Test your knowledge of what may or may not trigger RESPA.
By Sue Johnson, strategic alliance consultant
In its simplest form, Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) prohibits a real estate broker or agent from giving or receiving any “thing of value” for referring settlement service business. But, its potential reach is complex and more encompassing. Here are a few common scenarios involving real estate broker/agent practices that will test your knowledge of what may or may not trigger RESPA.
1. Box Lunches at Seminars. A loan officer holds a seminar for real estate professionals on the pros and cons of current loan products and provides box lunches at the seminar.
As long as the box lunches are offered to all agents who attend the seminar and are not dependent on whether the agent refers business to the loan officer, this would be considered a “promotional and educational activity” that would be exempt from RESPA.
2. Snacks at Open Houses: A local title agency reimburses a real estate professional for snacks provided at an open house.
Unlike the first scenario, this does not meet RESPA’s “promotional or educational activity” exemption because the title agency has defrayed an expense that otherwise may have been incurred by the real estate professional. The defraying of expenses is considered a “thing of value” that should not be provided to someone in a position to refer settlement services.
3. Hiring Real Estate Agents as Employees. A mortgage lender offers to hire a real estate professional as a W-2 employee for performing certain mortgage origination services on behalf of the lender.
RESPA regulations exempt any payment by an employer to a bona fide employee. However, a 1999 RESPA Policy Statement provides specific guidance on how to compensate any person who performs mortgage origination activities: the agent must complete the application and perform at least five other services on a provided list; the mortgage services must be actual, necessary and distinct from the primary services performed by the agent; and the compensation to the agent must be for the fair market value of mortgage services performed. A real estate agent hired for title work must provide “core title services” outlined in a 1996 RESPA Policy Statement. Finally, some states prohibit real estate licensees from receiving two fees in the same transaction.
4. Joint Advertising: A real estate broker and a loan officer agree to jointly place an advertisement on a web site.
RESPA’s former regulator, HUD, has stated that nothing in RESPA prevents joint advertising, but “if one party is paying less than a pro rata share for the brochure or advertisement, there is a RESPA violation.” In other words, each provider should pay for the advertising in proportion to the degree he/she is featured.
5. Gift Cards to Consumers Who Use the Affiliated Company. A real estate broker provides its agents gift cards to give to buyers who use its affiliated mortgage company.
A gift card, discount, or free service to a consumer who uses an affiliated service generally is allowed under RESPA as long as the consumer is not required to use the affiliated service; it is bona fide (meaning that its value is not made up by increasing costs elsewhere in the transaction); and the affiliated service is separately available at prevailing market prices. It’s also advisable to check with state real estate, title, and mortgage regulators, which sometimes have their own rules regarding consumer incentives.
6. Drawings for Real Estate Agents Who Use the Affiliated Company. A real estate broker tells his agents that for each buyer they send to its affiliated title company, it will include their name in a monthly drawing for a weekend hotel package.
An opportunity to win a prize is considered a “thing of value” that should not be paid to a person who is in a position to refer settlement service business.
7. Advanced Payment of Real Estate Commission. A real estate broker offers to pay its agents their portion of the real estate commission in advance of the closing if its affiliated mortgage company is used in the transaction.
The payment of money in advance of closing is a “thing of value” that should not be provided to a person who is in a position to refer settlement service business.
Naturally, the application of Section 8(a) will depend on the unique facts of any situation. Therefore, it always is advisable for a real estate broker to seek the counsel of an attorney knowledgeable in RESPA and applicable state law before implementing any program to encourage real estate professionals to use affiliated services. Many real estate brokers also find it valuable to provide RESPA compliance training for their agents to encourage compliance awareness in all of their day-to-day activities.
This article originally appeared in the October 2016 issue of the REAL Trends Newsletter and is reprinted with permission of REAL Trends Inc. Copyright 2016