RESPA Q & A-TRID

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The National Associations of Realtor as compiled below a list of questions that we commonly receive about the Real Estate Settlement Act, or “RESPA”, for both real estate professionals and REALTOR® associations.  Note the opinions below do not constitute legal advice and it is recommended that you consult with an attorney if you have questions about how to comply with RESPA.

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?

Answer:
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.
Quick Quiz

Fill in the Blank:
By 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

 

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?

Answer:
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. In the past, HUD 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 could be a RESPA violation.” Without guidance to the contrary, we assume the CFPB would agree with HUD’s statement.

 

The owner of a title agency meets the owner of a real estate brokerage firm for dinner at a local restaurant. The purpose of the dinner is for the two individuals to discuss future marketing opportunities. After the discussion has ended, the owner of the title agency pays for the real estate broker’s dinner. Is this a violation of Section 8 of RESPA?

Answer:
No, this appears to comply with RESPA. The owner of the title agency can pay for dinner and not violate RESPA because the purpose of the dinner was business related and was not a payment for the referral of business.

 

 A mortgage lender devises a contest among local real estate agents where the real estate agent who refers the most customers to the lender will receive a vacation cruise to Alaska. Is this a violation of Section 8 of RESPA?

Answer:
Yes, this is a violation of RESPA. The vacation cruise is a thing of value in exchange for the referral of business and violates Section 8’s anti-kickback provisions. Both the mortgage lender and the real estate professionals can be held responsible for the violation under RESPA.
Quick Quiz

Fill in the Blank:
The vacation cruise is a thing of   in exchange for the referral of business and violates Section 8’s anti-kickback .

 

 A title company places a fax machine in the office of a real estate broker to expedite the process of placing title orders with the title company. The title company expects that the real estate broker will refer business to the title company if the broker can quickly send information to the title company. The fax machine is used only for communication between the real estate broker and the title company. The real estate broker has a separate fax machine for general business. Is this a violation of Section 8 of RESPA?

Answer:
No, this appears to comply with RESPA. The title company provides the fax machine in exchange for actual services from the real estate broker and the fax machine is dedicated to business conducted only with the real estate broker. If, however, the real estate broker uses the fax machine both for business with the title company and its general real estate business, this may constitute a violation of RESPA.

 

A settlement provider conducts real estate closings in the conference room of the real estate broker with the expectation that the real estate broker will refer closing business to the settlement agent. The settlement agent pays fair market value to rent the conference room for each closing. Is this a violation of Section 8 of RESPA?

Answer:
No, this appears to comply with RESPA. A settlement service provider may rent a conference room or other office space from another settlement service provider, as long as it pays fair market value to rent the space. Fair market value should be based on what a non-settlement service provider would pay for the same amount of space and services in the same or a comparable building.
Quick Quiz

Fill in the Blank:
A service provider may rent a conference room or other office space from another settlement service .

 

 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?

Answer:
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.

 

A homeowner’s insurance company gives a real estate broker marketing materials, such as desk calendars, pens, and notepads, all of which promote the homeowner’s insurance company’s name. Is this a violation of Section 8 of RESPA?

Answer:
No, this appears to comply with RESPA. RESPA regulations provide an exception to Section 8 for normal promotional and educational activities that are not conditioned on the referral of business and that do not defray expenses that otherwise would be incurred by persons in a position to refer settlement service business.

 

 Do RESPA’s prohibitions on referral fees apply to all settlement service providers?

Answer:
Yes, RESPA applies equally to all settlement service providers and does not distinguish among different types of settlement providers.  A settlement service includes any service provided in connection with a real estate settlement including, but not limited to, title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, home warranty companies, services rendered by a real estate professional, the origination of a federally related mortgage loan, and the handling of the processing and closing or settlement.
Quick Quiz

Fill in the Blank:
A settlement service includes any provided in connection with a real settlement including, but not limited to, title searches, title examinations, the provision of title .

 

 Can a title/mortgage company sponsor a luncheon for real estate professionals and offer CLE?

Answer:
Maybe—this would need to be evaluated on a case-by-case basis.  A title company or mortgage company can sponsor an educational event as a way to promote its services, so long as the costs associated with the event do not defray expenses that the real estate agent would otherwise encounter and are not conditioned on the referral of business.  Note, however, that a rule of reason should be applied.  An educational event hosted by a mortgage lender that was held at a local hotel and provided a lunch would be quite different from an educational event held in Hawaii in which one hour was dedicated to education and the remainder of the event was directed toward recreation.  Additionally, the title/mortgage company would need to be promoting its services during the event as well in order to qualify for the advertising exception.

 

Can real estate professionals distribute to prospective buyers flyers containing current loan rate information branded by the mortgage lender?

Answer:
Yes, the flyers appear to comply with RESPA. The providing of current rate information is consistent with the real estate professional’s responsibility to provide information to his or her client about the current real estate market and no particular benefit flows to the mortgage lender.  However, the real estate professional may not accept from lenders flyers which also promote the listed property, since that would result in the lender bearing a portion of the real estate professional’s advertising expenses.  Also note that the MAP Rule would apply to the providing of this information. Learn more.
Quick Quiz

Fill in the Blank:
The providing of current rate is consistent with the real estate professional’s responsibility to provide information to his or her client about the current real estate market and no particular benefit flows to the lender.

 

In my business model, I pair buyers with real estate professionals in different geographical areas based upon information I received from consumers and from participating real estate professionals.  I receive a referral fee from the other broker when a deal settles (I am a licensed broker). Can I expand my business model to pair real estate agents with mortgage brokers (and collect a fee) without violating RESPA?

Answer:
No, this would violate RESPA.  Section 8(c) of RESPA contains exceptions to RESPA’s prohibitions on kickbacks.  One of the exceptions is cooperative fees paid between real estate licensees, including referral fees.  However, no such exception exists for payments made to mortgage brokers and so this would not be a permissible practice.

 

 Is it a RESPA violation for the agent to refer her clients to the Bank’s loan officer knowing that her receipt of future REO listings from the Bank may be dependent on the referrals she sends to the Bank?

Answer:
Yes, this may violate RESPA.  Section 8(a) prohibits payments for referrals, and providing a listing in exchange for referrals is a thing of value.  It also requires an agreement between the parties for the referral arrangement, but this arrangement can be implied from the conduct of the parties and does not necessarily need to be reduced to writing.  If the conduct of the parties could demonstrate that there was a referral arrangement, then this would violate RESPA.  For example, if it could be shown that the REO listings given to the real estate professional was in direct proportion to the number of referrals received by the real estate professional, then it is likely that an agreement could be implied and this would violate RESPA.
Quick Quiz

Fill in the Blank:
Section 8(a) payments for referrals, and providing a listing in exchange for referrals is a thing of .

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