RESPA, Referrals California Real Estate Exam Flashcards

RESPA, Referrals California Real Estate Exam Flashcards Some shared marketing does not violate RESPA.houseSue discovered that you can do cooperative marketing with a title company, or have a title company present at an open house, but the rules for compliance are strict. A title

company, as an example, can:Share ad space with you if

you pay your pro-rata share of the costProvide handouts/promotional items if these handouts have the title company's logo and not yoursCo-op direct mail if you pay your share of the costAttend your open house and promote

only its business with its sign/logonote_icon NOTE: These

are just a few of the areas in which licensees have run afoul of RESPA regulations. If in doubt, a licensee should run any decisions related to the marketing or referral of business by a knowledgeable attorney.RESPA violations may not involve overcharging.Sue-a big fan of Law and Order and other legal shows-wondered if there were any legal cases related to RESPA. Of course there were, she found, considering the issues that had swirled around the topic with those unpleasant closing surprises for consumers! Although RESPA was originally enacted to prevent overcharging of consumers, a service provider may violate RESPA even when charges are customary. In a landmark case, Alston v. Countrywide Financial Corp., the U.S. Court of Appeals for the Third Circuit ruled that a lawsuit alleging RESPA violations against a major lender can move forward even though the borrower who filed the suit wasn't overcharged.In this case, the borrower obtained a mortgage loan from Countrywide Home Loans (which later merged with Bank of America).The borrower was also required to get private mortgage insurance, as is customary, because her down payment amounted to less than 20% of the home purchase price.Countrywide referred her to a group of seven private mortgage insurers, all of which were required to reinsure their mortgage insurance with Balboa Reinsurance Co., a subsidiary of Countrywide.The borrower brought a class-action lawsuit against Countrywide, claiming that its captive reinsurance arrangement amounted to a disguised kickback, which would violate RESPA. The trial court dismissed the borrower's lawsuit, but the case was successfully appealed, with the Court of Appeals deciding that an overcharge is not required to bring a RESPA action.Instead, a consumer can bring a lawsuit for any charge that allegedly involves a kickback or fee split that violates RESPA. The case was sent back to the lower court and resulted in a $34 million settlement claim against the Countrywide unit of Bank of America.Sue made this note

and underlined it several times: RESPA is serious

business! She was glad she set aside this time to learn everything she, could because she didn't need any more bumps in her professional road.field trip VIRTUAL FIELD

TRIP: To read this case, click here.

Real estate professionals can violate RESPA in any of the following ways.Sue listed the following under the "What

NOT to do" section of her notes:Accepting anything of

value for the referral of settlement service businessAccepting marketing help or ad space from a settlement service providerHaving ownership interest in a service company and referring business to it without proper disclosureParticipating in any marketing or service that results in charges to the consumer that are not normal or for services without real valueSue understood that it's one thing to have ownership interest in a title company and to refer business to that company. It is quite another to do this without disclosing your relationship, or in a manner that suggests this is the only title company the consumer may use (which reminded Sue of Jill the Buyer and that $2,000

service fee!)Sue made a new section in her notes: "What

MAY be done" and wrote the following information: It is not

illegal to share marketing costs with an affiliated business.But "sharing marketing costs" is a gray area, so Sue added the caveat that licensees should be very careful when they do so. Fines and sanctions for RESPA violations are stiff and can include loss of license. Sue noted that a title

company may NOT:Provide you with free marketing or ad

spaceProvide free food for your open houseSponsor your annual golf outingProvide anything of value in exchange for your referrals Sue found an article that provided the following red flags

that will pique the interest of RESPA enforcers:Juggling

shares. Don't rearrange share percentages in an affiliated

service business each year based on the volume of business a salesperson submitted the previous year, or divide profits based on referrals instead of ownership interest in the venture.Delaying affiliated business arrangement disclosures. Don't wait until closing to reveal that a service is provided by an AfBA. Disclose the fact at or before the time of referral.Tying the monthly marketing agreement fee to referrals. Don't make the mistake of basing the next year's marketing fee on the number of referrals received in the previous year.Paying third-party sales representatives on a commission basis. Only W-2 employees may receive transaction-based compensation under RESPA.Using a real estate practitioner as a mortgage broker. Taking a loan application is an actual and necessary service, compensable under RESPA, but most states require anyone acting as a loan officer or negotiating a residential loan for compensation to have an active mortgage loan originator's license.Receiving less than market value for services, such as payroll, performed for an affiliated business. Make sure the fee bears a reasonable relationship to the value of the service.Basing office rental rates to third-party service providers at a brokerage on a monthly services fee similar to that charged to real estate agents at the company. Calculate charges for space on the fair market value of the square footage under the lease.Compensating referrals from past customers. Giving a gift certificate to a past customer, as opposed to a current one, for every friend or relative of theirs who closes with your title agency violates Section 8(a) of RESPA.Contracting out substantive services. Affiliated businesses are expected to use their own employees to provide such core services to the public.Offering sales associates office-wide incentives for referrals to the

broker's affiliate service business.Source: "10 AfBA

Mistakes That Violate RESPA," REALTOR®.org magazine.The Many Ways a Real Estate Licensee MaymoneyViolate RESPACongress enacted RESPA to curb abuses against the consumer in real estate settlement charges.Sue was curious about the types of abuses against consumers that were occurring before the act was passed. She found that excess closing costs were due to behind-the-scenes

dealings, such as:Kickbacks paid for referrals of closing

service businessBusiness arrangements that resulted in sham services with no valueUndisclosed affiliated business arrangementsMarketing arrangements between service

providers that resulted in increased settlement costs for consumers Mark is a real estate licensee found in violation of RESPA.What is the worst case scenario for his penalty?Congratulations! That's the correct answer!D. Fine of up to $10,000 and jail time of up to one year In Carter v. Welles-Bowen Realty, 493 F. Supp. 2d 921 (6th Cir. 2009), the plaintiffs did not allege that they were overcharged for the title insurance or settlement services.Sue reviewed the case further and found that the defendants argued that "Congress did not grant a right of action to private plaintiffs to seek recovery of damages