'Predatory' hidden covenants on more than 100 Denton homes were thrown out by a judge. Hundreds more
Private transfer fees affecting more than 100 Denton homes were ruled invalid by a Denton County judge last week. But the practice has brought in billions of dollars from homeowners across the United States, according to its top originator, and in Denton County, hundreds more of the covenants remain unchallenged — and likely undetected — by homeowners.
The controversial practice of collecting private transfer fees — also known as reconveyance or capital recovery fees — involves the original developer or builder writing a fee into neighborhood restrictions that would entitle them to 1% of the sales price every time a home is sold, usually for a period of 99 years. The fees are a guaranteed revenue stream for developers and other investors named as beneficiaries in the contracts, and proponents say they mean lower initial sales prices for buyers.
Texas-founded Freehold Capital Partners, the largest originator of these fees, often provides licensed documents and advice on creating private transfer fee covenants to developers and, in exchange, is named as a beneficiary in the covenants. The fees were marketed as a boon for developers after the 2008 housing crisis, allowing them guaranteed gains.
“Working with Freehold Capital Partners represents the best a joint venture has to offer by combining your property with Freehold’s expertise in reconveyance fees, creating flexibility for sellers and buyers, all while generating either a long-term income stream or the possibility of significant capital today. It is a true win-win scenario,” a Freehold brochure reads.
Read more: https://dentonrc.com/business/predatory-hidden-covenants-on-more-than-100-denton-homes-were-thrown-out-by-a-judge/article_88a556dd-bbff-50ca-896f-bfcf8a2983a4.html
(Denton Record-Chronicle)
