RESPA Prohibits Real Estate Kickbacks When You Buy a Home

RESPA is the primary federal law regulating residential mortgage settlement services and/or business incident to real estate settlement services. For most of the Class Period, the United States Department of Housing and Urban Development (“HUD”) was charged with enforcing RESPA. HUD has promulgated the implementing rules for RESPA. See Regulation X, 24 C.F.R. § 3500.

As of July 21, 2011, RESPA is now administered and enforced by the Consumer Financial Protection Bureau (“CFPB”). The CFPB was established by the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). See Dodd-Frank Act §§ 1002(12)(M), 1024(b)-(c), and 1025(b)-(c); 12 U.S.C. §§ 5481(12)(M), 5514(b)-(c), and 5515(b)-(c).

RESPA was enacted, in part, to curb the problem of kickbacks between real estate agents, lenders and other real estate settlement service providers and/or providers of business incident to real estate settlement services. “It is the purpose of this chapter to effect certain changes in the settlement process for residential real estate that will result . . . in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.” 12 U.S.C. § 2601(b).

RESPA Prohibits Referral Fees and Fee-Splitting

A key component of RESPA is its dual prohibition of referral fees and fee-splitting between persons involved in real estate settlement services. RESPA Section 8(a), 12 U.S.C. § 2607(a), provides:

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any contract 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 Section 8(b), 12 U.S.C. § 2607(b), provides:

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

Duplicative Fees or Charges for Nominal Work are Prohibited by RESPA

Regulation X further explains, “A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.” 24 C.F.R. § 3500.14(c). The term “thing of value” is broadly defined in RESPA and further described in Regulation X as including:

[W]ithout limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity . . . . The term payment is used as synonymous with the giving or receiving any “thing of value” and does not require transfer of money.

24. C.F.R. § 3500.14(d).

RESPA violations are typically disguised. So a home builder or developer will give you an incentive to use a certain mortgage broker. What’s the harm, right? Well the developer may own that mortgage broker or typically the developer and mortgage broker are both owned by a holding company. This may constitute a violation of RESPA.

If you suspect that you were steered toward a broker, insurer, title company or reinsurer as part of your real estate transaction, contact Klaproth Law to schedule a free, confidential consultation.

RESPA Prohibits Real Estate Kickbacks When You Buy a Home

RESPA Prohibits Referral Fees and Fee-Splitting

Duplicative Fees or Charges for Nominal Work are Prohibited by RESPA

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