Posted on 04/14/2005 9:10:00 PM PDT by NormsRevenge
There's a new cost to buying a house at some developments in San Diego County – a mandatory contribution by the buyer to charity.
One of the nation's largest builders has adopted a program requiring homebuyers here to make a payment that will be given to local housing-assistance organizations chosen by a foundation set up by the builder.
Lennar Corp. has been requiring the fee, amounting to 1/20th of 1 percent of the sales price of its new houses, under a program rolled out three years ago in Orange County. The company brought the program to San Diego County in a limited way two years ago, and is now making it a requirement.
For a $500,000 house, the amount collected from a buyer would be $250, which is added to the purchase price.
Making the required contribution even more unusual is that legal documents recorded with the county require future buyers to fund the trust over the lifetime of the Lennar homes. This results in a what the company calls "a perpetual source of revenue" for the Lennar Charitable Housing Foundation.
"I'm unaware of any other builder doing this," said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University.
Jeffrey Roos, Lennar's regional president, said the program "has a potential to help a lot of people. We look upon it that if you're fortunate enough to buy a home, it's an opportunity to help someone less fortunate."
Roos said the foundation's primary focus is on the "transitional homeless," such as workers who have lost their jobs or battered women living in shelters.
However, some executives in the building industry, who were unaware when told of the program, are cautious about embracing a mandatory plan that tacks another cost onto housing that is already among the highest priced in the nation.
"What strikes me as odd about it is that with housing as expensive as it is, to require homebuyers to make an additional payment continues to make housing affordability more of a challenge," said Stephen P. Doyle, president of builder Brookfield Homes' San Diego/Riverside division. Doyle is also president of the California Building Industry Association.
James Z. Pugash, chief executive of Hearthstone, the nation's largest institutional investor in residential projects, said he was concerned about how Lennar would ensure that the money will continue to flow into the foundation.
"After the first sales round, they'd be relying more on trust than anything else for it to be implemented. There's no one around who is 'the donation police' to make sure that when John Doe sells to George Doe, they'll get paid."
Roos said the foundation, whose administrative costs are absorbed by Lennar, will track future sales through a title company. Lennar also makes contributions to its charitable housing foundation.
As the Miami-based builder expands its presence in California, the mandatory contribution program has grown rapidly. Lennar is slated to build 858 houses in San Diego County this year and plans to increase that amount next year by 15 percent. Exempted from the program are Lennar houses designed to meet lower-income housing requirements.
Roos said the program is under way at about 120 Lennar developments in Southern California, including the Bressi Ranch project in Carlsbad, where more than 600 houses are being built. Lennar also markets homes in San Diego County under the Greystone name, which will be phased out next year.
This year, Roos said the foundation should collect $1.5 million, up from $700,000 last year. The company does not advise buyers on whether they can deduct the money given to the tax-exempt foundation on their income tax returns, instead asking them to seek an opinion from tax advisers.
In San Diego County, Lennar division president Mike Levesque said the first local organizations to receive money from the foundation will be announced this summer. He expects the company to award more than $200,000.
"It all stays local," said Levesque, a former president of the Building Industry Association of San Diego. The foundation has supported Habitat for Humanity and HomeAid America, which funds transitional housing.
Roos said Lennar executives are trying to get other builders involved in the program. So far, according to Lennar, William Lyon Homes will participate in one project in San Diego County.
Even though the program has been under way for three years, few in the housing industry and with organizations serving the homeless, to which much of the funds will be directed, know it exists.
"That's a different one," said Jeff Bernatz, vice president of LandAmerica Title in San Diego. "I don't know of anybody else who is using this, and I've been in the building industry a long time."
John Thelen, executive director of the Regional Task Force on the Homeless, also was not aware of what could be a major boost.
"Any program able to help other homeless programs is a good idea," Thelen said. "I can't see that 1/20th of 1 percent will turn too many buyers away from this builder."
One person who has heard about the mandatory contributions is Father Joe Carroll, who runs St. Vincent de Paul Village in downtown San Diego, which helps about 1,000 homeless people.
"They called us out of the blue," Carroll said, recalling that representatives from Lennar had contacted his organization two to three months ago and asked for information about St. Vincent de Paul.
"We're excited," Carroll said. "They sell a lot of houses."
Lennar executives say homebuyers are made aware of the contribution in brochures and on fact sheets in model homes at its new-home developments.
Still, one builder, who also said he was unaware of the Lennar program, questioned its need.
"The building industry already is very generous. I don't think there's a need for any new thrust on charitable donations," said Michael D. Pattinson, president of Barratt American in Carlsbad.
"The building industry is not the cause of homelessness. The fact is, not enough houses are being built. They're too expensive due to government regulations.
"It's noble of Lennar to say this is a problem – obviously at homebuyer expense – but it's not tackling the root cause of the problem."
Lennar projects stretch from southern San Diego to Carlsbad and Escondido. The publicly held builder last year was ranked best in customer satisfaction among new home builders in the San Diego region by J.D. Power and Associates.
Beyond the contributions Lennar is asking homebuyers to make, it sets aside 1 percent of after-tax net profits for a foundation that supports community-based programs. The company last month reported record net earnings for the first quarter.
"They're setting an example out there," said builder Doyle. "We'll follow it and see how it is received and what good they can do with the money they collect."
I guess home buyers have to be made to feel guilty for having worked their butts off to buy their own home.
Isn't Lennar publicly traded?
I wonder if Lennar is giving themselves the contracts to "help the homeless".
Perhaps they should just invest in archetects in order to prevent their monotony developments.
This does not sound legal, to me.
Call the ACLU, maybe they'll take the case. ;-)
Why doesn't Lennar make the contribution out of their own after-tax profits?
Be my guest. I'd love he hear their response!
As a home inspector who's had opportunity to inspect dozens of Lennar's "McMansions", I can say with fair certainty that the "lifetime" of their product is substantially shorter than most. Basically pure crap, but job security for me!
I can see subsequent buyers walking on sales contracts when this is disclosed, as they'll walk when the dining room table is not included with the house.
It's probably about as legal as "a portion of each gumball sale will be donated to the local Kiwanis club." What may be technically legal but possibly not enforceable upon future sellers is the perpetual covenant to collect the "donation." Not sure who would have standing to enforce it.
I've sent my letter to Lennar in San Diego and included your recommendation that they pay the $250 per house themselves out of their profits, and that way it truly would be charity rather than another tax/fee on a home buyer. I probably won't get a reply, but if I do I will let you know!
The last time I was in San Diego (Feb 2003), I read that the cost for building permits alone to build a typical 3-bedroom home was $87,000. Rediculous!!!!
Great! I'd love to hear what they say - if they reply.
See? To the liberal mind, it's all sheer luck. ;)
This is just adding to the cost of the home.
Another tax camel's nose appears under the tent flap.
This is an added cost to THEIR homes. That is comming out of their pocket, because they could have just charged that much more for their homes.
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