Fraud and Other Bad Practices HUD Investigators Probe Kickbacks By Kenneth R. Harney The Nation’s Housing Sunday, February 11, 2007 When home builders behave badly, consumers now have an unexpected ally: The federal government’s “RESPA Police.” RESPA stands for the “Real Estate Settlement Procedures Act,” a consumer-protection statute that prohibits kickbacks and other home-sale abuses. The “RESPA Police” are actually the Department of Housing and Urban Development’s investigations unit. Under HUD Secretary Alphonso Jackson, the agency’s investigators have been best known for reaching big settlements with real estate firms, title insurers and mortgage companies who violate RESPA. But recently, investigators have begun quietly intervening in complaints brought by individual consumers. Probers are targeting builders who illegally force home buyers to use specific mortgage firms, pushing loans that consumers complain often cost more than what competitors charge. For instance, HUD recently cracked down on a builder who canceled a sale and seized a $11,845 deposit when a consumer refused to use a mortgage firm tied to the developer. After HUD stepped in, the builder reversed himself. He not only allowed the buyer to use a different mortgage company, but also paid “mortgage points” so that the consumer got a better-than-usual interest rate. In other recent cases, HUD investigators found: One mortgage company affiliated with a specific builder had fraudulently altered a customer’s financial documents so the person qualified for a loan that she couldn’t really afford. After HUD intervened, the buyer got back a $10,000 deposit that the developer had previously refused to return. Another developer offered “free” morning-room additions worth $13,500 if buyers used the builder’s mortgage subsidiary for loans. Unfortunately, the subsidiary charged a $5,400 “origination” charge and other bloated fees. Once HUD stepped in, the builder agreed to waive the complaining customer’s $5,400 fee. One builder raised homes’ prices if buyers declined to use a specific mortgage company. A different developer required buyers who refused to use a favored lender to deposit extra money in escrow accounts. One building company coerced buyers into using designated lenders by threatening to withdraw promised $5,000 “seller credits.” If you find yourself dealing with a builder who’s pressuring you to use a certain mortgage firm, title insurer or other affiliate, HUD suggests you: Be suspicious about large discounts or other perks a builder makes contingent on your using his mortgage prices before offering you a “discount.” Don’t agree to use a builder’s affiliate until you’ve checked out the interest rates, loan terms and closing costs that competing firms offer. Make sure any loan deal doesn’t include prepayment penalties designed to discourage you from quickly age affiliate. Make sure the developer isn’t simply refinancing out of a loan set up by the builder’s mortgage company. Report any suspected illegal activity to HUD’s RESPA unit by calling 202-708-0502 or e-mailing hsg-respa@hud.gov. For State Bar Ethics Opinions on this issue, click on the link below. Authorized Practice Opinion Advisory

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