How about this for a new and ingenious real estate money machine? Every
time a house sells during the next 99 years, 1 percent of the price goes
back to the original developer or is shared among investor partners.
Ka-ching!

The levy won't be subject to haggling between future buyers and sellers,
either. That's because it's a covenanted mandate -- a novel type of
lien on the underlying real estate -- called a private transfer fee.
It's not a government transfer tax. Nor is it a homeowner association or
environmental protection covenant. It's purely a private requirement
that runs with the land. If a seller refuses to pay it to a third-party
trustee at closing, the sale won't proceed.

Sounds like a great deal -- provided that you're on the collecting end
of a near-perpetual revenue stream. Apparently, the idea has been
attractive enough that substantial numbers of developers and builders
are signing up with a New York-based company that has devised what it
calls a "patent pending" system to tap into real estate transactions
into the next century.

Manhattan-based Freehold Capital Partners declines to identify any
clients or participants in its private-transfer-fee program, but it
claims on its Web site that as of late 2009, "the owners of an estimated
$488 billion in real estate projects nationwide, including some of the
country's largest, most well-respected companies, have partnered with
Freehold."

The company says it is negotiating with institutional investors to
"securitize" pools of transfer fees -- essentially creating bonds based
on future cash flows that can be sold to deep-pocket money managers.

Freehold's activities have stoked legislative controversies in several
states, and real estate trade groups that oppose the private-fee concept
plan to fight it across the country in the coming months.

The National Association of Realtors and the American Land Title
Association, for example, are asking their members to persuade
legislators to prohibit or limit the use of investor-oriented
private-transfer-fee programs. Even the National Association of Home
Builders, some of whose members reportedly have signed up to participate
in the transfer fee program, isn't convinced that the idea is sound.

"It's a very creative concept," said David Ledford, the builder
association's senior vice president for housing finance, "but it's
largely untested and controversial politically."

For its part, Freehold maintains that its transfer-fee covenants are
good for consumers and good for cash-strapped builders. Curtis Campbell,
a spokesman for the firm, said in an e-mail that "private transfer fees
represent an adaptation in how to pay for development costs" incurred
by builders "at a time when funding is not available" to them on
"reasonable terms."

Freehold's system allows developers and builders to recoup some of their
infrastructure costs -- project amenities, environmental protection and
land-use requirements imposed by local governments -- without lumping
them onto the price paid by the first buyer of a house.

By creating future revenue streams -- which builders can monetize
upfront by selling to investors -- the plan allows developers to sell
houses for lower prices than they otherwise could, Campbell said.

Critics charge that the program will taint houses encumbered with
transfer fees for decades, lowering their values and making them harder
to sell. Real estate attorney Robert A. Franco, of Mansfield, Ohio, said
the concept is also "certain to lead to litigation" years from now,
"since many buyers may not be aware" of the fees. Future buyers may also
challenge their legal validity in court, balk at settlements and
jeopardize property sales, Franco said.

According to a white paper prepared by the American Land Title
Association, six states have limited or restricted private transfer
fees: California, which requires upfront disclosures; Texas, which
prohibits the fees in certain circumstances; and Kansas, Oregon, Florida
and Missouri, which ban them.

A Utah developer who signed up with the program but has since withdrawn
said the underlying purpose is worthwhile. Nate Shipp, managing partner
of Development Associates Inc., said in an interview that many builders
and developers would like to be able to receive compensation for some of
the heavy upfront costs they bear in creating a new community.

But DAI "pulled off" the covenants attached to recent home sales, he
said, in part because they bothered some purchasers and because DAI
"never received anything" in exchange. One of DAI's home buyers, Camber
Keiser of Eagle Mountain, Utah, said the fee "was not disclosed" at the
time of purchase, "so yes, we were surprised to learn of it" and pleased
that DAI removed it.

Most states still have no restrictions on the fees, and most home buyers
are likely to be unaware of them. So look for them before signing any
contract.