RESPA Compliance Class Notes

I took a RESPA class today. Here are a few notes from the class.

RESPA - Real Estate Settlement Procedures Act 12 U.S.C. 2607 (passed 1974).

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

RESPA Rules:

1. Must be residential
2. Must be a federally insured or guaranteed loan.
3. Payments between REALTORS®, RESPA does not apply. (REALTORS® can not give to anyone who is not a licensed real estate agent.)
4. Settlement service providers (Inspectors, appraisers, title companies, lenders, etc.). Can not pay or receive something of value from them.
5. For a service provider to send food or prizes they need to be there and to make a presentation. (Open houses, real estate meetings, etc.)
6. Client appreciation gifts are not a RESPA violation.
7. Rebates to clients at closing are not a RESPA violation.
8. Client appreciation gifts or events are not a RESPA violation.
9. On a federal level the seller can pay anyone that is not a service provider fees.

Sister company, service providers have to meet a litmus test. If it is truly an in-house and not operated as a separate company you may not meet the litmus teat and could be violating RESPA. Some red flags to be careful of:

1. A large percentage of the business going to the in-house service.
2. Compensation kicking back to agents from the sister company.
3. Requiring your agents to use the in-house provider.
4. Not marketing to the general public and other real estate companies.
5. Not operated as separate companies.

It is better to keep them separate, disclose and to get good legal advice. Also check all local laws.

Fines: $10,000 per transaction.

If you are not sure, do not take the chance. At $10,000 a violation it is not worth the risk.