A Helping Hand In Builder Disputes

[DallasLoanGuy]

A Helping Hand In Builder Disputes

 

By Kenneth R. Harney

Saturday, November 18, 2006; F01

 

When home builders behave badly, some of their customers may have an unexpected resource: The federal government's "RESPA police," who say they have become increasingly active in resolving consumer complaints through nonpublic interventions with builders.

 

RESPA stands for the Real Estate Settlement Procedures Act, a consumer protection law that targets kickbacks and other settlement-related abuses. The RESPA police are investigators at the Department of Housing and Urban Development. They are best known for their splashy public settlement agreements with real estate, title insurance and mortgage industry firms, sometimes involving hundreds of thousands of dollars.

 

But with no public fanfare, the RESPA police have begun intervening in complaints brought by individual consumers who say builders are unfairly forcing them to use their affiliated mortgage companies. The affiliates' loan deals, the complaints say, typically are more costly than those available from independent mortgage brokers and lenders.

 

In one case outlined by HUD officials in an interview, a builder canceled a sales contract and seized an $11,845 good-faith deposit when a buyer refused to use the builder's affiliated mortgage company. Under RESPA, builders and others generally are prohibited from requiring the use of a specific lender or title company as a condition of a sale.

 

HUD officials talked about enforcement operations on the condition that their names not be printed because agency policy requires that they remain anonymous when discussing nonpublic investigations.

 

According to the HUD officials, after RESPA investigators contacted the builder and gave the company 15 days to resolve the dispute, the builder -- which the officials also declined to identify because no public action was taken -- not only allowed the buyer to proceed with independent financing, but also paid the buyer's lender to lower the interest rate.

 

In another recent nonpublic intervention, a consumer complained that a builder seized her $10,000 deposit when she refused to accept the loan deal offered by the builder's mortgage affiliate. The affiliate's loan officer "fraudulently altered financial documents," according to HUD, "that would have placed the consumer in a home she could not afford."

 

In other words, the builder's loan officer allegedly was willing to approve the buyer for a mortgage amount and monthly payments that ultimately would cause her to lose the home to foreclosure. After investigators intervened on her behalf, HUD officials said, the buyer was refunded the $10,000 deposit.

 

In a case involving incentives dangled by many builders to attract buyers in soft markets, a prospect was offered a "free" morning room addition to the new house. The builder said the addition was worth about $13,500. The only hitch was that the purchaser would need to use the builder's mortgage subsidiary. The builder assured the buyer that the rates, fees and terms offered by the subsidiary were "very competitive" with outside lenders and brokers, according to the complaint.

 

But when the buyer checked out the competition, he found the subsidiary's fees to be bloated -- a $5,400 "origination" charge, for example -- and far more costly than in the regular market. The buyer complained to investigators at HUD, arguing that the builder was engaged in an intentionally deceptive practice. After investigators hinted at legal action, the builder agreed to waive the $5,400 fee and threw in the $13,500 morning room, too, according to HUD.

 

Investigators actively are pursuing other nonpublic mortgage-related complaints, officials say, including allegations that builders:

 

· Raised the prices of homes when buyers declined to use their mortgage affiliates or subsidiaries.

 

· Required buyers to deposit extra money in escrow accounts if they refused to use the affiliated lender.

 

· Pushed buyers into using a designated lender with the threat of withdrawing a $5,000 "seller's credit" toward closing costs and also adding $10,000 onto the home price.

 

If you find yourself in a builder squeeze involving mortgage, title or other affiliates, HUD has some practical advice for you:

 

· Compare interest rates, loan terms and closing costs of several independent lenders before agreeing to use the builder's affiliate or wholly owned subsidiary. Determine whether the affiliate's rates and total charges are higher than the going market rate and offset any discounts, incentives and upgrades.

 

· If you intend to use a builder's affiliated mortgage company to take advantage of incentives and then refinance the loan to get a lower rate, be sure that the mortgage note does not contain a hefty prepayment penalty designed to discourage early refinancing.

 

· Be suspicious of large discounts or additions that are contingent upon using the builder's loan affiliate. Knowing what comparable homes in the area are selling for may help you determine whether the builder is offering a true discount or is simply raising the price of the home before offering the discount.

 

If you have a complaint involving high-pressure tactics designed to coerce you into using a builder's affiliate, you can call the RESPA enforcement staff at 202-708-0502. Alternatively, you can e-mail hsg-respa@hud.gov. For background on RESPA, visit http://www.hud.gov/.

 

Kenneth R. Harney's e-mail address isKenHarney@earthlink.net

 

 

 

 

If you have been successful in getting the builder to honor their incentives even if you have used an outside lender, please share your stories in here.

[HskrFiesta]

Sweet DLG!

I tried finding contact info from the article you posted last week but couldn't.

 

I have a client who wants a condo but he has to use the builder's lender to get $20K off and $10K in closing costs!

 

I will be using this info right now!

[hogied]

Sweet DLG!

I tried finding contact info from the article you posted last week but couldn't.

 

me2.

 

This post needs to be stickied.

[HskrFiesta]

I will notify fla-tan!

[DallasLoanGuy]

Relating to certain sellers of homes offering a benefit contingent on the use of a specific mortgage lender.

 

http://www.legis.state.tx.us/BillLookup/Te...amp;Bill=HB3798

 

 

 

Looks like we have a vote coming in Texas on this subject!!!!

 

 

 

http://www.legis.state.tx.us/tlodocs/80R/b...df/HB03798I.pdf

[ken(tx)]

Relating to certain sellers of homes offering a benefit contingent on the use of a specific mortgage lender.

 

http://www.legis.state.tx.us/BillLookup/Te...amp;Bill=HB3798

 

 

 

Looks like we have a vote coming in Texas on this subject!!!!

 

 

 

http://www.legis.state.tx.us/tlodocs/80R/b...df/HB03798I.pdf

 

This was attempted last session and didn't make it out of committee. It won't get out again this year either, unless it is written such that the builder cannot tie incentives to a lender that is NOT a subsidiary.

 

The issue is that RESPA will trump any state law on the subject and RESPA allows for referrals to be paid within a company. Here is why this loophole exists. Say a mortgage customer calls the 800 customer service hotline and when talking to a CSR mentions interest in refinancing. RESPA allows an employer to pay the CSR a referral fee to "capture" that customer over to the mortgage origination team. Internal referrals are allowed under RESPA and the loophole is when a builder owns the mortgage company then the referral is still internal.

 

I know..it's a loophole. But it has to be closed through Congress, not state of Texas legislature.

 

The bigger issue is the use of "preferred service providers" which I think this bill could have succss in squashing. That's when someone goes to a builder and gets incentive only if they use a lender on the builder's preferred list.

[Silver740]

Thanks for this link. I almost gave up on getting my $25,000 back from Brookfield Homes.

 

We signed for a house in VA and put down a $25,000 deposit. We were denied the loan and signed the cancellation agreement. After waiting 3-4 weeks for our refund check, we were told "we changed our mind about the refund". They said they were paying the carrying costs and couldn't sell the house even at a discount.

 

My wife and I have been trying to get our money back since early 2006. I just wrote an email to this department, I'm hoping to have some results to post.

[Silver740]

AMAZING NEWS!!! I just heard from my RESPA representative and Brookfield Homes is sending us our $25,000 back in the mail TODAY!!!

 

This just made my year!!!!! Thank you soooooooo much for this information, you've made one family extremely happy!

[DallasLoanGuy]

AMAZING NEWS!!! I just heard from my RESPA representative and Brookfield Homes is sending us our $25,000 back in the mail TODAY!!!

 

This just made my year!!!!! Thank you soooooooo much for this information, you've made one family extremely happy!

 

 

 

what? no tip?

 

 

 

just kidding!!!

 

 

 

Man, I am pumped up that this has helped someone.......

[LightBound]

I was reading up a bit on this and was wondering...

 

Is the RESPA Act pretty much useful only for "federally related mortgage loans" as the verbiage in the Act seems to allude to?

[IvyMgmt]

Wondering.. this law should apply to townhomes and condo's as well

[liverichly]

I was reading up a bit on this and was wondering...

 

Is the RESPA Act pretty much useful only for "federally related mortgage loans" as the verbiage in the Act seems to allude to?

 

Yes, but pretty much any mortgage is a federally related mortgage loan. I'd speak to the Department of Housing & Urban Development (HUD) about your exact situation as they should be able to help you out, there are attorneys who specifically deal with RESPA as it's a very complex law that is going through reform. It never hurts to call up HUD and ask.