[Joshua Berg]

Anyone heard of this and is it a scam? Sounds like a bit of an odd idea this company is offering, so I'm wondering if anyone else has heard of it.

Freeholdlicensing.com

Freehold licenses a unique business system that earns you money every time a property you own is re-sold, for the next 99 years.

The Freehold System does this through the creation of a unique asset class within the land (just like mineral rights and oil rights). It requires no collection effort (the title company must collect and remit the fee to you in order to convey good title at each sale), and you need do nothing other than file a legal document that entitles you to receipt of the income.

[ChuckBBB]

Joshua,
I really do not like this. If this is not illegal, it should be made illegal.
Real estate investing has enough problems without stuff like this.
If the fee were 2% and it was not discovered soon enought you might pay an extra 2% for the property. And if you properly disclose it, you will sell (net) for 2% less.
In the case of a "table closing" you might be liable for these fee(s), or be open to a law suite for non-payment for years into the future.
Chuck

[Stan Wolenski]

Sounds like a scam to me. How many times would a house be sold during your life time?

[ChuckBBB]

Joe,
There is no value to the buyer. Thus it is so one sided that I wonder if it is a binding contract.
Also the fee is not disclosed until well after the decision to buy has been made. After money for an inspection and Title Insurance has been spent.
ChuckBBB

[quote name='Joe with Freehold Licensing' date='Jul 7 2006, 01:04 PM' post='10758']
I am with Freehold and welcome the opportunity to respond to the questions raised.

Disclosure of the fee is made by the title company when a commitment is issued (just as HOA dues, MUD taxes, etc., are disclosed). Freehold has had thousands of properties sold with the transfer fee in place. The fee is generally considered as one small part of the entire purchase decision.
***SNIP***

[Choice Realtor]

Yeah...I would absolutely LOVE explaining that additional "hidden" fee after my client had spent time & money on inspections, appraisal, survey, etc...only to find out after their option expires that they'll be spending a few GRAND more than they expected for the property...or back out & lose everything they have in the deal! These are the kinds of things that help people mold less than generous opinions of Realtors (I know, I know...one of many things!!).

I think a key point in Freehold's explanation was "lasting value." Musicians create music that is timeless...we still enjoy the Beatles, Marvin Gaye, Louis Armstrong, etc...so yeah, they should still receive royalties. Remodel a home, sell it & check back on it in 15 years (or 99 years, when royalties are still payable)...it probably needs to be remodeled again (how long does a roof last? a/c, carpet, paint, appliances, etc, etc, etc?)! Should the original remodeler still get paid when a new investor goes in and has to do the same work all over again?? Worse yet...should the new investor be obligated to pay the original investor for the work he did years & years ago...work that's no longer holding up?

I have a hard time accepting this as it's been explained (no research done beyond this post!). If it were strictly open to the original builder of the home, for a shorter period of time (25 years??) and disclosed as part of the sale...UP FRONT...I can see some value in it & it would be easier for a buyer to swallow. But 99 years & anyone's eligible???

The additional income stream for Realtors doesn't make sense to me either. As a Realtor, my #1 priority is my clients best interests...PERIOD!! I don't believe I would be doing my job if I led clients into a deal like this just so I could make some additional money down the road.

If the owner wants long-term income, they should rent it out until they're ready to sell (may be more lucrative in the long run anyway).

I'll get down now!

This post has been edited by Choice Realtor: 01 August 2006 - 03:59 PM

[Windward242]

I'm have been a realtor since 1984. I have sold million of dollars of property, and this just sounds like free enterprise to me. If someone doesn't want to buy property with the small fee, then they don't have to. If 1% is a deal breaker maybe they shouldn't be buying anyway, because if 1% makes you walk away you were not very committed in the first place. We get 6% (occassionally), a title company gets two or three percent, taxing districts get theirs, banks get 1-2%, so 1% is no big deal. As for buyers being tricked into it, practically every contract has a title review clause in it, so if they object they can back out with no cost anyway (title companies dont charge for the original commitment if it doesn't close). Plus, if you are selling the home, or brokering the deal, just disclose it upfront, just like you disclose everything else (taxes, power bills, dues, pool fees, etc.). I will put it on my personal home because I think its a great idea. If I am ever representing a buyer for a property that has the fee I will just say, "is 1% a deal killer? If it is, this ain't the right house for you." I don't treat my clients like they are idiots - I give them the facts and let them decide. If its a "hidden fee" that isn't discovered until a lot of money has been spent, the realtor didn't do his job.

[Achieve]

Obviously, it isn't Windwards money that he is so freely spending. Your post comes across as a total lack of concern towards your fiduciary. BTW, is it coincedence that you joined yesterday AND this is your first post? Also, please explain how a Realtor didn't "do his job" if this a fee that is found thru title search. You suggesting that title should be opened/ searched on every property a buyer considers for purchase?

This SCAM is indeed free enterprise, but it is also grouped in with the pyramid scheme, MLMs and the other "Do nothing but get paid" ideas.

Call it as it is, a man made tax. Nothing more. And on a 4MM commercial project, this tax is 40K. Not small change as it has eluded to be and enough to move a buyer to another project.

While we are adding fees to a transaction, lets have fun with this. The property changes hands 5 times. The fee is added to each subsequent owner. Your price is now +5%. Good luck explaining this one away.

This post has been edited by Achieve: 18 August 2006 - 06:51 AM

[Choice Realtor]

Blame it on the Realtors...that's what we're here for, right?

Ridiculous! I was going to post a long response but Achieve, I think you covered it!

[Sean_L]

This type of scame is aimed towards the ignorant beginner in real estate. I also was a realtor at one time and I will tell you it is not the realtors job to even look at the title report let alone examine it for any deficiencies that would fall on the title companies and the mortgage lender. Secondly, 1% can be a deal breaker for a lot of buyers that are strapped for cash. I am from NY where unfortunatly lawyers have their hands in everything and that scam will never work there. Thirdly, I have never seen a title company that gets 2-3% for their roll in the deal. However, I have not bought property in Texas either. I have bought and sold plenty of property in NY and the title company is lucky to break $500 for the title work and all the searches. Even with title insurance too it still does not come close to 2-3% of the cost of the home. If you are a realtor you know that you are limited to 5% closing costs or the borrower has to sign a high cost loan document which most lenders won't even doo theses days, not to mention this fee has to be listed on the GFE and that fee eats into the mortgage brokers money and I don't see that happening...

This post has been edited by Sean_L: 18 August 2006 - 08:40 AM

[Joshua Berg]

Achieve, on Aug 18 2006, 07:48 AM, said:

Obviously, it isn't Windwards money that he is so freely spending. Your post comes across as a total lack of concern towards your fiduciary. BTW, is it coincedence that you joined yesterday AND this is your first post?

No, Walter it's not a coincidence, since you pointed that out, I checked the IP addresses. The FreeHoldLicensing post above and the nice guy sticking up for him post are from the one and the same IP. In other words, they were written from the same Internet connection. We don't encouarge that sort of promote yourself as someone else type of posts and they're not to difficult to spot.


Someone else here put up a thread the other day where they promoted their deal as someone else and hopefully they'll take care of that. It can be a temptation yes, but it's not very good business etiquette and is somewhat of a taboo in forums.

[jameseoff]

James Eoff is a great guy, he has never done anything wrong (on purpose or accidentally)
and he should be considered for sainthood (eventhough he isn't catholic)

WHAT !?!

Windward242 / Joe with Freehold did it so I though I would 2 !

[Choice Realtor]

At least you aren't hiding behind some fake ID James!

What a weasel!

[RobinFloyd]

I don't see anything illegal in what Freehold is doing. But it doesn't seem to me to be anything that "adds or creates value" which would make it attractive to any buyer. Without knowing more about it, I would guess that this would be an encumbrance on title, which might cause problems at closing. I would not recommend it.

What I really don't agree with is Freehold's explanation/rationalization of its program. I think it is misleading to equate Freehold's program with mineral rights. Mineral rights are specifically provided for by law. Nor is a comparison to author/entertainer royalties accurate. Royalties for authors, composers, entertainers, etc. are governed by Intellectual Property Law, and have nothing to do with real estate (real property). This makes me think Freehold;s promoter is full of hot air.

[Achieve]

Joshua-

As a veteran of 12 boards like this that I frequent, rooting out the trolls is almost a hobby. Lord knows that a open forum mixed with anonymity brings out some less than credible characters. The lifeblood of a forum as this one is credibility of its members/posters and information. An opinion or information given in earnest that proves incorrect is a forgiveable offence. But to blatently come on and spout opinion as fact, or post self-servingly with made up facts should be a called out to what it is. Then tar and feathered...

[Freehold Licensing]

Robin. “Mineral rights” was an example of one of the many bundle of
rights that arise from land (surface subsurface mineral, oil, leasehold,
air, etc.). The analogy is made in an effort to simplify what can be a
complex issue (servitudes). However, I think the comparison is accurate.
Mineral rights exist because minerals exist, and because minerals have value
- they were not created by statute. You can point to statutes and common
law that deal with mineral rights, but no statute that created mineral rights.
There are hundreds (if not thousands) of statutes and cases that deal with
each and every one of the essential elements of Freehold's business system,
including affirmative covenants, negative covenants, and burdens and benefits
running with the land. As to “Intellectual Property”, it is now well
settled that a Business Method is Intellectual Property.

Regarding the analogy of musicians and artists, it is, first and foremost,
an analogy, but one that is on point. In our opinion it is self-evident that
when a developer takes raw land and a vision, and turns it into a
subdivision, it is a creative work. You can be approached from the other direction too.

Intellectual Property Rights were developed in order to create a legal structure that
inspires and motivates innovation, invention, and the creation of value.
From that perspective, a transfer fee rights can encourage property owners to
improve the utility of their property, because they can create a long-term
income stream from the improvements. In fact, while property improvements
have obviously been going on for a long time without a transfer fee right
(meaning that there are certainly other motivating factors) we know of
numerous improvements that were made solely for the purpose of implementing
the fee.

As to the legitimacy of the system: our outside legal counsel (which is in
addition to our two in-house J.D.s) specializes in this area of law and
wrote the CLE course on Covenants for the Texas State Bar (in essence,
teaching other lawyers about the subject). He is an expert on the subject,
and he wrote our legal documents.

The system may not be for everyone, but tens of thousands of properties have
been licensed through us (by owners with access to very sophisticated legal
counsel), and thousands of properties have sold with the transfer fee
provision in place, and the system works as represented.

Mike Gagne, J.D.
(with Freehold)

[Sean_L]

I wonder how long it took you to write that mumbo jumbo. Intellectual property has to do with patents, copywrites...etc. If you can give me a good example of how that applies to real property I'm all ears.
I don't think you really know what a covenant really is. With a warrenty deed there are five covenants that come along with that warrenty; Covenant against encumberances, covenant of quiet enjoyment, covenant of right to convey, covenant of seisin. As you drop down from a warrenty deed some or all of the covenants drop off. There are also restrictive covenants...ie. creation of homeowners association and what their rights and responsibilities. These other covenants you speak of I have never heard of any of them (negative, affirmative) that pertain to real estate. There are tangible and intangible benefits to owning real estate. Intellectual rights are not one of them that I have ever read or heard about. Tangible rights are; land, improvements, fixtures, and fruit of soil. Intangible rights are; air, water, mineral, easements, licenses, mortgages, leases, profits.

I would be glad to read any source where you can show that intellectual rights apply to real estate...

[Joshua Berg]

I drew attention to this kind of odd transaction by FreeholdLicensing back in July and now the Texas Association of Realtors is doing the same, because it could pose legal problems for Realtors who are negotiating one of these transactions.



Following is from the Texas Association of Realtors, to it's members:



TAR cautions members about new type of transaction.


An unusual type of transaction has caught the eyes of a few title insurers and real estate attorneys. Specifically, a company known as Freehold Development has attempted to persuade a few real estate brokers to convince property owners to enter into a transaction under which the owner files a covenant or restriction against his property that requires a transfer fee to be paid every time the property sells for the next 99 years. The covenant attempts to require every subsequent purchaser of the property to pay 1% of the sales price of which 30% is paid to the company, 10% to the broker, and 60% to the original owner who created the restriction. The covenant purportedly creates a lien against the property if the transfer fee is not paid. The company claims to have patent application with respect to this system (although TAR has not seen the application or any review of the application).



At least one title insurer has expressed concern about the negative aspects such a covenant might have on closings both now and in the future. For example, it might be difficult to locate those who are entitled to the transfer fee (or their heirs) 20 or 30 years after the date such a covenant is recorded. Additionally, a property might be burdened with more than one of these covenants, which would significantly influence the value and marketability of the property (not only in the market of buyers and sellers but also in the secondary market among lenders).



Your real estate broker's or salesperson's license does not authorize you to negotiate the sale of an interest that is given as security for the performance of an obligation (§1101.002(5) of the Real Estate License Act). It is likely that this type of covenant would be considered as security for the payment of future transfer fees; therefore, negotiating or creating such a covenant or restriction might require a license to practice law or some other type of appropriate license.

If you encounter such a transaction, it is critical that you seek the assistance of legal counsel before acting. Additionally, advise any property owner to seek the assistance of counsel before agreeing to record such a covenant or restriction against his property.

[Freehold Licensing]

Josh,

When read carefully, TAR simply advises that legal counsel should be sought when engaging in an unfamiliar transaction. We couldn’t agree more, and we prominently urge the same thing on our offer because it makes for a better relationship.

A recent transaction a realtor related to us is a good example. The realtor received our offer and forwarded it to her Broker. The Broker sent it to his legal counsel and received approval. The Broker then sent the offer to the client, who consulted legal counsel and received approval. The Broker also sent it to the legal department of one of the largest title companies in Texas, and was told that the transaction was legitimate. The title company actually sent out notices to all of its offices alerting them not to miss the transfer fee provision. In yet another example, on September 15, 2006 the Broker who posted here as Windward242 (a 25 year veteran licensed Texas real estate agent), successfully brokered a 673 lot transaction with our system in place. The transaction closed through a local title company with no problems. Simply put, the transfer fee posed no barrier to re-sale of the property, the Buyer had no issue with the transfer fee, and the original developer realized a substantial asset from the sale. (The Broker walked away with $196,670.00 in commission - GF File #06039192). Obviously a transaction of that size was thoroughly vetted by experienced legal counsel. If you would like to verify this transaction, you can contact me and I will provide you with the Broker’s information.

The attorneys with whom we have spoken all state that the provision cited by TAR is directed at brokering mortgages and other financial instruments, and does not appear to prohibit our transaction from being brokered by a realtor. Of course, each agent should check with counsel of their choosing.

I would also point out that the issue raised by TAR is whether or realtors can offer the system. It does not question the legitimacy of the system itself. On a related note, an attorney recently acquired the sublicensing rights to our system for marketing in five of the largest counties in the state. This attorney was formerly employed by the State Bar.

Ultimately, TAR’s recommendation is that Brokers and agents seek legal counsel in order to familiarize themselves with the system. We encourage the same! In fact, any Realtor interested in receiving an offer on a property, which they can then have reviewed by their own legal counsel, should contact me.


-Mike Gagne
Freehold Licensing
512-795-8774