Recently, I was reminded that, lately, neither in this column nor in many of the usual places had there been much discussion of the need for real estate agents to be observant of activities that fall under the scope of the Real Estate Settlement and Procedures Act (RESPA). It was a good reminder. There has been much discussion over the past few years regarding the rules and regulations regarding financing compliance, but not so much about agent interaction with settlement service providers.
In 1974 Congress enacted the Real Estate Settlement and Procedures Act, commonly known as RESPA. The provisions of RESPA were intended to protect consumers during the home purchase process. Its two main areas of emphasis were (1) the provision of disclosures regarding settlement (closing) costs, and (2) the prohibition of kickbacks or referral fees that unnecessarily increase closing costs. Section 8 of RESPA makes it illegal, except for limited specified exceptions, to give someone money or any other thing of value for the referral of a real estate settlement service. For example, if I received money, or anything of value, for referring someone to an escrow company, in most every case that would be a violation of section 8 of RESPA.
While the Department of Housing and Urban Development has for a long time been the chief enforcer of RESPA provisions, that has, since 2011, become the province of the Consumer Financial Protection Bureau (CFPB). It has become an active enforcer and agents should be aware.
Fortunately, the National Association of Realtors, keeps track of RESPA activity and of the ever-on-going issues of interpretation. In what follows, we will look at a sample of issues featured on NAR’s web page regarding frequently-asked RESPA questions.
A real estate agent is sponsoring an open house for other agents. A local title agency reimburses the real estate agent for the cost of a luncheon and the title agency does not market its title services at the open house. Is this a violation of Section 8 of RESPA?
A: Yes, this is a violation of RESPA. By reimbursing the real estate agent for the cost of the luncheon, the title agency has given the real estate agent a thing of value in consideration for the referral of business. Both the title agency and the real estate agent could be held responsible for the RESPA violation. If, however, the title company attends the open house to make a presentation or to otherwise market its services, such payments may be lawful under RESPA.
A real estate broker and a mortgage lender agree to jointly place a full-page advertisement in a local newspaper. Each company gets exactly one-half of the page to advertise its services. Each company pays one-half of the cost of the advertisement. Is this a violation of Section 8 of RESPA?
A: No, this appears to comply with RESPA. As long as the advertising costs paid by each party are reasonably related to the value of the goods or services received in return (i.e., the amount of advertising), no violation exists. [my emphasis] In the past, HUD stated that “[n]othing in RESPA prevents joint advertising [,]” but “if one party is paying less than a pro rata share for the brochure or advertisement, there could be a RESPA violation.”
A real estate broker pays its real estate agents $20 for each referral the agents make to the real estate broker’s affiliated mortgage company. Is this a violation of Section 8 of RESPA?
A: Yes, this is a violation of RESPA. Although RESPA provides an exception for payments made from an employer to its employees, payments between a real estate broker and its salespeople do not qualify for this exception. Real estate professionals are considered independent contractors, rather than employees of the real estate broker. As a result, the $20 payments described above constitute payments in return for the referral of business in violation of RESPA.
As previously mentioned, the NAR website contains a large amount of information, including regular columns, regarding RESPA Moreover, most of these pages are on the “public” side. That is, you don’t have to log in with a user name and password. Readers are encouraged to take a look for themselves, and to become familiar – if they aren’t already – with the highly relevant do’s and don’ts of RESPA as it applies both to agents and to providers of settlement services.
A few of the more accessible and relevant pages are as follows: