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Tom Feddor + Associates Newsletter September 2nd, 2010
P: 312-203-3841 | TomFeddor@gmail.com
The latest real estate rip-off?
By Les Christie, staff writer
August 23, 2010
NEW YORK (CNNMoney.com) -- Would you be willing to pay the original builder a fee when you resell your home? That's an obligation some developers are trying to slap on homeowners in their communities.
Many condo and townhouse dwellers are already familiar with the "flip tax," more formally known as a resale fee. Typically calculated as a percentage of the sale price, it's a fee due to the condo association or community when an owner sells. These charges fund common-area maintenance or provide a boost to reserve funds, which benefits the association's homeowners.
But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets.
That has the real estate industry and consumer protection groups up in arms.
"It's of no benefit to consumers," said Kathleen Day, of the Center for Responsible Lending. "It's another innovative way to price gouge. Every extra dollar they suck out of people's wallets takes away from other spending. It's not good for the economy."
The issue has attracted the attention of Washington, where Rep. Brad Sherman, D-Calif., is leading a charge against the fees. "Consumers are not in a position to deal with another level of complexity, one that pits plain vanilla homes against ones that come with fees," he said.
Freehold Capital Partners, the New York-based financial company that is developing the program, claims it has already signed up thousands of developers nationwide, representing hundreds of billions of dollars of development.
The company's plan is to monetize that future income -- essentially allowing developers to get paid now rather than later. To do that, Freehold would bundle together the estimated income from the future fees and sell that package to investors. It claims this new "asset" would be worth about 5% of the original home prices.
One company that is working with Freehold is Thieman Enterprises, a developer based in Ohio. "I think it's a fantastic program," said owner Ted Thieman. "I can get my development going again."
He said he needs the upfront cash to fund the building of infrastructure -- roads, sewers and other essentials. Working with Freehold to sell the fee package on to investors would potentially give him enough cash to get projects going and land construction loans more easily.
Ohio, though, has banned the practice. Thieman thinks that removing this potential funding source will discourage development. He said he will relocate one of his development plans to West Virginia, where he has acquired land. He's disappointed for his home state.
"We can bring billions into Ohio and jump-start the economy," he said.
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A Utah builder, Development Associates, initiated a similar program several years ago in order to recover some of the up-front costs of its developments. But after complaints from homebuyers, who said they were unaware of the fees, the company withdrew them.
Some developers regularly include "transfer fees" in their sales contracts, including Lennar, one of the nation's largest builders. But the fees Lennar collects go to local housing-assistance organizations and charities, not back into its own pocket. That has helped keep the practice off lawmakers' radar.
Still, most real estate experts are against these fees. A coalition of real estate industry organizations and community groups recently sent a letter to Treasury Secretary Tim Geithner recommending that he not allow Freehold's securitization plan to go forward.
In the letter, the coalition quoted Rep. Sherman, who called the fees "a new predatory scheme."
In the past month, the Federal Housing Finance Agency proposed restricting Fannie Mae and Freddie Mac from buying or backing any mortgages that include home resale fees.
Freehold, of course, defends the program. Chief Operating Officer William White argues that the 1% resale fee will actually benefit consumers by lowering home prices: "No one will pay the same for a home with a [resale fee] as they would for the same home without the fee," he said.
That would make buying a home easier -- but reselling one at a profit harder. Meanwhile, builders could offset their lower initial selling prices by either collecting on the back-end income stream from future sales, or selling those future earnings off to investors.
No securitization package has yet been created, according to White. But he's optimistic: "We have been pleased with Wall Street's response to date."
Whether the program will ever get off the ground is an open question: 18 states have already banned or restricted the practice, and if the FHFA proposal goes through, it could derail it entirely.
Sherman does not think the idea is dead. Not yet.
"We've wounded the beast, but we haven't put a stake through its heart," he said.
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Just Rented!
1841 S Calumet Ave #1106 $2,190/month
View the Virtual Tour at
www.tourfactory.com/646171
Furnished, Spacious 1260sqft Split Floorplan City Home in the Historic Prairie District!
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1823 S Prairie Pkwy
View the Virtual Tour and Interactive Floorplan at
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Offered at $599,000 - Extra-wide 4 level townhome on a tree-lined private parkway in the historic Prairie District! Also available for rent at $3,250 per month - Rent to Own! This spacious 2400sqft city home features 2 bedrooms, a 23X12 family room (or 3rd bedroom), 2.5 baths has been professionally decorated and boasts over $150K in upgrades! This fabulous home is nestled between multi-million dollar mansions offers fantastic views of Prairie Ave Park. This property has a Walkscore rating of 80%, Very Walkable! See what this neighborhood has to offer at www.Walkscore.com. This home will not disappoint - Make your appointment today! Rent to own, annual, month-to-month and short-term lease options are available. MLS#07596520 | 2008 Taxes $6,933 | ASM $225.
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1320 S Federal St Unit E Motivated Seller!
View the Virtual Tour at www.1320sFederalUnitE.com
Offered at $374,000 - Serene Dearborn Park II freshly painted 1600sqft, 2-bedroom, 1.5 bath townhome with an attached 2-car garage and extra storage! $15K in upgrades in this fabulous 3-level city home- Great location just steps to the Loop, business district, lake, CTA, park, shopping and entertainment. 91% Walkscore. MLS #07605408 | 2008 Taxes $5,187.15 | ASM $250. FHA and VA approved.
600 S Dearborn St Unit 310
View the Virtual Tour at www.tourfactory.com/650272
Available September 1st, 2010 at $1,350 per month
Jumbo 900sqft freshly painted 1BR/1BA soft loft. Features include soaring 11 ceilings and brand new carpet. A huge east-facing window offers beautiful tree top views of Historic Printers Row and flood the unit with plenty of natural light. MLS #07607153 | Security Deposit 1 Month | Minimum 1 Year Lease | Cats/Dogs OK, Pet Count and Weight Limitations, Neutered and Declawed Only, Pet Deposit/Pet Rent Required.
600 S Dearborn St Unit 702
View the Virtual Tour at www.tourfactory.com/650259
Offered at $1,995 per month - Huge 1,400sqft, 2BR, 1BA condo for rent. This bright northeast corner unit features a rehabbed kitchen with Maple cabinets and Absolute Black granite counters, gleaming hardwood floors throughout, in-unit laundry, extra storage, and large master suite with a spacious walk-in closet. This unit will be freshly painted and all hardwood floors will be refinished. MLS #07606333 | Deposit 1 month | Cats/Dogs OK w/ Pet Deposit.
600 S Dearborn St Units 808-810
View the Virtual Tour at www.600sDearbornStUnits808-810.com
Offered at $415,000 - This massive 1800sqft home combines two-1 bedroom units with 2 full baths and features tons of open space. Also offered for rent at $2,499 per month. This property has a Walkscore.com rating of 98%, a Walkers' Paradise! Off-site garage parking for $45K at 801 S. Plymouth Ct. P-268. MLS #07592082 | 2008 Taxes $4,501 | ASM $600.
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600 S Dearborn St Unit 1703
View the Virtual Tour at www.600sDearbornStUnit1703.com
Offered at $209,000 - Motivated Seller! Over 900sqft of living space, 1BR, 1BA rehabbed condo. MLS #07622976 | 2008 Taxes $2,417 | ASM $308.
600 S Dearborn St Unit 901
View the Virtual Tour at www.600sDearbornStUnit901.com
Offered at $334,900 - Professionally designed must see city home! Off-site garage parking for $45K. 1,200sqft, 2BR, 1BA beautiful unit. MLS #07599051 | 2008 Taxes $2,500 | ASM $403.
720 S Dearborn St Unit 1006
View the Virtual Tour at www.720sDearbornStUnit1006.com
Offered at $429,900 - Unique 1700sqft, 2BR, 1.5BA duplex loft. Garage parking available at 801 S Plymouth Ct $35-$45K. MLS #07551172 | 2008 Taxes $4,474 | ASM $923.
633 S Plymouth Ct Unit 1205
View the Virtual Tour at www.633sPlymouthCtUnit1205.com
Offered at $399,000 - 2BR/2BA dramatic combo concrete loft offering 1700sqft of living space. Rental Parking is available next door, or for sale nearby. MLS #07561198 | 2008 Taxes $5,895 | ASM $487.
801 S Plymouth Ct Unit 503
View the Virtual Tour at www.801sPlymouthCtUnit503.com
Offered at $239,900 - 1000sqft, 2BR, 1BA rehabbed condo. Indoor parking is available in the building for sale at $40K or rent at $200 per month. MLS #07549577 | 2008 Taxes $2,275 | ASM $381.
801 S Plymouth Ct P-268
Offered at $45,000 - Extra-large parking space located on the 1st floor at The Terraces. One of the few buildings in the neighborhood that will sell to non-condo owners. MLS #07561825 | 2008 Taxes $217 | ASM $36.
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1020 S Wabash Ave Unit 8A - Bank Approved Short Sale ~ Priced to Move!
View the Virtual Tour at www.tourfactory.com/507261
Offered at $435,000 - Unique 2-level, 2BR, 2BA city home featuring an extra-large private roof top deck! 1 x-large parking space included. MLS #07589345 | 2008 Taxes $6,700 | ASM $662.
1516 S Wabash Ave Unit 1102
View the Virtual Tour at www.1516sWabashAveUnitPH02.com
Offered at $375,000 - 1400+sqft 2BR, 2BA corner penthouse. Extra-large heated parking an additional $35K. MLS #07479021 | 2008 Taxes $4,591 | ASM $406.
611 S Wells St. Unit 2007
View the Virtual Tour at www.tourfactory.com/554029
For RENT at $2,350/month - Available September 1st 2010. 2BR, 2.5BA + Den, also available furnished! Indoor, heated parking in an additional $200 per month. MLS #07591899 | Deposit 1 month | Cats/Dogs OK w/Pet Deposit.
732 S Financial Place Unit 204
View the Virtual Tour at www.732sFinancialPLUnit204.com
Offered at $245,000 - Bright and spacious 1BR/1BA southeast corner heavy timber true loft at Polk Street Station, a landmark former printing factory. MLS #07614225 | 2008 Taxes $2,281 | ASM $250. FHA and VA Approved.
732 S Financial Pl Unit 613
View the Virtual Tour at www.tourfactory.com/650362
For RENT at $1,300/month - Available Immediately! This spacious 821sqft NYC Style Loft. Great unit just steps to the new mall/theater, CTA trains, shopping, dining and entertainment. Rental/permit parking options are available. 95% Walkscore. MLS #07607466 | Deposit 1 month | Minimum 1 Year Lease | Cats OK with Pet Deposit, Neutered and/or Declawed Only, Pet Count/Weight Limitations.
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The information in this flyer is believed reliable, but is not warranted or guaranteed, and before any reliance or use should be independently verified. Suggestions, advice, strategies and all other like information are general in nature, are not based on knowledge of your specific circumstances, and should be used only after your own independent verification of reliability, application of independent business judgment and due consultation with your tax, technical, legal, real estate, investment, accounting and/or other professional advisors.
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Tom Feddor
tomfeddor+associates/REALTORS
Castle Keepers Realty 729 S. Dearborn St Chicago, IL 60605
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