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 company's affiliated settlement service provider as long as the settlement service provider's 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, 2024 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, 2024 until April 16, 2023 the effective date of its new ban on homebuilder consumer incentives that are tied to the consumer's use of the builder's affiliated settlement service provider. HUD's stated purpose of the delay is to allow it time to vigorously challenge the NAHB's lawsuit on the merits of the case, and not on procedural grounds.

Authored by:

Sherwin F. Root

(213) 617-5465

[email protected]

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