I decided to try and take some action against Homebuilders and Abusive Practices

By
Mortgage and Lending with Lend Smart Mortgage NMLS#207208 NMLS 207208

OK,

So maybe this was not the brightest thing I have decided to do, but I am tired of the consumer getting the raw end of the stick just so a homebuilder can make more money.  I recently lost another loan to the homebuilders lender because of a very abusive practice of giving certain incentives for using their preferred lender.  This is not the first time I had written about this topic, I had a featured post back in October of this year titled: 

Homebuilders and Abusive Practices

So tonight I decided to take action.  With all the negative news articles out there about our industry, I decided to go to the press myself and share my story.  Hopefully they will want to do a piece on this and name specific homebuilders.  Maybe an attorney with some moxie will decide to fight these savages.  I just want a free enterprise system, where at the end of the day the customer gets to make the decision not based on a border-line/illegal kickback. 

If anything this practice is uncompetitive and is unamerican at best. 

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Gary Miljour, Licensed Mortgage Loan Originator: 

 

 

 

 

 

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Rainmaker
148,802
Krista L. Walker
Coldwell Banker Pro West - Medford, OR
Oregon- Homes & Real Estate for Sale

I have run into this myself a few times.  I did not like the way they required the buyer to get pre-qualified with their lender no matter what.  Then once the have the buyer all the tricks come out.

Jan 28, 2008 11:38 AM #1
Ambassador
1,893,489
Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News
In this market the builder has a choice.  Give the incentives no matter who the bank is or lose the sale.  There is way to much inventory sitting around for a buyer to be forced to use a certain lender.  I haven't had any issues with builders turning down my clients request to use their own lender and still get the "goodies" they were offering.
Jan 28, 2008 11:57 AM #2
Rainer
27,624
Marlo Newman
W.J. Bradley Mortgage Capital - Scottsdale, AZ
Marlo Newman Mortgage Banker 480-326-9858

Gary here is your guy.

Pool builder: 'Kickbacks' cost homeowners millions

Robert Anglen
The Arizona Republic
Dec. 26, 2007 05:02 PM

One of Arizona's largest pool builders has taken to the air waves claiming that home buyers are being duped into spending thousands of extra dollars to put swimming pools in their new homes.

Ron Ostlund, owner of Riviera Pools in Phoenix, has launched an advertising and Internet campaign to publicize what he describes as a "kickback scheme" between new home builders and several pool companies.

Ostlund estimates that agreements between home builders and pool companies to act as "preferred pool builders" have cost 70,000 homeowners as much as $250 million in overpayments since 1997.




"What the sales person doesn't tell the homebuyer is that they will pay an extra $10,000 to $15,000 too much for the pool," Ostlund said. "The pool company will kick back approximately 12 percent of the pool price to the home builder."

Home builders acknowledge that there is a markup on pools built through "preferred builders," the same way there would be a markup on any product a buyer wants the builder to install in a new home, from appliances to carpet.

But they insist that Ostlund has exaggerated the amounts involved and there is nothinig inappropriate about the practice.

"Everything we put in a house has a markup . . . It is not a kickback," says Kevin Egan, president of T.W. Lewis Homes in Tempe. "Every home builder operates the same way."

Egan would not give a specific price on the markup, saying only that it is less than 12 percent.

What the buyer gets for working through a "preferred builder" is a new pool that is supposed to be filled and ready for swimming on move-in day. Otherwise, homeowners must wait until the close of escrow to bring in their own builder and begin construction.

Egan says homeowners who opt to go with their preferred pool builder also know that T.W. Lewis will manage the pool construction process and back up any defects or warranty issues.

He says home builders face the risk that a home loan might fall through and will be left paying for a pool in a house that didn't sell.

Ostlund calls this smoke and mirrors, saying they are excuses for sticking customers with pools that are worth far less than what they paid for them.

Ostlund says earlier this year representatives of T.W. Lewis asked him to be the company's preferred pool builder. He says the builder demanded 12 percent payment on every pool sold, which would be passed on to the buyer. In addition, he says discussions involved other methods to inflate the cost of the pool. Egan denies Ostlund's claims, saying he is "way off."

In general, Ostlund says, "the home builder, the pool builder, the home sales person and the pool sales person all work together to screw their friend, the home buyer."

Ostlund, who is delivering his message across the Valley in radio and television commercials, has also sent letters to Arizona's attorney general, the real estate commissioner and the state registrar of contractors, calling for an investigation.

Ostlund's company is the fifth-largest pool builder in the nation. He said the preferred builder arrangements have always angered him and now he has the money and the time to expose it.

Ostlund's claims have brought letters and e-mails from the public concerned about their dealings with preferred builders. Some claim their pools took months to complete after move-in, that appraisers wouldn't accept the price of the pool, that pools couldn't be rolled into mortgages and that they were unaware of undisclosed markups.

Jeremy Smith, president of California Pools, says agreements between his company and home builders don't affect the price of pools.

"The competitive nature of the pool business dictates that we must deliver the best product at the best price," he says. "I resent any implication that California Pools, or any other pool builder who works with home builders are involved in anything illegal, immoral or unethical."

Home buyers often think that the only way they can roll a pool into a new home loan is through the home builder, but many mortgage companies will work with pool companies to finance a pool construction loan on a new house.

Jim Belanger, a lawyer whose firm represents the Home Builders Association of Central Arizona, says many of his client's members are outraged by Ostlund's allegations. He said that he has reviewed the preferred agreements and finds them "perfectly appropriate."

Belanger acknowledges the markup, but says it is far lower than Ostlund alleges, "probably 3 percent, 4 percent or 5 percent."

He says he has asked Ostlund to provide proof of his allegations in writing, but Ostlund has so far declined.

Ostlund says all of the proof lies in contracts between the home builders and their preferred pool companies.

"It is not 3 percent, 4 percent or 5 percent," he says. "When all is said and done, it will be as high as a 40 or 50 percent markup."



Reach the reporter at robert.

anglen@arizonarepublic.com.

 

Good luck

 

Marlo

Jan 28, 2008 01:56 PM #3
Rainmaker
111,423
Steve Dalton
219-465-8352 - Valparaiso, IN
Northwest Indiana Home Builder

There is some mixing of emotions and facts here gang:

Kickbacks are indeed unethical at best and illegal at worst

A home builder having a preferred lender is not the same in any way.  In my case, I have two preferred lenders and I only pay a closing cost incentive if the home buyer goes to my preferred lender.  By way of disclosure, I do not own the mortgage company.  I do not get a penny back from the mortgage company.

Why have a preferred lender?  Frankly, because most lenders will totally screw up a new construction loan.  I'll end up at the closing table with a buyer I've spent time and energy with for 6 months only to find that "uncle buck" the lender didnt really know how to inspect, or review plans, or order a new construction appraisal, or lock a rate on my notice, or communicate upgrades to an underwriter, or review a temporary certificate of occupancy.  The list goes on and on and on. 

I can't afford to have every "I just started yesterday in the mortgage business" broker mess up my closing, my customer, or my business.  So, we favor two companies that I believe in and two companies that know how to help me close the deal.  If the customer gets cold feet, which they all have a moment of chill, they know how to calm them and help us all keep a good customer.

No kickbacks, no lying on stated income, no lying at title company about occupancy ... just a preferrence that I'm willing to pay for with my incentive dollars. 

Jan 28, 2008 03:15 PM #4
Rainmaker
149,087
Gary Miljour
Lend Smart Mortgage NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

Krista- At the end of the day, I just want what is best for my client and sometimes the preferred lender is NOT that option.

Cindy- In this particular situation, the buyer really wants the home and I am not one to force a buyer to feel pressured into using my services vs. getting the home they want.  However, the client is not getting the best deal and that is where I think this practice is wrong.

Marlo- Thank you so much for contributing to this post.  I will get a hold of this guy at "The Arizona Republic". 

Steve- I appreciate your position and have had this talks with many builders and I agree it makes sense from that standpoint.  However, where I feel this system is flawed in 2 ways. 

  1. The consumer most of the time ends up getting a less competitive loan.  Lately I have seen clients who went with the builders lender, was told they could refinance later, and guess what, the loan guidelines changed and now they cannot refinance and now they are losing the house.  Why I ask?, because a builder needed to feel secure inside that their preferred lender would get the loan closed.  Now you have a consumer who has lost their home.  Was that incentive truly worth the heartache you put the consumer through.
  2. In some cases its NOT your client.  I have a lot of clients that come to me first before they ever hire a REALTOR.  Its my client and the builder steals my client to their lender just so they can feel warm and fuzzy that the loan will close.  Most builders do not even give common courtesy to their client and the client feels pressured.  At the end of the day, builders are not creating relationships with lenders, and guess what, I do my best NOT to have my client buy new homes for this reason.  So now you end of getting less referrals because you wanted a preferred lender.  Wouldn't be easier to just call the lender who the buyer is working with and make sure they know what they are doing.  I understand builders state that they provide this service for their benefit, but I have seen builders hire some really BAD lenders.  So I do not totally buy that argument. 

At the end of the day, I just want to do what is best for my client.  

Jan 29, 2008 03:10 AM #5
Rainmaker
149,087
Gary Miljour
Lend Smart Mortgage NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

Well, today this plan backfired on the builder.  The client ended NOT signing contract with the builder based on not having a good feeling about the builders lender and decided NOT to buy with them.  His main reason was because he liked my loan options.  So now he is out shopping again and I wish him the best.  The builder really lost out and quite frankly they deserved it. 

Poetic Justice I feel. 

Jan 30, 2008 11:10 AM #6
Anonymous
A Judkins

I experienced an on-site agent who wouldn't even present the offer to the builder because our pre-approval was not from a preffered lender, it was a full offer. How can I get in contact with the builder of the company or the true decision maker to submit the offer? 

Oct 31, 2009 09:08 AM #7
Rainmaker
149,087
Gary Miljour
Lend Smart Mortgage NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

Dear A. Judkins,

I would google the builder and talk with their corporate office and make it clear to them they are in violation with RESPA because your buyer has a choice.  Again the builder cannot force your client to use their lender.  They (your buyer) probably will lose out on the builder incentives, but they cannot force them.  You can then report them to HUD enforcement, and believe me this is a hot topic with HUD.  They are about to do away with this practice, so they would love to hear from you.  They will investigate your claim. 

Nov 04, 2009 03:27 AM #8
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Gary Miljour

Mortgage Originator NMLS Licensed in AZ and NC
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