[Phil]

Quote

We file and securitize 1% Transfer Fee Rights (TFR’s) against real property in the form of a 99 year covenant.


The fees would be paid beginning with a second generation sale meaning, after the declarant sells the property.



The income from those fees can go directly to the declarant or they may participate in our securitization program and receive a net check for 5% of the “up market, estimated final improved value (EFIV)” of the asset in exchange for the assignment of the declarant’s TFR’s to “the pool” or portfolio.



Our current securitization pool has surpassed $350 billion and is currently being acquired by the federal government.  We have 4 weeks before the 1st tranche securitization is close.



The next portfolio securitization will be approximately Summer of 2010.

I was e-mailed this.

Seems the Wall Street genii that developed credit swaps have too much time on their hands. Notwithstanding the legality of such a transaction, I can't believe someone would be able to record a covenant on real property that binds future owners to a transaction fee.

[hrothgar]

From the looks of things, quite a few folks agree with you

http://www.abanet.org/rppt/publications/ma...ll-Durham.shtml
http://www.usfn.org/AM/Template.cfm?Sectio...Article_Library

[barmar]

Wow, what a scam! Normally, when you flip a property, you have to weigh the immediate profit you're making against potential future profits by holding onto it and selling after it appreciates further. But no more, now you can get a capital gain at sale time, and get a piece of future sales as well (and so does the broker).

Imagine if this worked in other industries. A rancher sells a herd of cows, and gets royalties from McDonalds for all the burgers made from his beef.

[hrothgar]

barmar, on Sep 19 2009, 01:39 AM, said:

Wow, what a scam!  Normally, when you flip a property, you have to weigh the immediate profit you're making against potential future profits by holding onto it and selling after it appreciates further.  But no more, now you can get a capital gain at sale time, and get a piece of future sales as well (and so does the broker).

Imagine if this worked in other industries.  A rancher sells a herd of cows, and gets royalties from McDonalds for all the burgers made from his beef.

I don't consider this a scam and I don't see anything wrong with your hamburger example. There are all sorts of options that work in exactly this same manner.

(For the record, I don't have any issue with Credit Default Swaps or other exotic securities. I wouldn't invest in one myself. I think that its insane to allow insurance companies to over leverage themselves with these types of securities and even more insane to let companies get as large as AIG. However, I don't think that the existence of the securities is the problem.)

In this case, however, there appears to be some question whether the its legal to agree to this type of covenant.

[mike777]

This has been discussed in the Art world for a long time. The artist/estate gets a royalty every time her work is sold or resold.

http://www.time.com/time/magazine/article/...43572-4,00.html


http://www.artslaw.com.au/ArtLaw/Archive/0...leRoyalties.asp

[barmar]

It makes a little more sense in art. Art presumably exists for enjoyment sake, so it's reasonable that the artist's return should reflect the number of people who have enjoyed it. This is obviously considered acceptable for performed and broadcast art (musicians and composers get royalties when their work is played on the radio or TV).

Real estate, on the other hand, exists to be lived in. You buy a house when you want to live in it, you sell it when you're done using it. It's like any other object of utility.

[Phil]

When I first read about this I thought, hey if they'll pay me a 5% royalty for a 1% transfer fee, maybe they'll pay me a 40% royalty for an 8% transfer fee.

Ludicrous.

[kenberg]

To me, the most remarkable part is that some of you are able to understand the content of Phil's email. I haven't a clue. I usually take a simple view: If they are truly offering to give back $5 for every $1 I give them, they probably wouldn't have to be soliciting strangers to raise capital. This unimaginative approach explains why I am not rich. It also explains why I didn't invest with Bernie Madoff.

Dear trusted friend, I am writing to request your assistance in getting five billion dollars out of Nigeria...

[helene_t]

I think it is a scam. By Ken's argument, it must somehow be a scam, even if it sounds appealing.

A possible clue: their expected turnovers may have been based on the silly assumption that the covenant won't affect the frequency of future resales.

[Phil]

kenberg, on Sep 19 2009, 06:53 AM, said:

To me, the most remarkable part is that some of you are able to understand the content of Phil's email. I haven't a clue. I usually take a simple view: If they are truly offering to give back $5 for every $1 I give them, they probably wouldn't have to be soliciting strangers to raise capital. This unimaginative approach explains why I am not rich. It also explains why I didn't invest with Bernie Madoff.

Dear trusted friend, I am writing to request your assistance in getting five billion dollars out of Nigeria...

Real property covenants are a funny animal. Just because you own something now, doesn't mean that you can bind future owners to your wishes.

A sad tale of the USA was when race-related property covenants were recorded so that certain races could not live on the property. These were obviously struck down.

From about the same era, I have seen recorded covenants relating to alcohol related activities on property. Several churches that had made loans would record covenants alongside their deeds of trust.

Covenants contained in C, C and R's for a condominium complex or HOA generally have an expiration date, and there are mechanisms for amending and abolishing them.

More recently, environmental covenants are being recorded. Sometimes a property will be deeded to a non-profit as mitigation land (offsite mitigation for impacting wetlands for instance). A covenant will be recorded that will set aside the property for open space or habitat land in perpetuity.