Some home-selling incentives may be against the law

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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