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Topic 7. Unfair Contract Provisions or Marketing Practices
Introduction
VA may impose sanctions, such as debarment, suspension, or LDP against participants who use contracts of sale, or methods or practices in the marketing of properties, which are unfair or prejudicial to veteran-purchasers. Unethical practices based upon experience and standards generally observed by reputable homebuilders and other reputable program participants are
barred by VA, and
grounds for sanctions.
Note: Chapter 9 provides examples of unfair contractual provisions or features.
Unfair Marketing Practices
Unfair marketing practices include, but are not limited to
enforcement of unfair contractual provisions
requiring purchasers to execute so-called “contracts” which legally bind the purchasers but do not bind the seller to deliver the property when completed to the purchasers
Example: limiting a seller’s liability to the refund of the earnest money deposit
advertising that a property or project is “VA guaranteed” or “VA approved” or “VA inspected” in such a way as to lead veterans to believe that VA guarantees the construction and workmanship
Note: “VA financing available,” “Eligible for VA financing,” or similar advertising is acceptable.
delaying tactics on the part of the builder to postpone completion of the property or the closing of the sale after completion in an effort to induce the veteran to agree to a modification of a firm contract such as
- the substitution of inferior materials
- the omission of appliances, or
- an increase in price.
failure of the seller or agent of the seller of proposed or newly constructed property to place deposits or downpayments received from veteran- purchasers in a special trust account , as required by 38 U.S.C. 3706
- failure to place downpayments or earnest money deposits in a trust fund or in escrow when required by law or by local practice on existing properties, or
- failure or inability of the seller to return the deposit when and if required under the contract when it is not required or not customary for these deposits to be “isolated,” and
failure of the seller of proposed or newly constructed property to state in the sales agreement, when applicable, that the property was or will be constructed under FHA compliance inspection procedures pursuant to section 203(i) or 221(d)(2) of the National Housing Act.