The Obama administration is inviting the redefinition of "required use" offers. If discussions lead to an expanded definition of real estate settlement law, they could level the playing field, giving more real estate players a chance at the action. "Required use" is the term applied to the lucrative practice popular with home builders in which home buyers are offered special discounts, paid closing costs, construction upgrades and other incentives if they use mortgage and real estate services affiliated with the builder. Real estate critics have long claimed that affiliated services give privileged providers an effective monopoly that limits competition in the industry. Affiliated service providers have also been charged with jacking up prices, eliciting numerous consumer complaints.
While the Real Estate Settlement Procedures Act prevents "required use" clauses from legally forcing home buyers to purchase mortgages, title insurance or other real estate services from a builder's affiliated service provider, some builders have found an equally lucrative run-around. The Department of Housing and Urban Development (HUD) has logged an increasing number of consumer complaints about builders who tie construction and upgrade discounts and rebates to the use of affiliated services. Consumers feel trapped in a Catch-22 scenario. Attracted by builder discounts, they agree to purchase a home only to find at closing that they must also purchase high-priced affiliated services or lose their discounts.
HUD tried once before to address such abuse by extending "required use" prohibitions to include economic duress. HUD's attempt to prevent economic penalties tied to required use of affiliated service providers raised the ire of the National Association of Home Builders which filed suit to block the move. Faced with a protracted and expensive legal battle, HUD withdrew the changes.
The issue didn't die, however, and the Obama administration is opening it up for another airing. This month, HUD invited consumers, mortgage lenders, real estate agents, builders and other interested parties to share their experiences and suggestions about the "required use" issue. Support for changes in current regulations and practices is expected to come from the National Association of Mortgage Brokers and National Association of Realtors, both of whom favor a more open market and an end to exclusive builder practices.
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