Bill Introduced To Ban Home Resale Fees

from the no-sale dept

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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Companies: freehold capital partners

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Comments on “Bill Introduced To Ban Home Resale Fees”

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Sean T Henry (profile) says:

Re: 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.

john says:

Re: 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?

cc (profile) says:

Re: 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.

Anonymous Coward says:

Re: 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.

Anonymous Coward says:

Re: Re: Re:2 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.

cc (profile) says:

Re: Re: Re:3 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…

Anonymous Coward says:

Re: Re: Re:4 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!

cc (profile) says:

Re: Re: Re:5 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.

abc gum says:

Re: Re: Re:3 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.

Berenerd (profile) says:

Re: Re: Re:3 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.


Re: Re: 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.

Lutomes (profile) says:

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.

cc (profile) says:

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.”

KSA says:


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.

Anonymous Coward says:

“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.

Anonymous Coward says:

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

Steve R. (profile) says:

Re: 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!!!

TtfnJohn (profile) says:

Re: 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.

Ryan Diederich says:

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”

Albert Jenkins says:


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.

out_of_the_blue says:

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.

Chris Rhodes (profile) says:

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.

Anonymous Coward says:

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.

Chris Rhodes (profile) says:

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?

Another User says:

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.

Anonymous Coward says:

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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