HUD Delays Effective Date Of Builder Incentive Ban

Since 1992, HUD has allowed all companies – including homebuilders, real estate brokers and mortgage lenders – to offer incentives to consumers as an inducement to the consumers to use the companys affiliated settlement service provider as long as the settlement service providers service is separately offered and as long as the incentive is genuine, meaning it is not offset by higher prices elsewhere in the transaction. As part of its revisions to Regulation X implementing the Real Estate Settlement Procedures Act, HUD in November revised the rule effective January 16, 2009 to prohibit homebuilders from offering these incentives, while still permitting real estate brokers, mortgage lenders and other settlement service providers to offer certain forms of consumer incentives. On December 23, 2008, the National Association of Homebuilders ("NAHB") and certain of its members filed an action against HUD seeking to overturn the new consumer incentive rule.

HUD announced today that it has decided to delay from January 16, 2009 until April 16, 2009 the effective date of its new ban on homebuilder consumer incentives that are tied to the consumers use of the builders affiliated settlement service provider. HUDs stated purpose of the delay is to allow it time to vigorously challenge the NAHBs lawsuit on the merits of the case, and not on procedural grounds.

Authored by:

Sherwin F. Root

(213) 617-5465

sroot@sheppardmullin.com

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