Enforceability Status
Tennessee permits builders to offer incentives conditioned on using a preferred lender, subject to federal RESPA affiliated business arrangement disclosure requirements. The Tennessee Residential Lending, Brokerage, and Servicing 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 Tennessee. 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 paid.
Tennessee regulates mortgage lending through the Tennessee Residential Lending, Brokerage, and Servicing Act (Tenn. Code Ann. Section 45-13-101 et seq.), administered by the Tennessee Department of Financial Institutions. The Act establishes licensing and conduct requirements for mortgage professionals but does not specifically address or restrict builder preferred lender incentive programs.
The Tennessee Consumer Protection Act (Tenn. Code Ann. Section 47-18-101 et seq.) prohibits unfair or deceptive acts or practices in consumer transactions. This statute could apply to a preferred lender arrangement that involved material misrepresentations about financing costs, though no published Tennessee cases have addressed this issue in the builder preferred lender context.
Tennessee's growing new construction markets in Nashville, Knoxville, and other metropolitan areas commonly feature preferred lender incentive programs. Buyers should exercise due diligence by comparing loan terms from the preferred lender and independent sources before committing to a financing arrangement.
Relevant Tennessee Law
Prohibits kickbacks and unearned fees in real estate settlements but permits affiliated business arrangements with proper disclosure.
Regulates mortgage lending in Tennessee, including licensing requirements for mortgage loan originators and lenders.
Prohibits unfair or deceptive acts or practices affecting consumer transactions in Tennessee.
Builders in Tennessee Using This Clause
What Tennessee 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.
- Calculate the long-term cost of the preferred lender's rate A closing cost credit may be offset by a higher interest rate over the life of the loan. Calculate total interest paid over 15 or 30 years to assess whether the incentive provides genuine long-term savings.
- 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.