How a Real Estate Professional Might Get Burned by RESPA
USINFO | 2013-10-31 18:00

This Overview Should Help You to Know When to Be Cautious
Congress enacted RESPA, the Real Estate Settlement Procedures Act, in order to curb abuses of the consumer in real estate settlement charges. Before the Act, there was rampant abuse of the consumer resulting in excess closing costs due to:
•  kickbacks paid for referral of closing service business;
•  business arrangements that resulted in sham services with no value;
•  affiliated business arrangements with common ownership referring business; and
•  marketing arrangements between service providers.
How did real estate brokers and agents fit into these activities? Pay attention to these items, as the things that can get you into trouble include:
•  accepting anything of value for the referral of closing service business;
•  accepting marketing help or ad space from a settlement service provider;
•  having ownership interest in a service company and referring business to it without proper disclosure; and
•  participating in any marketing or service that results in charges to the consumer that are not normal or for services not of real value.
There is not necessarily a problem if you have ownership interest in a title company and refer business to that company. However, there are very clear rules for when and how you should disclose that relationship to the consumer. As far as the marketing relationships between service providers, there are gray areas, so be quite careful. The fines are stiff , and some have lost their licenses due to these shared marketing activities. It is not legal for a title company to:
•  provide you with free marketing or ad space;
•  provide free food for your open house;
•  sponsor your annual golf outing; or
•  basically, to provide anything of value in exchange for your referrals.
You can do cooperative marketing with a title company, or have them present at an open house, but the rules are strict for compliance. A title company, as an example,can:
•  share ad space with you if you pay your pro-rata share of the cost;
•  provide handouts/promotional items if they have their logo and not yours;
•  coop direct mail if you pay your share of the cost; and
•  attend your open house and promote only their business with their sign/logo.
These are just a few of the marketing areas that have been a problem for real estate brokers and RESPA. It can get complicated, so you should run any decisions about marketing or referral of business by a RESPA experienced attorney if you have any doubt. The examples here are only to give you a broad overview of activities and their regulation by RESPA.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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