Analyzing complex federal law for real estate professionals
Real estate agents have to beware of RESPA too
By Angela Rulffes
With all the talk about new disclosure forms and
servicing regulations, it may seem like RESPA is only an
issue for lenders, closing agents and mortgage loan
servicers. That is not the case. Real estate agents also
need to be wary of RESPA.
RESPA News spoke to Ken Trepeta, director of real
estate services at the National Association of Realtors
(NAR) about the organization’s top worries.
“I would say the biggest concern is the huge changes to
the closing documents and closing process,” Trepeta said.
“We are very concerned that there will be much
confusion and many delayed closings if the proposal is
not fundamentally altered. In fact, we are advocating they
drop the back end changes almost completely and focus
on getting the upfront disclosure, [the Loan Estimate],
right.”
According to Trepeta, the Loan Estimate form, which is a
combination for the Good Faith Estimate (GFE) and the
initial Truth in Lending (TIL) disclosure, is a good start.
NAR, however, is very concerned about the final Closing
Disclosure and the issues surrounding it.
Of course, there is more to RESPA than just the
disclosures. The statute also prohibits kickbacks and the
splitting of fees. So, in order to be compliant with the law
and its accompanying Regulation X, real estate agents
must avoid interactions where they could receive money
for a referral of business.
The Consumer Financial Protection Bureau (CFPB) took
over the regulation of RESPA in July 2011, and it appears
the bureau is taking RESPA violations seriously. It’s clear
that no one in the industry should take RESPA violations
lightly.
So, what type of conduct do real estate agents need to be
wary of?
Real estate professionals especially need to be aware of
RESPA Section 8(a) and (b).
Section 8(a) states that, “No person shall give and no
person shall accept any fee, kickback or thing of value
pursuant to any agreement or understanding, oral or
otherwise, that business incident to or a part of a real
estate settlement service involving a federally related
mortgage loan shall be referred to any person.”
“Thing of value” can be tricky to define. However,
RESPA Section 3 states that it includes “any payment,
advance, funds, loan, service or other consideration.”
RESPA Section 8(b) states that, “No person shall give
and no person shall accept any portion, split or
percentage of any charge made or received for the
rendering of a real estate settlement service in connection
with a transaction involving a federally related mortgage
loan other than for services actually performed.”
What this boils down to is real estate professionals
should beware of payments for the referral of business. If
a lender offers a real estate agent any sort of gift for the
referral of business, that’s a RESPA violation. So, if
someone else is paying for something for you, the best
thing to do is ask why. If it’s because you referred
Reprinted from the October 5, 2012 edition of RESPA News
October Research, LLC * Copyright 2003-2013 * All Rights Reserved
Find us on the Web at www.respanews.com
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October 2012
business to them, then you should avoid that gift
altogether.
Remember, a RESPA violation carries significant
consequences. A RESPA violation could mean receiving a
fine of up to $10,000 for each offense and could include
imprisonment for up to one year. In some cases, RESPA
allows for a private cause of action, permitting the
consumer to sue the violator for three times the amount
the buyer paid for the settlement service.
Of course, there are exceptions to Section 8(a) and (b).
Section 8(c)(2) of RESPA states that nothing in Section 8
should be construed as prohibiting “the payment to any
person of a bona fide salary or compensation or other
payment for goods or facilities actually furnished or for
services actually performed.”
RESPA Section 8(c)(3) permits a payment that is
“pursuant to a cooperative brokerage arrangement or
agreements between real estate agents and brokers.” So, a
real estate broker can pay a referral fee to another
licensed real estate broker.
While it had authority over RESPA, the U.S. Department
of Housing and Urban Development (HUD) published
some frequently asked questions to clarify what is
considered a RESPA violation. For example, HUD says
that it is a RESPA violation for a lender to set up a
contest for real estate agents that would give the agent
who provides the lender with the most business a trip to
Hawaii. The trip, and even the opportunity to win on its
own, would be considered a thing of value given in
exchange for the referral of business.
HUD also said that joint advertising is allowed under
RESPA. It is permissible for a mortgage banker and a real
estate broker to advertise their services on the same
brochure.
The issue is who pays for what.
Both parties need to pay for their share of the
advertisement. The lender could not pay for 90 percent of
a brochure where the entire brochure is an advertisement
for the real estate agent with the exception of a small
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mention of the lender on the back page. What HUD said
was that “if one party is paying less than a pro-rata share
for the brochure or advertisement, there could be a
RESPA violation.”
A logical question might be — if a lender can’t give gifts
can they provide real estate agents with materials that
market for the lender? The answer to this question is yes.
Regulation X says that settlement service providers are
allowed to engage in “Normal promotional and
educational activities that are not conditioned on the
referral of business and that do not involve the defraying
of expenses that otherwise would be incurred by persons
in a position to refer settlement services or business
incident thereto.”
If a lender provides the real estate agent with a note pad
that has the lender’s information on it that would be okay.
It would be considered a marketing expense for the
lender alone and would be permissible as a normal
promotional item. It would pose a problem, however, if
the lender gave the real estate agent a note pad with the
agent’s information on it. The regulation says that it
cannot defray the expenses of the agent. Giving the agent
a note pad that markets the agent’s business would defray
an expense that agent would normally have to pay. Thus,
the lender is providing a thing of value in return for a
referral of business, in violation of RESPA.
Marketing agreements are also okay, as long as they are
handled with care. In compensating a provider for
marketing services, a company needs to be sure that the
amount they pay bears a reasonable relationship to the
fair market value of the services provided in order to
comply with RESPA.
Under RESPA Section 8(c), there is also an affiliated
business arrangement (AfBA) exemption. HUD set up a
10-factor test to determine if an AfBA is bona fide. If it
fails the test, then the AfBA likely violates RESPA.
It’s important to note that the referring company must
provide the consumer with an AfBA disclosure statement.
The disclosure must state the existence of the
arrangement and it must be clear to the consumer that he
or she is not required to use that company.
Reprinted from the October 5, 2012 edition of RESPA News
October Research, LLC * Copyright 2003-2013 * All Rights Reserved
Find us on the Web at www.respanews.com
RESPAnews.com
October 2012
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To avoid a Consumer Financial Protection Bureau
investigation, it’s best to review your interactions with
other settlement services providers and make sure that
you are RESPA compliant.
Reprinted from the October 5, 2012 edition of RESPA News
October Research, LLC * Copyright 2003-2013 * All Rights Reserved
Find us on the Web at www.respanews.com