High Cost "Freebies" Not Free

Dealers make "freebie" offers to get people to the lot, and it appears to work. Although free gifts have nothing to do with the long term value of a mobile home purchase, consumers report responding to offers of free appliances, a free car, a free vacation, a free cell phone, a free coupon book, and more.

A McAllen woman heard a radio announcement in January 2000, promising that consumers who bought a mobile home would also get a free car. She called to confirm the offer, then went to the dealership, where she filled out a credit application and paid a $25 fee. She later added a $1,000 down payment and purchased a home, but never got the promised car. According to the dealer, the sales people that made that promise had been fired and there would be no car.(1)

Most consumers report less costly offers. A dealer advertised that consumers who came to the lot could pick up a free gift worth $100 and a get a zero down loan on their home. Another consumer reported an advertisement that highlighted a "Summer Saver Package" with $1200 worth of "deluxe" appliances for consumers who bought today. But the consumer priced the models after they were delivered and found that they were lower end models worth less than claimed. The dealer agreed to upgrade the dishwasher after the consumer wrote to the Attorney General.(2)

In general, buying a home based on the appliances, free furniture offers, or other gift deals is a mistake. "Free" stuff is not actually free. Instead, the costs will be added to the loan or to the underlying purchase price of the home itself. Mr. B. of Itasca, Texas reported several enticing freebies including $500 in cash and $3,000 in furniture. "We were also given a free drawing and whatever we drew from the jar was a free gift for buying the home," he wrote to the AG. "We drew a free 8'x10' deck for our home. But in the end never received the deck because...they had to cut it out of the deal to make the deal work. So once again, you are not receiving a free drawing, it is something you have to finance into your deal, and you have to pay for it on a 30-year note!"(3)

Dealers who pad the home price or the loan will make thousands on the sale, and consumers who look only at the monthly payment can be fooled if the payment remains low enough. Since most loans today are made for terms of 25 or 30 years (rather than the 15 year loan standard a decade ago),(4) there is room to increase the underlying cost considerably while still offering reasonable monthly payments. But extras wrapped into a retail installment contract leave consumers "underwater" for many years. While a majority of contracts include the cost of property insurance, home warranty plans or credit insurance, some also include credit card payments, trips and more.

When a Sunland Park, New Mexico couple took their closing documents home from an El Paso dealership, they found that the purchase price was much higher than expected and the payments were more than they could afford. They had expected to pay $43,900 for the home, but the closing documents gave a price of $48,546. The higher price apparently included the cost of a satellite dish, a $1,000 gift certificate from Sam's Club, and a package trip to Orlando Florida or Las Vegas. "Mr. Villanueva stated that this could not be removed from the contract because it was part of the deal," they told the Attorney General.

The day after signing, they attempted to cancel the deal because they couldn't afford it, but the dealership refused. When the consumers said they couldn't afford the payments, the dealer encouraged them to "be positive" and "accomodate the expense." Restating his legal right to keep the title to their existing home, the dealer finally agreed to rescind the contract after receiving letters from the Attorney General.

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1 Complaint to Office of the Attorney General, filed 5/4/00, McAllen, Texas.

2 Complaints to Office of the Attorney General, filed 3/10/00, Marion, Texas and filed 2/23/00, Houston, Texas.

3 Complaint to the Office of the Attorney General, 4/20/99, Itasca, Texas.

4 Berenson, Alex, Trailer Owners and Conseco are Haunted by Risky Loans, New York Times, November 21, 2001. Most of the loans we reviewed in detail were made for terms of 25 or 30 years, and we found relatively few 15 year loans. 30 year loans were made by most of the major lenders in the Texas market, including Green Tree (Conseco), Green Point, CIT, 21st Century, Oakwood Acceptance and many others.

5 Complaint to Office of the Attorney General, filed 8/23/99, El Paso, Texas.