owner financing demanding rebate

[jesslee83]

What is the name of your state (only U.S. law)? tx
i've googled, and googled...no answer! wow! anyway, wednesday(nov 4th), my husband and i were about to close on a home. we were aware that the seller REQUIRED we turn our rebate check over to him, to be applied to our principle, which would have been a total of 20% down(as is what i've heard to be "standard" on O.F.'d homes). we ended up backing out, literally at the last minute, to only be out the $500 in earnest money, which was no sweat off our backs, considering we were about to hand over $5k, plus the $6700 our rebate would have been. but my question is(yes, i do know you/we have the option to "just say no", hear me out): is it ok for them to require, and write it into the contract(or in our case, a second, separate contract), that our tax credit to have been handed over? we've been "closing" for about 3 weeks now. and i knew a little over a week ago we'd have to "give up" the tax credit, and at the moment it didn't bother me, but the owner and his seller agent kept pushing that if we didn't sign the other paper allowing him to more or less be given our tax credit, he would refuse to finance us, or even sell to us! and that was even if we obtained "real" financing, he stated that if we went through a bank, he'd just refuse to sell the house(he'd make more in the long run, due to the interest rate, which totally makes sense, you know?).

but the credit was created (in the beginning) to give homebuyers money back AFTER the purchase of a home, to ease the "monetary" burden, of "coming out of pocket" so to say(best way i could think to put it, lol). so i'm just curious, is it legal that they require this? at one point, i asked flat out if we just gave him the 20% down, "what about the tax credit? we get to keep it, right?"...and he stated no! so this little dilemna, along with some drama and being cussed up one wall and down another by the seller(i asked why the electrical inspector couldn't go into the home-he made us all leave so the inspector couldn't gain access to the inside), and he just started screaming at me to "f-you i'm doing the favor of owner finance JUST for you, i have other buyers, if you don't want the f-ing house, get the f- out and move the f- on"! (he wasn't doing US a favor, he advertised the home as owner finance or lease to own)...well, within a couple days, we ended up literally cancelling at approximately 1.5 hours before closing! especially since we couldn't afford an full inspection(and knew full well we were walking into a fixer upper, so it wasn't a big deal at first), but when our friend the electrician said the ground wires were laying on the wood in the attic, we bailed out...

ok, sorry i dragged all that out. if you get through the entire question/vent session, feel free to answer if you have a response! ha! thanks!