RESPA
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CONSUMERS


It’s all about the consumer. 

As real estate agents and settlement service providers, we find the work of assisting homebuyers and sellers rewarding and inspiring. Our professional ethics, as well as the law, demand that we are diligent in protecting the interests of everyone involved in the process. The Real Estate Settlement Procedures Act (RESPA), as well as similar state laws, outlines strict practices to ensure the consumer is protected in the process.

Why RESPA? 

Passed by Congress in 1974, RESPA’s purpose is twofold: first, to provide adequate information and disclosures to make sure homebuyers understand their obligations and second, to eliminate kickbacks and referral fees, which could potentially steer customers into more expensive products and services, adding unnecessary costs to the transaction.
 

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CONSIDERATIONS

 
According to RESPA,
what is a referral fee or kickback?

RESPA considers a referral fee or kickback anything of value that a settlement service provider or mortgage lender gives to a real estate agent or other party in a position to refer settlement service business, in exchange for the agent or other party referring settlement business to that service provider.
 
What is a “thing of value”
under the RESPA rule?

A thing of value can cover a wide range of payments and activities. Here are some examples of practices that are prohibited:
  • Receiving a referral fee for each order sent to a title agent or lender
  • Accepting a weekly catered lunch for your staff from a service provider
  • Allowing a lender to send your office staff on a cruise
  • Accepting season tickets to a sporting event
  • Demanding a big fee for the use of a space for closings within a brokerage
  • Letting a title agent or lender pay for the expenses of your open house
  • Providing a brokerage with a copier/fax machine
  • Accepting a “prize” of any kind for entering a contest to send in the most orders to a title agent or lender
  • Agreeing to a marketing services arrangement where the settlement services company pays a disproportionate amount to co-market services
  • In some cases, accepting free continuing education classes
 
This is a relationship business and there has to be some coordination between agents, lenders and settlement service providers. What is OK?
It is OK to refer your clients to reputable lenders and settlement service providers, as long as there is not a fee or thing of value provided back to you for that referral, and the consumer is not “required” to use a certain provider.  Please note, however, that in light of recent enforcement actions by the Consumer Financial Protection Bureau (CFPB), any references to “preferred” lenders or settlement service providers, or actual or implied endorsements of specific lenders or settlement service providers, should be avoided.
 
Can a lender or settlement service provider advertise their services at my open houses?
Yes, as long as the fee paid to advertise those services represents the fair market value of the advertising exposure that they receive. It is also permissible for lenders and settlement service providers to engage in normal promotional and marketing activities, such as distributing literature advertising their services or providing pens, notepads or other useful items of nominal value to the homebuyers or sellers, as long as it is only the lender’s or settlement service provider’s company branding on the items.  You should note, however, that some state laws impose stricter requirements than those under RESPA, so you should consult with your legal counsel to ensure that your advertising activities comply with all applicable laws and regulations.
 
Can I purchase an advertisement in a magazine with a lender or settlement service provider?
Yes. Joint advertising between a real estate agent and a lender or settlement service provider is technically permitted under RESPA as long as the parties share the cost of an advertisement in a manner that is commensurate with their relative share of the exposure in the ad. For instance, if the ad is divided 50/50, each will pay half. If the real estate agent is featured in 80 percent of the ad and the title company, for instance, occupies the remaining 20 percent, then the cost would be shared 80/20.  As noted above, however, some states’ laws and regulations are stricter than RESPA, so you should consult with your legal counsel to ensure that your advertising activities comply with all applicable laws and regulations.  In addition, many settlement service providers and lenders are reluctant to participate in joint advertising with real estate agents and others in a position to direct settlement service business due to increased enforcement activities by the CFPB.  Accordingly, those parties may have additional requirements regarding joint advertising activities or be unwilling to participate at all in these type of arrangements.
 
A title agent wants to use my conference room for closings and has offered to pay for the use of the room. Does that violate RESPA?
Technically, if the title agent pays fair market value for the conference room, that does not violate RESPA. However, the CFPB has expressed serious concerns regarding the legality of office sharing arrangements between parties in a position to refer settlement service business and lenders or settlement service providers.  Also, state laws may impose additional limitations on these type of arrangements that are more restrictive than RESPA.  Accordingly, before entering into this type of arrangement, each party should seek its own legal counsel to structure the agreement in a manner that ensures strict compliance with RESPA and applicable state laws and regulations.

 

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CONSEQUENCES


Violation of RESPA Section 8’s anti-kickback, referral and unearned fee rules are subject to criminal and civil penalties. Prior to the passage of the Dodd Frank Act in 2010, there was negligible enforcement of Section 8 by the Department of Housing and Urban Development, the federal agency responsible for implementing RESPA, and enforcement often focused more on the person providing the fee or thing of value. Today, however, the CFPB is responsible for enforcing RESPA and has been aggressive in investigating and fining both individuals and companies found guilty of violating the statute.
 
State laws can be equally onerous. In 2017, a real estate agent was fined $5,000 by the Minnesota Department of Commerce for allegedly accepting meals and other entertainment from a title company. The title company was fined $45,000 for its alleged participation.
 
If a real estate agent, mortgage lender or settlement services provider is considering entering into any kind of business arrangement covered by RESPA, it is imperative to consult a qualified RESPA attorney to determine the legality of the arrangement before signing on the dotted line.
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