Prohibits private transfer fee obligations; requires disclosure of existing private transfer fee obligations

4 Co-sponsors

• Joseph P. Addabbo Jr.
• John A. DeFrancisco
• Jack M. Martins
• Patty Ritchie

BILL NUMBER:S5203A

Title of bill

An act to amend the real property law, in relation to prohibiting private transfer fee obligations

Purpose or general idea of bill

This legislation would prevent the proliferation of private transfer fees in real estate market in New York State, and require disclosure of existing covenants on real property.

Summary of provisions

The legislative intent finds that private transfer fees conflict with a preferred public policy favoring the marketability of real property and the transferability of real property free of title defects.

The proposed legislation would impose a ban on all new private transfer fees. Any contract containing a private transfer fee as described is unenforceable and any person who records or enters into a private transfer fee agreement in their favor after the effective date would be liable for any damages resulting from that obligation including transfer fees, attorney's fees and other costs to quiet title. The legislation also outlines what fees commonly found in real property transactions are not to be considered private transfer fees.

The legislation requires the full disclosure of existing private transfer fees to buyers. Failure to do so would result in the agreement being unenforceable. It also sets up a process by which an individual transferor can free the property of the private transfer fee obligation. Finally, the bill requires that a person entitled to the private transfer fee (builder/developer) must register with the County Clerk a document containing their contact information, the current owners of the real property, the fee amount and other information; failure to do so could result in an action to quiet title.

Justification

There is a disturbing trend around the nation with private parties imposing transfer fees on the sale of real property. These private transfer fee (PTF) obligations are an assessment of at least 1 percent that is inserted into the contract of sale on real property. They are paid by the seller to the original developer or builder of the property, or their designee, every time the property is transferred for 99 years.

As such, someone with virtually no ownership stake or interest can continue to collect revenue off of a property that they may have built up to a century after the original sale of the home. It is unreasonable to require future homeowners to pay a fee on a contract,

to which the original parties may not even be living, especially when there is no benefit to the homeowner or the property.

Private transfer fees drive up the cost to purchase a home. And unlike other fees and costs associated with a home purchase, they do not serve a public benefit; but rather, a royalty to the original developer. Furthermore, they represent a substantial barrier to potential buyers in seeking financing, as the fee is often placed in the form of a deed restriction, which very likely could lead to a subsequent lien.

Promoters of PTFs are working to develop them into securitized financial instruments by bundling thousands of obligations into pools which are sold to investors. This is alarmingly similar to what transpired in the residential mortgage market in the late 2000s, and makes it very difficult or impossible for an individual property owner to identify, negotiate or deal effectively with those who own or control interests in PTFs.

A change in statute is necessary to prevent the proliferation of PTFs into New York State, as they have in other parts of the country.

Prior legislative history

New legislation.

Fiscal implications

None.

Effective date

This act shall take effect immediately.