Free advice: Beware of freebies

Friday, Sept. 8, 2006

When it comes to fancy cars, snazzy kitchens and great deals on closing costs, experts warn that some ‘‘freebies” are costly traps for homebuyers.

Among the more common schemes, buyers get the incentive only if they use the builder’s mortgage, title and other settlement services. That, in turn, can wipe out the value of any gift or other incentive.

‘‘We think builders’ incentives, when legitimate, are great,” said Kate Crawford, chairwoman of the National Association of Mortgage Brokers’ consumer protection subcommittee.

‘‘But we have evidence to show that others can put the buyers at risk ... and that borrowers’ reduced closing costs are not necessarily doing buyers a favor,” Crawford said.

She said some companies ‘‘flat out” will refuse to sell if the buyer doesn’t go with their real estate settlement plan.

One prospective homebuyer in Maryland recently contacted Crawford’s group when she learned she was to pay $750 more per month because the builder, offering closing cost incentives, demanded she use its mortgage company, whose rates were about 0.80 percent more than available elsewhere.

‘‘We feel that everybody should be treated equally and that the buyer should have the right to chose,” Crawford said.

The association turns over such anecdotes to state regulators as direct violations of the federal Real Estate Settlement Procedures Act.

There are a lot of bait-and-switch tactics and the buyer is wise to ‘‘know his rights,” Crawford said.

For example, she said, her association recently contacted Florida regulators about a buyer who was billed a $25,000 penalty for not meeting the builder’s settlement deadline. The man paid because he was afraid of forfeiting his $60,000 deposit on a ‘‘very high-priced house,” Crawford said.