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Banking Interpretations

Banking Law 591-a 

August 3, 2004

[ ]

Re: Request for response regarding a developer's ability to contractually direct a purchaser to a particular lender or mortgage broker.

Dear [ ]:

Your July 28, 2004 letter to the Legal Division, New York State Banking Department (the "Department"), has been referred to me. You request a response to concerns you raise, in connection with a developer's (the "Developer") ability to contractually direct a potential purchaser (the "Purchaser") to a particular lender or mortgage broker (the "Licensee").

According to your letter, the Developer steers Purchasers to the Licensee by including in the sales contracts (the "Contracts"), the names of specific Licensees, which the Buyer must use for his/her mortgage needs. Provided that the Buyer freely enters into the Contract, without duress etc., then such Buyer has effectively agreed to use the particular Licensee. Whether such terms can be enforced in a Contract is a matter to be determined by a court of law: a determination outside the jurisdiction of the Department.

Based on the foregoing, the Department will be unable to direct you to any specific state statutes or sections of the Real Estate Settlement Procedures Act ("RESPA") that can be effectively used to stop the Developer from being involved in the business practice outlined in your letter.

Please note that, in the event the Licensee is giving a "kickback" to the Developer, then the Licensee would be violating Section 8 of RESPA (12 U.S.C. 2607) as outlined in § 3500.14 (a) and (b) of RESPA.

I trust this is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan 
Assistant Counsel

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