Here is a scenario bouncing around in my mind. Complicating this problem, imagine this scenario occuring two days prior to closing. What would an attorney think?[photopress:j0402451.jpg,thumb,alignright]
A buyer who happens to be a real estate managing Broker-owner is purchasing new construction from a builder. The buyer (Broker) asks for a discounted escrow fee because buyer (Broker) has a history of referring business (sellers or buyers) to escrow company handling this closing. The escrow company refuses to discount buyer escrow fee. The seller (builder) receives an estimated HUD-1 Settlement Statement which shows an escrow fee based upon each party paying an equal 1/2 of the total escrow fee, in full compliance with the local Northwest Multiple Listing Service (NWMLS) Purchase and Sale Agreement (PSA). After reviewing the settlement statement, the builder-seller calls the escrow company and requires escrow company to reduce the escrow fee because it is “tradition” or the seller (builder) will refuse to close. Learning of this, the buyer wants the same fee as the seller. To comply with the law, the escrow company must comply with the terms of the purchase and sale agreement, in addition to complying with RESPA. Locally, the Northwest Multiple Listing Service Form 21 Section ‘H’, line 56, provides that:
Seller and buyer shall each pay one-half of the escrow fee unless the sale is FHA or VA financed, in which case it shall be paid according to FHA or VA regulations.
Escrow raises this issue and asks parties for clarification because the purchase and sale agreement in question has no other addenda indicating disclosure of builder-seller receiving a discounted escrow fee. Once again, the seller (builder) immediately requests escrow to discount escrow fee or they refuse to close and further escalates the issue by threatening to move the transaction.
This problem raises a few issues.
- Is the Broker/buyer in clear violation of RESPA regarding potential kickbacks?
- In this case,there is no builder addendum indicating or disclosing to buyer/Broker that the builder will be receiving a discount. Builders routinely receive significant discounts on escrow fees, particularly if closing through a title company. Many builder generated addendums address the discounted escrow fee.
- Under the terms of the purchase and sale agreement, is the builder potentially in breach of contract by refusing to close? For example, if the buyer, who happens to be a real estate broker, (never mind asking for a discount equal to the builders perceived “traditional” escrow rate) stood firm by indicating each party shall pay an equal escrow fee as provided in the PSA, would the builder be in breach of contract?
- Does the buyer and seller understand the purchase and sale agreement terms?
- How does HUD treat the situation where builders receive discounts in title or escrow fees?
- Do you think this scenario is plausible?
All you Perry Mason’s, looking forward to your comments…..