were busted in 5 years, but the lawyer that owned it before us never disclosed the problem. That was worth $3K.

As for the whole mortgage process, since the late 80's they were trying to sell me some creative device that would let me buy more than I could afford or needed. Fortunately, I'm the kind of Luddite that only wants what I can use and what I need. I went for fixed rate long term and payed into the principal from day one. The first place was a break even, got to get out today sale. The next got me a 100% gain from improvements,location and timing. The third got me 150% even though the HOA drove me nutz to close the deal. (stupid me replaced the furnace with a more efficient unit without getting the blessing of the HOA)

Bottom line is that owning property isn't for the lazy or wussies. If you don't have the skills to choose, care for or market, you'd better be able to pay for the skills you don't have. There have been a few studies in the last few years that show that renting can be a distinct advantage. I could elaborate but I think I used up my keyboard time for tonight, at least I need a smoke before I respond.

[bemildred]

19. Not for lightweights, no.

Lot's of sharks in the water. And I would never buy anything with a HOA to contend with, might as well have a landlord. If I am going to pay to own a property, one of the reasons is so that I have to put up with as little crap as possible.

I just do not see any prospects for long term appreciation any time soon. When you make the bubble that big, it takes a long time to deflate.

[dkf]

6. Wow just when you thought you had seen it all.

[dixiegrrrrl]

10. Whadda ya want to bet car dealers are eyeing this?

Car loans are already one of the things that are being turned into derivatives.
How about a nice future sales contract to go with it?

[Crazy Dave]

11. On a smaller scale

The publishers have been wanting used book stores and places like Amazon to pay them additional royalties (or whatever they called it) on the used books they sell.

[dixiegrrrrl]

12. Pikers. Now, if they really want to make money,

how about getting the book buyers to agree to pay a fee to the publishers every time that book is sold or loaned to someone else.
Why, that is almost like the movie and music industry, isn't it?

[populistdriven]

13. caves are natures solution to this

[northernlights]

17. well if nothing else, this should

really drive new home sales. further into the ground,that is :evilgrin:

There still will be houses for sale *without* evil covenants. Nobody's forcing anybody to buy a new house, let alone buy a new house from shady developers.

And what happens when those houses are foreclosed on? Who will the developers go after then? :rofl:

[Kat45]

18. Does greed know no bounds?

Of course that's a rhetorical question, but I don't quite get the logic of this one. I assume the builder got paid for building the home. Job is done and paid for. Why should he get paid in perpetuity for something that was already paid for? It does not make sense to me. My head is about to explode and I haven't even begun to think about the derivative aspect of this bullshit.

[CanonRay]

20. No, Hell No, and Never

I forgot over my dead body.

[pscot]

24. This sounds like a remarkably stupid idea

Builders are going under right and left. There's a housing glut. Let's insert a deal-killer in the sales contract.

[FBaggins]

25. That's the thing... it ISN'T a "deal killer" for many

because they can only see the short-term benefit and don't realize what the true cost is. After all... do YOU care whether the fifth owner thirty years from now pays a 1% fee or not?

The fee is sold in exchange for a 5% discount now. So the new home becomes more affordable (though I'd bet that it increases their cross-sale of highly-marked-up options) and all they THINK they give up is 1% on the back end (potentially many years down the road). Who wouldn't trade 5% now for 1% later?

What they don't realize is that the new buyer isn't going to be willing to pay the same price for a home with this restriction... and they won't offer 1% less either (because they'll be thinking about the impact on their resale).

[ixion]

26. The laws regarding home ownership need a complete makeover

they are entirely biased in favor of the banks and a group of vertical markets (engineers, inspectors, architects, etc) that do nothing more than shuffle paper along and collect money from the homeowner.

It's a gauntlet rigged against the home owner, and it needs to change.