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Lender Offering Gift Card at Closing for Mortgage

Question: 
May a lender offer a gift card at closing for a mortgage loan, and would this then be disclosed on a loan estimate or closing disclosure?
Answer: 

by John Burnett:

The lender can offer the borrower an incentive for closing the loan, and that incentive can be a gift card, as long as the business issuing the gift card isn't a settlement services provider (that would not be common).

The gift card has no involvement in the real estate transaction, and isn't part of the closing funds. It would not have a place on the loan estimate or closing disclosure.

Such an incentive would be covered under IRS rules for reporting on form 1099-MISC, with a $600 reporting trigger (aggregating all such incentives or other payments to the same individual during the calendar year).

Answer: 

by Richard Insley:

Section 1026.17(c)(1), OI #19 says "...Such premiums and rebates must be reflected in accordance with the terms of the legal obligation between the consumer and the creditor. Thus, if the creditor is legally obligated to provide the premium or rebate to the consumer as part of the credit transaction, the disclosures should reflect its value in the manner and at the time the creditor is obligated to provide it." Since the gift card is value provided to the consumer, if s/he has a contractual right to claim it, then the cash value of the card would be treated as an advance to the borrower. It's value would be added to the Amount Financed and reflected in the APR.

Answer: 

by John Burnett:

I defer to Richard if there's a contractual right to the gift card. Certainly if you advertise that you will provide a gift card for closing a loan, you may (consult local counsel) have an obligation to provide it and you'll have to disclose it, etc., as Richard has explained. That might change the lender's mind a bit.

First published on 06/30/2019

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