I wrote a post back in November related to buyer rebates. My question then and now is the same. "Are Buyer rebates, not disclosed on the HUD, legal?" Anyway, over the last few days my previous post has come back to life. We have been having a pretty good debate but still I have not been able to get my head around my initial question, "Are Buyer rebates, not disclosed on the HUD, legal?"
Now, during my research, on this question, I can't seem to get a definitive answer. State laws vary. Alabama, for example, explicitly prohibits "rebates" after a closing. Florida, allows rebates to a party of the contract as long as they are disclosed (not approved) to all interested parties to the transaction. What if I disclose it to the Lender and they so no? Can I still rebate since Florida law states I just have to disclose it? Or am I now breaking FED laws related to mortgage fraud?
In March of 2005, the Kentucky Real Estate Commission was sued by the US Department of Justice for not allowing rebates and lost. But it still doesn't answer the question, "Are Buyer rebates, not disclosed on the HUD, legal?"
The same thing happened in South Dakota in August of 2005.
According to Money magazine, in 2005 rebates were prohibited in the following Sates: Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Missouri, West Virginia and Mississippi. They also reported that in Alabama, Oregon, Tennessee and South Dakota rebates were limited to closing credits.
So, I'm still confused.
On the 1003 Universal Residential Loan Application: Paragraph VII Details of Transaction, Line L ask about "other credits". Shouldn't a rebate be considered an "other credit"?
My conclusion is…I don't know. If I were in the business of giving buyer rebates I would be real sure to check out my State's laws. I would be real sure that the rebate was disclosed to all interested parties of the transaction i.e buyer, seller, lender and the insurer (VA,FHA). And the best way to protect my license, in my opinion, is to only give rebates that are on the HUD 1. I may be confused about conflicting State laws and unclear FED laws but I do know, that if it is on the HUD and is legal in my State, then I will be able to enjoy my broker‘s license for many years to come. What say you?
By the way, did you know the DOJ has a website named "Competition in the Real Estate Market Place"?
Here are some links to additional information on this topic.