If you’ve shopped for new homes anytime recently, you’ve no doubt noticed tons of advertising showing huge deals on homes. Southwest Homes in the Spectrum Area in Gilbert was recently offering as much as $20,000 in incentives OR a free car or truck. Free if you consider financing a depreciating asset such as a car or truck for 30 years a good idea, of course. Many others are offering incentives up to and even past $50,000 for buyers to buy right now and help remove inventory from the builders.

However, the whole “you only get this if you use OUR lender” scenario has had many people on edge, and it looks like a buyer finally bit back:

D.R. Horton Inc., one of the nation’s largest homebuilders, is being sued by a one-time customer who says he was forced to use the company’s affiliated mortgage service to buy his home, according to a regulatory filing.

The lawsuit charges the homebuilder with violating the Real Estate Settlement Procedures Act, according to a filing with the Securities and Exchange Commission.

The complaint, filed in U.S. District Court, Southern District of Georgia, says the homebuilder required that home buyers use Horton’s affiliated mortgage company in order to get discounts and incentives.

Fort Worth-based D.R. Horton said the suit was baseless. The 32-page lawsuit was filed in June by John R. Yeatman against D.R. Horton and its mortgage company, DHI Mortgage Co. Yeatman is seeking class-action status.

“We believe the claims alleged in this action are without merit and will defend them vigorously,” the company wrote in the filing. However, the company also said that “due to the early stages of this matter, we are unable to express an opinion as to the likelihood of an unfavorable outcome or the amount of damages, if any.”

D.R. Horton shares fell 2 cents to $18.57 Thursday.

I presume we’ll see a lot of this. As Twist over at Housing Doom so eloquently puts it by quoting an article from The Motley Fool:

But when a builder offers a $99,000 discount on a newly built home, are you really buying a $300,000 home for $201,000? Or are you paying $201,000 for a home that’s really a $190,000 home spiffed up with marketing smoke and mirrors? In order to understand if you’re really getting a discount, you need to have some idea of what the home’s fair value is in the current market. Odds are, you’re not getting as big a bargain as the advertising implies — and you may be getting no bargain at all.

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Comment by Kathy - Surprise
2007-08-12 01:49:32

I almost bought a DR Horton property 3 months ago but was turned off on the rates and costs for using the inhouse lender. I still saved with the incentive, but it seemed like the incentive was just for us to get approved for a larger loan than we could afford.

We didn’t buy and I’m happy now that we didn’t. We decided to take out a 2 year lease on a great house and see what happens. Surprise is getting hit pretty hard in the bubble.

Comment by MG
2007-08-12 09:27:41

Driving around on the weekends and checking out properties out here in Gilbert is eye opening. Going a bit further and looking at homes in Queen Creek or far out in Mesa near the Pinal border is even scarier.

You can almost smell the hunger in the agent’s eyes. We call that “commission breath” :)

Comment by David Paulsen
2009-03-13 14:12:19

Looking at my son’s home, I concluded:DR Horton built homes which do not meet building standards. The ARM mortage was a financial trap.

Just my opinion.

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