RESPA: Have You Crossed The Line?
RESPA – the 5-letter word or acronym and is integral part of the Real Estate Industry.
RESPA or The Real Estate Settlement Procedures Act has two main purposes: to mandate certain disclosures in connection with the real estate process so home buyers can make informed decisions regarding real estate transactions AND secondly to prohibit certain unlawful practices by real estate professionals including Realtors, Mortgage Lenders and Title Companies, such as kickbacks, referral fees and more which can potentially drive-up costs for home buyers.
In our industry, we all need to work together on behalf of our clients to ensure a smooth homebuyer or home seller experience. Our natural instinct with business is often to show our gratitude for a job well done, especially for those business partners who go above and beyond and refer us repeat business. The world of RESPA and compliance however requires us all to walk a fine line to keep the industry balanced. Section 8 of RESPA specifically applies to Kickbacks & Referral Fees.
Review the following scenarios – are you aware of any similar situations within our industry?
Pete, the mortgage lender, has developed an extensive network of real estate agents over the years and has a core group of agents who have referred him a great deal of business over the years. Pete wants to thank his top 10 agents so he invites them out for dinner and drinks and he covers 100% of the cost.
Although Pete’s gesture of gratitude is understandable and commendable, it’s a direct violation of RESPA for both Pete and the agents, as no party should receive anything of value for referring business for a residential mortgage loan.
Jim, the real estate agent and Mary, his preferred mortgage lender are planning on doing a marketing campaign together to help boost their business in the Spring market. They meet and plan the campaign but since Jim is much busier than Mary, Mary assumes the responsibility of designing the post cards and covering all the costs of mailing them. Mary knows that Jim refers almost all his buyers to her, so spending a few hundred dollars on stamps isn’t really a big deal.
Although there is no real concern with Mary spearheading the project, any costs with design of the marketing materials and the mailing must be split evenly between both parties – 50/50. Again, the gesture of Mary wanting to cover the costs is “nice,” but it too is a violation of RESPA.
It’s the beginning of the year and Ashley, a very successful loan officer schedules meetings at a local coffee shop with her top 6 real estate agent partners. At the meetings, they discuss business strategies and goals for the upcoming year, Ashley provides a variety of information on some new loan programs that will be launched in the coming months as well as some co-marketing ideas on how they can grow their businesses together. During the meetings, some of the agents just have coffee, some have a pastry and two have a breakfast sandwich. Since Ashley extended the invitations and these are her top six agents, she picks up the tab at the coffee shop for all the meetings.
Since these meetings were for legitimate business purposes and Ashley as the loan officer provided information and education to the agent partner, there doesn’t appear to be any RESPA violation concerns. Although it’s assumed that the agents do refer business to Ashley and may continue doing so, nothing was discussed that was a condition of Ashley covering the cost. To ensure full compliance, both Ashely and her agents may want to document the meetings with time, date, location, topics discussed and cost. This is just an added layer of protection in the event any questions would be raised by anyone to ensure that no RESPA violations occurred.
ABC Title Company has season tickets to a nearby NFL team and generally allows their employees to use them for all home games. A few days before the upcoming game, the employee who was to use them can no longer attend, so the owner of ABC Title, Ralph, offers them to Barry, a local real estate agent and 3 of his team members to attend the game. Barry jumps at the chance to take his hard-working team to the game. When Barry picks up the tickets, he thanks Ralph of ABC Title and tells him “He owes him” and will be sure to try and send more business his way.
This indeed is a fine line that is obviously crossed with this whole situation. Why did Ralph offer the tickets to Barry? We can assume that Barry has referred business to ABC Title so that is concern number one. The fact that Barry also intends to send more business to ABC Title because of receiving the tickets is concern number two. And lastly, Ralph is not even attending the game with them so that is concern number three.
Some may feel that RESPA guidelines are government overreach but ultimately, they are in place to protect the consumer as well as create a fair and balanced market for all industry professionals.
Violation occurs when “anything of value” is being exchanged for referral of business which is a very broad definition, but when in doubt, it’s best to take the road of caution. The penalty for violating section 8 of RESPA is a fine of up to $10,000 and possibly one year of jail time for all parties involved in addition to the damage to your business reputation which can cause significant future losses.
The best way to show your gratitude is a smile, handshake or a hand-written thank you note – all can be considered priceless and will help drive future business.
Dan Ranck
Mortgage Loan Officer
NMLS #140989
HomeSale Mortgage, LLC
NMLS #1054689
Direct : 717.271.2400 | efax : 866.849.4320
dan.ranck@homesalemortgage.com | www.danranck.com
Facts, opinions and information expressed in the Blog represent the work of the author and are believed to be accurate, but are not guaranteed. The Lancaster County Association of Realtors is not liable for any potential errors, omissions or outdated information. If errors are noted within a post, please notify the Association. Posts represent the author's opinion and are not necessarily the opinion of the Association.
