As a Principal Managing Broker, I am asked about the proper response to handling seller financial incentives to the buyer. There are only two ways to handle financial incentives from the Seller to the Buyer without stating specific inspection items in the addendum. Loan officers from various companies continue to ask our brokers to write a Form 34 that simply says, “Seller shall credit Buyer $5000 toward their allowable closing costs and pre-paids at closing”. This is easy for them, because they don’t have the liability we do. As the ring master of the transaction a real estate broker always knows the exact reason why a Seller would be crediting a Buyer money. The loan officer can say they didn’t know what it was about should the loan later go into default and the transaction is investigated. When we write an addendum as stated above it is clearly an intent to hide the fact that the compensation is due to problems found on the building inspection. The Buyer will sign a document from their lender at closing that speaks specifically to disclosure of material facts about the property. So if the brokers and the principals are a party to such an addendum they will all have liability concerning fraud if the loan defaults and is investigated.
Below I have outlined the two responses that push us as far as we can go without getting into the gray area of possibly committing fraud. These two responses are within the requirements set forth by the Department of Financial Institutions.
Form 34: “In lieu of any repairs, Seller will credit the buyer $5000 toward their allowable closing costs and pre-paids.” (It is up to the underwriter to ask for any additional inspection information. We met the burden of the law, because we wrote “In lieu of any repairs”.
Form 35R: (Inspection Response Form) “Seller shall credit Buyer $5000 toward their allowable closing costs and pre-paids.” (It is up to the underwriter to ask for any additional inspection information. We met the burden of the law, because we wrote the credit on an inspection response form).
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