From the Public News Service:

With real estate values still low in most of the country, a new investment device has surfaced – and a coalition of consumer groups and real estate industry organizations is sounding an alarm. “Private transfer fee covenants” are being placed on homes by investors and developers. They require a percentage of the final sale price to be paid to a private third party every time the property is sold – for up to 99 years.

Kurt Pfotenhauer, president of the American Land Title Association (a member of the Coalition to Stop Wall Street Home Resale Fees), says his organization is joining the coalition’s call to state legislatures to take action, and for a federal ban.

“The whole thing’s set up to make money. It’s marketed to the developers: ‘This is money in your pocket.’ Clearly, you’ve just given 1 percent of your equity away to somebody else.”

Companies backing the fees promote them as a way to reimburse developers for infrastructure expenses. The fees are also pitched as a steady cash stream and a product that can be sold to other investors and packaged for Wall Street.

Pfotenhauer claims buyers do not understand this new financial product being attached to properties, and some are not even finding out about the fees until they go to sell their home. He calls the resale fees “damaging to homeowners and homebuyers,” as well as to the real estate market overall.

“The truth of the matter is that when you’re in a down market, when prices are depreciating or flat, you’re that much more under water if one of these things is attached to your house.”

So far, 16 states have restricted the resale fees, and HUD will not insure loans that have the fees attached. The coalition is delivering a letter to U.S. financial officials on the issue this week.