Requiring the buyer to use a lender of seller's choice: A RESPA violation or not?

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Real Estate Broker/Owner with Maui Life Homes / Metro Life Homes RS-78439 / BRE #01708344
https://activerain.com/droplet/Mlv

Requiring the buyer to use a lender of seller's choice:  A RESPA violation or not?

I recently wrote an offer on a property for some clients of mine, and received a counter offer.

One of the items in the counter offer stated that the buyers must use one of two of the seller's preferred lenders, or the contract would be subject to cancellation.

Now I've had plenty of occasions where the seller has asked that the buyer obtain a pre-qual or double-app with a preferred lender, but this is the first time they've flat out required that they get the loan with them.

Why am I feeling that I'm 90% sure that this is a RESPA violation?

I can see clearly on the RESPA site that requiring them to use a title service of seller's choice is a violation, but I'm having trouble finding the exact section that states requiring a preferred lender to obtain the loan is a violation.

Am I wrong?

Or if it's not an exact RESPA violation, is it a violation of the Fair Lending Act?

I'm actually going to contact HUD on Monday to see if they can verify for me.

Need a consensus and input from my ActiveRain Peeps on this.

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Rainer
23,864
Steve Laird
Anderson Real Estate Sales - Chico, CA
Steve Sells Chico Real Estate
I was recently told that requiring a person to use a specific lender is a Respa Violation. I was told that a seller can require the use of a specific lender if any incentives are given using that lender. Builders often require buyer to use their lender if they are to receive any additional incentives, ie. closing costs, decor. . . If they choose not to use that particular lender, they would not receive incentives. Please let mt know what HUD says.
Dec 01, 2012 04:35 AM #1
Rainmaker
2,810,873
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

Ralph, I do not know if this violation falls under RESPA.  I do not believe it does.  It is not steering, per se. There is another law under B&P Code, or other code, that prohibits one from requiring, as a condition of accepting an offer, the use of a specified lender.  I recently covered this in a course to renew my broker's license.  It could be the fair lending act. I just don't recall at this moment.

Dec 01, 2012 04:38 AM #2
Rainmaker
1,167,786
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

That would be interesting to find out.  I often see REOs with that request.  It would sound like a violation to me, but try arguing with a listing agent when you are trying to get your offer accepted.  :(

Dec 01, 2012 05:54 AM #3
Rainmaker
515,591
AJ Heidmann ~ CRS
McEnearney Associates, Inc. - Alexandria, VA
YOUR Alexandria & Arlington, VA Real Estate Expert

Ralph - I can't site code & paragraph to prove that this is wrong... but it doesn't pass the smell test.  Like you, I have had clients that had to get pre-approved from a specific lender or have even countered as listing agent that the buyer be vetted by a known, local lender... but never have seen that single lender pushed on all buyers.

Please follow up with your findings once you've contacted HUD.

 

 

Dec 01, 2012 06:45 AM #4
Rainmaker
544,472
Eve Alexander
Buyers Broker of Florida - Orlando, FL
Exclusively Representing ONLY Orlando Home Buyers

I have no doubt that RESPA could make a case. 

That is no different than a seller or listing agent requiring the buyer to purchase title insurance from  "their" title company, which is listed as a RESPA violation and the penalty for that is triple the cost of the title insurance.

...and yes, RESPA does have a problem with builder bundling incentives in order for the buyer to choose the builders affiliate companies.  It is one thing to offer to pay closing costs to STEER the business...it is another thing to demand it on a counter offer.

OH hell no!

Eve in Orlando

Dec 01, 2012 08:06 AM #5
Rainmaker
796,907
Liz Wallace
Century 21 Sherlock Homes - Rockville Centre, NY
Broker C21 Sherlock Homes, Rockville Centre, LI, N

I have had listing agents try and push their "preferred lender".  I don't think you could demand it anymore than you can demand a certain inspector be used.  I'm pretty sure each client gets to pick their own.

Dec 02, 2012 03:47 AM #6
Rainmaker
1,560,731
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Suggested!  I've seen the double-app or the pre-qual from the perferred lender.  To me, it's a back handed way of getting my client to go to a lender they don't want to go to.  With the seller's lender having access to my clients' Social Security number, information, I always caution them against this.  It puts my client, IMHO, at a disadvantage all the way around when they are opening up their financials to the sellers' "preferred" lender. 

Dec 02, 2012 04:23 AM #7
Rainmaker
863,796
Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

Hi Ralph, keep us posted as to what you find out on Monday. I would think that it is a violation. The seller or listing agent can request or demand a preapproval from their selected lenders, but I don't see how they can impose their preferred lenders on the new buyers.

Dec 02, 2012 05:20 AM #8
Ambassador
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

I contacted HUD today, but they routed me to another number with FHA that deals with RESPA issues.

I will try to get through to them tomorrow.

Dec 03, 2012 11:08 AM #9
Rainmaker
169,662
Richard Ruggaber
Metro Life Homes - Los Angeles, CA
California Real Estate - (818) 422-5035

Let me know what you find out too.

It doesn't seem right to me either.

Dec 03, 2012 11:20 PM #10
Ambassador
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

OK.  I've been on a wild goose chase, but it appears that requiring a buyer to use a lender of seller's choice is in violation of the Truth In Lending Act, via the amendment from the Dodd-Frank Act:

Dodd Frank Act Section 1403
SEC. 1403. PROHIBITION ON STEERING INCENTIVES.

Section 129B of the Truth in Lending Act (as added by section 1402(a)) is amended by inserting after subsection (b) the following new subsection:

‘‘(C) restricting a consumer’s ability to finance, at the option of the consumer, including through principal or rate, any origination fees or costs permitted under this subsection, or the mortgage originator’s right to receive such fees or costs (including compensation) from any person, subject to paragraph (2)(B), so long as such fees or costs do not vary based on the terms of the loan (other than the amount of the principal) or the consumer’s decision about whether to finance such fees or costs"


I also have a representiative from DRE who will be contacting me today with some resolution on this as well.

Here are some other blog posts in support of this:

http://www.trulia.com/blog/NYMortGuy/2010/02/mortgage_steering_the_most_violated_law_in_the_real_estate_industry

http://www.trulia.com/voices/Home_Buying/Can_an_REO_company_require_a_buyer_to_use_their_pr-280067

http://www.federalreserve.gov/bankinforeg/regzcg.htm

Dec 06, 2012 02:40 AM #11
Rainmaker
535,255
Gay E. Rosen
Julia B. Fee Sotheby's International Realty - Larchmont, NY
As Real as Real Estate Gets!

There is one building in my area that has many more rentals - or so it would seem as they cannot sell.. To find a bank that will underwrite a sale in a building with more than 50% rentals would be hard.. The listing agent has stated that X bank will supply a loan. In that case - I find it helpful.. You wouldn't want a buyer to go through the motiosn with a bank only to find out they would nto be approved... A mortggae Broker should be checking their building list to see if their bank will approve in that building  but I have also had an occasion when the mortggae broker said they did (HSBC) and they didnd't... and the buyer was justifiably angry.... We found a mortggae elsewhere... but stating that X bank will offer a loan - can be useful in some instances.. tkaing the leg work out of the process... BUT in another aspect.. Yes, it would be RESPA viuoa;ltion.

 

Dec 07, 2012 05:13 AM #12
Ambassador
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Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

Gay,

If it were the case where the listing agent stated that X lender would offer a loan, it would be no problem.

But the exact verbiage was that if the buyer did not use the preferred lenders, then the contract would be subject to cancellation.

Dec 18, 2012 02:33 AM #13
Rainer
37,982
Joe Pruett
Bank Plus Realty, Inc. - Pembroke Pines, FL

Hi Ralph, thanks for your post.  Today I found this line in a South Florida listing: "Financed offers will only be considered if buyer is working with the seller's preferred lender. Please call for more info."   I then went looking for line and paragraph rules or regulations prohibiting or allowing this.  Everyone seems to have an opinion, but I want something I can quote from a regulatory source, like you do.  Why is this so hard to find?  I tried reading RESPA, but regarding this, it seems to be concerned with lender originators. 

There is an investor on Trulia who says he has right to determine the buyer's lender and that got me to thinking that in order to KNOW, I have to locate facts, not opinions. I realize this post isn't helpful, but a kind of complaint, but I intend to get to the bottom of this question.

Joe

Nov 05, 2013 02:26 PM #14
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