Real Estate Settlement Procedures Act (RESPA)
Violating Laws Without Knowing It?
by Rachel Shepherd
Some may think that trips and baseball tickets seem like a harmless exchange for a referral of settlement services. They will want to check into the Real Estate Settlement Procedures Act (RESPA) before engaging in any such arrangement with a mortgage broker, title company or home inspector.
RESPA, a federal statute enforced by the U.S. Department of Housing and Urban Development (HUD), aims to increase disclosure to consumers and prohibit abusive tactics such as kickbacks and referral fees.
Heidi Reese Bulitta, an associate broker, certified MCE instructor and PAR member, shared her expertise at the Firm Forum during the PAR business meetings in May in Harrisburg.
“Salespeople violate RESPA laws without even knowing it,” said Bulitta, adding, “It’s the little things like sponsorships and lunch during an open house that can get agents in trouble.”
Under certain circumstances, RESPA prohibits agents or brokers from accepting gifts like concert or sports tickets from mortgage brokers and other settlement service providers in exchange for referrals. There is potential for both civil and criminal charges and violators can receive up to $10,000 in fines and one year in jail.
One well-known case involves a company which offered its sales agents prizes and incentives based on the volume of business referred to its affiliated mortgage company.
HUD alleged that the company gave a real estate agent a three-year lease on a Mercedes-Benz; paid for agents’ trips to Thailand, Las Vegas and San Francisco; provided agents with restaurant gift certificates; and gave real estate agents opportunities to win these prizes and incentives in return for business referrals.
Although the company admitted no liability in connection with these allegations, in an effort to resolve the matter the company agreed to pay a $48,000 fine, explain to all its real estate agents RESPA requirements and cease the alleged business practices.
Article 6 of the NAR Code of Ethics speaks to RESPA issues: “REALTORS® shall not accept any commission, rebate, or profit on expenditures made for their client, without the client’s knowledge and consent.”
“These are very sensitive issues,” said Bulitta. “Many people don’t know the rules so they can break them without even knowing it. Every REALTOR® needs to make sure he or she understands them completely and that settlement service providers are adhering to the statutes as well.”
Read Bulitta’s Powerpoint presentation at www.parealtor.org/content/business_meet
ing_materials.asp and click on RESPA Powerpoint presentation.