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Some home-selling incentives may be against the law
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By Melissa Wirkus
Our current housing
market is causing home sellers of all sorts to turn
to some desperate measures in order to sell their homes.
Both residential home
sellers and big home building companies are turning to
a variety of incentives, discounts and promotions to sell
their homes.
And as more time passes, these sellers are getting more
creative in their endeavors to lure-in buyers.
Cars, appliance upgrades and wonderful weekend getaways
are now all normal offers that accompany many home buying
transactions.
And of course, the big home building companies that are
often times multi-million dollar companies are offering
the most extravagant incentives. But, even some homeowners
who struggle with money are offering incentives to get
their home off their hands.
Now, as the number of companies and people giving away
incentives continues to grow, many are coming under additional
scrutiny.
An October 16, 2006 article by Vinnee Tong, of the Associated
Press, and posted on Yahoo’s Finance page, “Some
cash-back home deals may be illegal,” looks at how
some of these incentives may be against the law.
The deals that are under scrutiny are ones that are “off
the books” and not reported, these basically put
everyone (lenders, brokers, buyers) at risk.
“A certain type of cash incentive some homebuyers
are seeking may lead them, and their real estate brokers,
into a legal grey area.”
“In markets
where sellers are struggling to offload properties, some
buyers are demanding cash back as part of the terms of
closing a deal. The practice is more common now as sellers
and homebuilders press harder to close sales and the incentives
grow in number and variety.”
Since there really are no rules and regulations on incentives
that can be offered in a real
estate transaction, the bottom line is that everyone
just must be honest and disclose all information about
the transaction (including the money being given back).
This is especially true since in most real estate transactions,
lawyers are not usually involved, so it is up to all of
the parties to make sure everything is legitimate.
“California is one state where transactions
are normally completed without the assistance of an attorney.
Tom Pool, spokesman for the California Department of Real
Estate, said undisclosed cash back deals could lead a
broker to have his or her license suspended. Brokers are
fiduciaries, Pool said, so are obligated to report truthfully
to the principals in the deal. If the buyer defaults on
an artificially inflated loan, leading to a foreclosure,
that buyer could be prosecuted for fraud.”
So, with all that said, the key to avoiding any liability
is to fully disclose any cash deals.
“Pool said the issues people are raising now are
similar to concerns lenders and regulators faced during
the real estate boom of the 1980s. The practice of giving
cash back at closing or arranging hidden second mortgages
led to a significant number of loan defaults and resulting
fraud cases then, according to Christopher Mayer, director
of the Milstein Center for Real Estate at Columbia University.” |
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