Dive Brief:
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Maryland is considering a law that would require a mortgage contingency provision in any contract between a builder of new homes and a potential buyer.
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The legislation was introduced after homebuyers complained to lawmakers that Toll Brothers refused to refund their deposits after they failed to qualify for mortgages. One homebuyer reportedly lost $52,000.
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An investigation by the local NBC affiliate revealed that Toll Brothers, which settled a class-action lawsuit filed in Maryland over the same issue in 2011, has reported more than $125 million in revenue since 2006 from down payments involving canceled contracts. The builder told the TV station the money was used “to mitigate the actual losses we incurred.”
Dive Insight:
Lawyers advise their clients to insist on mortgage contingency provisions, which require the homebuilder to return a deposit to a buyer who has signed a sales contract but is unable to obtain financing. Maryland law does not require them for new-home sales.
In fact, according to the news investigation, Toll Brothers’ standard contract informs buyers that the builder may seize their down payments if they don’t purchase the property they put on hold.
The sponsor of the Maryland legislation, State Sen. Anthony Muse, noted that the state requires mortgage contingency contracts for the sale of existing homes.
The bill’s first hearing is scheduled for Thursday.