Enforceability Status
Michigan permits builders to offer incentives conditioned on using a preferred lender, subject to federal RESPA affiliated business arrangement disclosure requirements. Michigan's Mortgage Brokers, Lenders, and Servicers Licensing Act does not impose additional restrictions on preferred lender arrangements in new construction contracts.
Legal Analysis
Federal RESPA requirements under 12 U.S.C. Section 2607 govern preferred lender arrangements in Michigan. RESPA permits affiliated business arrangements provided the builder discloses the affiliation, the buyer is not required to use the affiliated lender, and no impermissible referral fees are exchanged.
Michigan regulates mortgage lending through the Mortgage Brokers, Lenders, and Servicers Licensing Act (MCL Section 445.1651 et seq.), administered by the Michigan Department of Insurance and Financial Services. The Act establishes licensing and conduct requirements for mortgage professionals but does not specifically address or restrict builder preferred lender incentive programs.
The Michigan Consumer Protection Act (MCL Section 445.901 et seq.) prohibits unfair, unconscionable, or deceptive methods, acts, or practices in trade or commerce. This statute could apply to a preferred lender arrangement involving misleading representations about financing costs, though no published Michigan cases have addressed builder preferred lender lock-in clauses specifically.
Michigan's new construction markets, particularly in the Detroit and Grand Rapids metropolitan areas, feature preferred lender incentive programs. Buyers should compare loan terms from the preferred lender and independent lenders to determine whether the builder's incentive provides genuine value.
Relevant Michigan Law
Prohibits kickbacks and unearned fees in real estate settlements but permits affiliated business arrangements with proper disclosure.
Regulates mortgage lending in Michigan, including licensing requirements for mortgage brokers, lenders, and servicers.
Prohibits unfair, unconscionable, or deceptive methods, acts, or practices in trade or commerce in Michigan.
Builders in Michigan Using This Clause
What Michigan Buyers Should Know
- Compare total loan costs independently Obtain a Loan Estimate from the builder's preferred lender and at least one independent lender. Compare interest rates, origination fees, and total closing costs to determine whether the builder's incentive offsets any cost differences.
- Request the affiliated business arrangement disclosure If the builder's preferred lender is affiliated with the builder, federal law requires a written disclosure. Ask for this document and review the financial relationship.
- Understand the incentive structure Determine exactly what incentives are tied to using the preferred lender, such as closing cost credits, rate buydowns, or design upgrades. Calculate the dollar value and compare it against potential savings from an independent lender.
- Review lock-in deadlines carefully Preferred lender clauses often include rate lock deadlines and application timelines. Understand these dates to avoid forfeiting incentives or delaying your closing.