Some home builders are including in their contracts a 1% fee to be paid to them every time the house is sold for up to 99 years. The money is nothing more than profit for the builder and is not used for up keep or any type of property improvements. Lenders are getting keen to this and reviewing contracts very carefully looking for this clause.
If the lender sees this clause in the contract they will likely deny the buyers home loan. Lenders will be on the hook to try to sell a home with an additional 1% fee everytime the property is sold making it harder to sell in a case of default. Anything that adds a layer of risk will either cause the lender to adjust the interest rate to reflect that risk or they will simply deny the loan altogether.
Just when a Realtor thought their job was hard enough. Now you will want to comb through these builder contracts very carefully before assisting your buyer through the process. I would even recommend a full underwriting approval on all new construction homes to protect your buyer form a possible loan denial. If the underwriter reviews the contract and the buyers qualifications and approves the file then you would have significantly reduced the likelihood of problems.
If you are in the states of WA, OR, CA or NC we will gladly package a loan without a property address and submit it for underwriting allowing you the peace of mind that the loan shouldn't become an issue. E MAIL or (888) 206-5781 Otherwise ask your favorite trusted lender to do the same. Of course one could take the simpler approach and focus mainly on existing homes.
How to Shop Mortgage Rates
View this in 1080 HD by clicking next to "CC" at bottom
North County
*1902 Wright St 2nd floor Carlsbad CA 92008
New Office!
5360 Jackson Drive #220 La Mesa CA 91942
Nevin Williams NMLS #69651
*Not a licensed office location
Fast - efficient - competitive
www.SanDiegoHomeAndLoan.Info
lNevin,
So... Builders are realizing they are having a hard time selling homes? So.... They get creative and create another objection to doing business with them.
Nevin, Wow. I have not heard this one. Pretty darn sneaky I might add. Have you personally seen any contracts with the 1%? What builders?
Nevin - New twist on how to increase revenue without doing anything. Don't think it will fly.
NOT SURPRISED! I disdain builders and their "affiliated business arrangements". I don't understand how they skirt around RESPA. Would be great if they could disclose how much money they are making off the loan and title - in addition to the sales price.
Mike - I compare it to a realtor or loan officer deciding to break laws and increase their porfits because they aren't making enough money. Geez...
Stephanie - I have not. It is banned in a lot of states but doesn't mean it isn't being done nevertheless so be on the lookout!
John - It should be put to a stop...I hope
Renee - I dislike them too because many of them lure clients by offering incentives if they use their lender. Most of the time the client gets a high interest rate than other lenders offer. I think this is a RESPA violation personally but the buiders know who to pay off so nothing gets done about it.
I have heard all about this and it is important for buyer to beware. This is imporant stuff to know.
When I saw this on the news the other day, I was astonished that a builder would even attempt to incorporate this fee into their contract. I could see if it went towards an extended warranty or something. But to try this without any benefit to anyone other than the builder is just plain wrong.
I just heard about this recently, because I think there is some legislation afoot to clamp down on it. Sleazy is the best word I can think of to describe it.
I actually had a client mention this to me a while back. He was a seller/investor and turns about 5 properties per year. He had read something one day about this being a good way to create a future income stream. Needless to say, I wasn't on board with the idea and just sent him the bones of this blog! Thanks for the information!
Nevin, thanks for bringing this up. I hadn't heard of this practice, but now I'll make certain to check for this clause in new construction contracts. Love the knowledge we gain from posts like this.!
Nevin: Thanks for bringing this to light. I had not heard of this to date. Another good reason to have outside representation when purchasing a new home.
Nevin, I have sold many, many new homes, and have always been able to sit in on both the writing of the purchase agreement, the loan applications, and have attended the closings. I have never heard of such a thing as you mention about this "Builder" One Percent Fee for ninety-nine years. And, I have sold new homes in three different market areas.
Just WHERE are things like this happening ? Just curious.
Melissa - nasty stuff! I haven't experienced it myself but thought it was appalling
Craig - It is wrong!
Cece - I guess desperate times bring out desperate measures
Lauren - Taking advantage of people has always been a good income stream. Unfortunately it means hurting people so like you, I want no part of it!
Lottie - I didn't hear about it either until a couple of days ago!
Doug - There's always a new sham goingo n somewhere
Karen - I haven't experienced this either. Apparently it is going on all over the country. At the bottom of the post I have a link to read the article wriutten by CNN staff writer. here it is
http://money.cnn.com/2010/08/23/real_estate/home_resale_fee/index.htm
Nevin, thanks for keeping us in the know on these types of things. I'm wondering how that 99 years is worded/worked into the contract. I'll go back and read the link. And what happens when the builder and/or company isn't around for 99 years . . . ha ha ha
Hi Nevin -- This is eomthing that needs to get cracked down on in a big way. In lieu of that, posts like yours here is key to help spreading the word.
Nevin,
Is this even legal? Has it been tested in the courts?
I'm wondering how it can be enforced in a contract.
I'm wondering how it can be enforced in a contract.