Suit claims home builder violated mortgage law
One of the nation's largest home builders is being accused of wrongly forcing buyers to finance their homes with mortgages it provided. A lawsuit filed June 20 in federal court in Atlanta against Ryland Homes charges the home builder required buyers to either use Ryland Mortgage Co. for financing or pay an additional several thousand dollars to purchase homes. Spicer bought her Ryland home in 2006, and on May 24, 2006, signed an agreement that if she used Ryland Mortgage Co., Ryland would pay approved settlement costs up to $10,500. If she chose another lender, Ryland would not pay a settlement credit and "the cost of the promotion will be added to your purchase price prior to closing."

Suit claims home builder violated mortgage law

By Lisa R. Schoolcraft
July 15, 2007

 One of the nation's largest home builders is being accused of wrongly forcing buyers to finance their homes with mortgages it provided.

 A lawsuit filed June 20 in federal court in Atlanta against Ryland Homes charges the home builder required buyers to either use Ryland Mortgage Co. for financing or pay an additional several thousand dollars to purchase homes.

 The complaint was filed by law firm Gillen Parker & Withers LLC on behalf of a Fairburn, Ga., woman, Tanya Spicer, who bought a home from Ryland in January 2006. It contends Ryland violated the federal Real Estate Settlement Procedures Act of 1974, or RESPA, a consumer protection statute designed to help home buyers that's enforced by the U.S. Department of Housing and Urban Development. RESPA outlaws kickbacks that increase the cost of settlement services.

The lawsuit seeks class-action status to represent everyone who obtained a mortgage from Ryland for the past year.

 "We believe class-action is an appropriate vehicle to challenge these practices because it will pertain to similarly situated consumers in Atlanta and across the nation," said attorney Tom Withers, who represents Spicer.

 Ryland, in a company statement, said Spicer's allegations are without merit. In doing research, the company said, it does not believe there was any wrongdoing on its part.

 Based in California, Ryland (NYSE: RYL) operates in 28 markets across the country and has built more than 270,000 homes and financed more than 225,000 mortgages since its founding in 1967. The Fortune 500 company was the fifth-largest home builder in metro Atlanta in 2005 based on the number of homes closed.

 According to the company's annual report filed with the Securities and Exchange Commission, in 2006 Ryland Mortgage Co.'s mortgage origination operations consisted primarily of loans originated in connection with the sale of the company's homes. During the year, the company originated 11,744 loans, totaling $3 billion, of which 99.7 percent was for purchases of homes built by the company.

 Spicer bought her Ryland home in 2006, and on May 24, 2006, signed an agreement that if she used Ryland Mortgage Co., Ryland would pay approved settlement costs up to $10,500. If she chose another lender, Ryland would not pay a settlement credit and "the cost of the promotion will be added to your purchase price prior to closing."

 Her home price would then go up, the suit says.

 HUD spokesman Brian Sullivan said home builders are allowed to have affiliated business arrangements, under certain circumstances, and a home builder having an affiliated mortgage lender is proper and legal if the buyer knows they are related.

 "The home builder cannot require the buyer to use that affiliate," Sullivan said.

 The gray area is when the home builder offers incentives or discounts as a way of encouraging the borrower to use the preferred lender, he said.

 The discount must be a true discount, and not just $10,000 worth of upgrades on the house, but the loan goes up $30,000, he said. "That discount cannot be made up by higher costs elsewhere in the transaction."

 HUD has been seeing more customer and industry competitor complaints that incentives are nothing more than a way to get a consumer to use an affiliated lender, Sullivan said, but he did not have any exact numbers.

 "Competitors are put at a disadvantage if they are doing business legitimately and others are offering illegal discounts or incentives," he said. "Discount and incentives are not illegal, but they must be real."

Ryland Group Inc.

• Based in Calabasas, Calif. (NYSE: RYL)
• Nationwide in 2006, it originated 11,744 loans totaling $3 billion.
• Closed 1,175 homes in metro Atlanta in 2005, ranking it as Atlanta's fifth-largest home builder.
• Entered the Atlanta market in 1971.
• Chuck Fuhr is the top Atlanta official for Ryland Homes.
  
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