State Senate and House committees have passed a bill that would ban developers from collecting what are called “private transfer fees.” With the fees, every time a home and the lot below are sold, the original subdivision developer gets a check.
Here is a great graphic from the House Office of Program Research to illustrate this:
The developer builds a lot and then writes into the covenants the requirement that he or she get a fee each time the property changes hands in the future, according to the bill report. The requirement is then part of the title. The fees are commonly a percentage of the value of the property or purchase price. They can last for many decades.
The fees have been marketed as a way for developers to sell subdivision lots at low initial costs but recoup their capital costs later.
The feds have already taken steps to ensure Fannie Mae, Freddie Mac and federal home-loan banks that invest in mortgages aren’t in the business of these fees, according to the bill report.
Some state already ban this practice; it’s legal in California, but there are notice requirements.
This bill, sponsored by Democratic Rep. Roger Goodman, bans it, as of the date the bill is passed. It would require all developers who are currently getting these fees to file public notices detailing their arrangements by the end of the year.
The committee recommended approval, after some changes were made. Click here to see the latest version of the bill. It now goes to the House Rules Committee for consideration.
There is a companion bill, SB 5115, in the Senate, introduced by Democratic Sen. Nick Harper. The Senate’s Judiciary Committee gave its thumbs up, too.
What do you think about this bill?
We haven’t heard of this happening here (if anybody, reporter John Stark would probably know). If this bill passes, then we’ll be able to search Auditor’s Office recorded documents early next year and see which developers filed notices that they’re receiving these fees, if there are any.