Q&A: Promised Perks

Q.  I am not quite sure whether or not I have a legal problem but I think I got shafted and I want to know what to do about it. I recently bought a new house and the real estate agent promised me a cash rebate as well as a bonus from the builder if I purchased. I was supposed to receive these as soon as I closed. The rebate and bonus were not mentioned at the closing and now the agent refuses to talk to me. What should I do and how do I get the money I was promised?

A: Well, let’s see. You were promised a cash rebate and a bonus which appear to be outside the scope of the “official” or legal transaction since you did not receive the money as part of the closing on the home you purchased.

I am very carefully saying here that the promises made to you do not appear to be legal. Kickbacks seldom are. Trying to enforce an illegal promise could get a little dicey.

When you purchase a home (including new construction) the purpose of the lender’s appraisal is to be sure that:

a. The home is at least worth what they are about to loan you to acquire it.

b. That no amount in excess of the value of the home is being financed

For example, that you are not financing a house worth only $400,000 with a loan of, say $425,000 to allow enough money left from the lender’s funds to give you a kickback of $15,000 and a bonus of $10,000 (for furniture or a vacation or anything remotely like that). That is commonly called mortgage fraud.

The title company has a responsibility to be sure that there are no components of the closing which are in violation of the law. The title company can not be responsible for what the parties agreed to if it is not in the contract and not part of the closing instructions sent over from the lender. One of the requirements for a legal closing is that there be no “undisclosed” exchange of funds, such as kickbacks from the seller to entice you to buy.

All funds which are to exchange hands between any of the parties associated with the transaction are to be included on the HUD-1 document. It is against the law in most places for someone to pay you a rebate and a bonus to get you to buy the home they built. (I know the car companies did it, but look at them now. Apparently their guidelines are a bit more lax than real estate transactions and look at where it got them.)  

The HUD-1 is the official record of the transaction and anything which cannot appear on it usually is suspect.  In fact, fairly often during the last several years, what is on the HUD-1 frequently could stand a little more scrutiny.

I’m a grown-up so I know that what you described was not uncommon practice during the past 4-5 years in some of the hottest markets in the country. Wild construction growth, wild deals, wild foreclosures now. I am familiar with parking lot exchanges and promissory notes and gifts, rebates and bonuses which cannot appear on the HUD. Property values are falling in markets like California and Florida where I live like parachutes, in part, because one of the components of speculative building was to build in ‘extras’ such as the two things you asked about. The country is experiencing both a market correction to more realistic value for homes but also a major part of the problem was that the loans covered more than the piece of real estate, if you get my drift.

What should you do?  Enjoy your new home and try to keep up the payments. You got took!

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