The nation's largest home builder and its mortgage arm have agreed to alter their practices that the state Attorney Genera's Office alleged are deceptive.
The deal, in which Pulte Home Corp. and Pulte Mortgage LLC admit no fault, also involves the company paying out nearly $1.2 million in penalties, expenses and reimbursement to home buyers. The agreement, filed Monday in Maricopa County Superior Court, is subject to final approval by a judge.
In a prepared statement, John Chadwick, the southwest area president of Pulte Group, said the firm "respects the concerns of the Arizona Attorney General and commends the Office for its ongoing efforts to protect consumers throughout the home-buying process.'' He said the company always has "operated in good faith'' with both its customers and the state.
At the heart of the issue is a process that Assistant Attorney General Susan Segal said Pulte Homes uses with customers who are shopping for a home but have not actually signed purchase agreements.
In the legal complaint, Segal said the company encourages sales representatives to verbally "pre-qualify'' buyers, getting financial and employment information from them. She said that some consumers received assurances that they had qualified for financing at certain interest rates or payments.
It was only later, Segal's complaint says, that several home buyers learned they did not, in fact, qualify. But by that time their opportunity to cancel the purchase had expired and the only way out of the deal was the forfeit the earnest money.
Segal said there were also instances where consumer who already had financing in place were urged to instead take loans from Pulte's mortgage arm. But in the end, they did not get terms that were as good as they originally had but Pulte would not refund earnest money.
The state cited one specific instance where Pulte Home had "pre-qualified'' a customer for a 7 percent interest mortgage. Based on that, the customer signed the paperwork for the home purchase, put down $5,000 and applied for a loan from Pulte Mortgage.
But the mortgage company came back telling the buyer they could only give her a loan at 13.875 percent.
"The customer could not afford the loan which was offered and was forced the cancel the purchase agreement,'' Segal wrote. But she said Pulte refused to refund her earnest money.
In the consent decree, Pulte officials agreed to change their policies to prevent sales representatives from implying they can pre-qualify anyone for a loan from any Pulte-affiliated mortgage company.
That doesn't preclude sales reps from inquiring about income. But the decree says the only thing they can use those for are to try to understand how much home a customer might be able to afford.
It also ensures that customers have three days after any response from the mortgage company that a loan has not been approved to get back earnest money.
The company also agreed to alter its Spanish language marketing materials.
According to Segal, Pulte targets the Spanish-speaking community with advertising and a Spanish-language web site and makes available Spanish-speaking sales representatives. But she said the company has no contract documents in Spanish.
She also noted that Pulte, in its English-language materials, describes the "advantages and risks'' of various types of loans. But the Spanish versions describes only the advantages, with no mention of risks.
The company has agreed to revamp those materials.
On the financial side, the companies agreed to pay $500,000 into a fund run by the Attorney General's Office for consumer protection, education and outreach programs. It also will reimburse the office $300,000 for its expenses.
Some of that money, though, will go to a private law firm the Attorney General's Office retained to investigate Pulte. That firm, Cohen Milstein Sellers & Toll of Washington, D.C. has a contract with the state guaranteeing it a percentage of anything the state recovers from Pulte.
Segal said exactly how much the firm will get has yet to be determined. But she said it will come out of the $300,000 in legal fees.
The company also will:
- Refund $81,400 to 10 Arizona consumers who specifically complained to the Attorney General's Office about Pulte refusing to refund their earnest money;
- Put $200,000 into an escrow account which will fund any
new, legitimate claims for earnest money deposit refunds that are filed with the Arizona Attorney General s Office within 12 months of the settlement.
- Spend $100,000 to publish and disseminate Spanish-language educational materials.
Consumers who believe they have wrongfully forfeited earnest money can contact the Attorney General's Office at (602) 542-5763.