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| For years, loan originators have had to compete against the in-house mortgage units of homebuilders — with borrowers often being penalized for going outside. But one builder that forced borrowers to use its in-house mortgage company is now facing a class action lawsuit over the controversial practice.The Ryland Group has been sued by a group of borrowers who say the Calabasas, Ca.-based homebuilder violated federal law by coercing them with cash incentives into obtaining mortgage loans from Ryland’s mortgage subsidiary.
Ryland says the accusations are groundless. Lead plaintiff Tanya Spicer purchased her Fairburn, Ga., home from Ryland in January 2006. According to Spicer’s purchase agreement, she was eligible for a credit of $10,500 towards discount points, lock-in fees and other settlement costs if she chose Ryland as her lender. However, if she decided to use another lender, the discount would be added to the purchase price of the home. Spicer says in court papers she was told she was pre-qualified for a mortgage loan through Ryland Mortgage and that she could not obtain a loan from another lender. Spicer financed the house through Ryland Mortgage. In the class action complaint filed in the U.S. District Court for the Northern District of Georgia, Spicer and her attorneys claim that Ryland requires home buyers to finance their home purchase through Ryland Mortgage under the threat of having to pay more money for their new home — a violation, they claim, of the Real Estate Settlement Procedures Act. RESPA forbids kickbacks and fee splitting in relation to real estate settlement services. But an amendment to RESPA provides an exemption for affiliated business arrangements. Ryland Mortgage is a subsidiary of the Ryland Group Inc. Ryland Homes is the homebuilding division of Ryland Group. Ryland Homes is affiliated with Ryland Mortgage. The plaintiffs say Ryland Mortgage does not meet the exemption requirements. The borrowers say that, in order for the exemption to apply, the business relationship must be disclosed and the person being referred must not be required to use any particular provider of settlement services. Ryland has denied the accusations. “The lawsuit is without merit,” a company spokeswoman told MortgageDaily.com in a telephone interview. “Ryland acted in accordance with RESPA by offering home buyers who financed through Ryland Mortgage a true discount on the price of the home. We also let our customers know that they are free to shop around to find the most competitive rates. Ryland provides each customer a disclosure that informs them that they are not required to use any of our affiliated companies.” The plaintiffs’ attorneys indicated in court papers that the lawsuit could affect thousands of borrowers. |
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