In August, the Federal Housing Finance Agency took steps to restrict government-sponsored enterprises - Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks - from investing in mortgages with private-transfer-fee covenants.
So far this year, 12 states have adopted legislation banning private-transfer fees. The American Land Title Association is working to have the fees declared illegal everywhere else.
The Pennsylvania Association of Realtors contends that developers have begun attaching private-transfer fee covenants to sales contracts, the justification being "to help the developer recoup the costs of making capital improvements to the land and in turn reducing the price of the home."
The association is supporting a Senate bill that would prohibit all future transfer fees and create burdensome reporting and disclosure requirements for ones that exist.
"There seems to be general agreement the concept is crazy," said Marshal Granor, a principal in Granor Price Homes in Horsham, who is also a lawyer. Granor has never inserted such a fee in his sales contracts, but he recalls being approached by a Poconos builder in the late 1990s who asked Granor to set one up for him.
Builders have long argued that they are creating wealth for everyone else but themselves.
"Especially in hard times, the builder might not make any profit on a lovely home, which, years later, is worth a mint," Granor said. "The builder [or developer] is merely looking for a small honorarium for creating this value for all who come later."
In the most widely promoted version of this arrangement, a developer obtains documents and advice on creating such covenants from a licensing company in exchange for a percentage of the transfer fees.
