ABOUT RESPA
In 1974, Congress enacted the Real Estate Settlement Procedures Act (RESPA) to address
problems in the real estate settlement process including:
- abusive practices that increased costs to homebuyers
- lack of understanding about the settlement process and its costs
RESPA's purpose is twofold:
- to provide consumers with information about the real estate mortgage transaction
and the costs associated with it
- to prohibit certain practices, such as referral fees between settlement service
providers, that result in higher costs and reduced quality to consumers
RESPA QUIZ
How much do you know about RESPA?
Take NAR’s Quiz.
Frequently Asked RESPA Questions
Answers Provided by NAR’s Legal Counsel
National Association of REALTORS® Copyright 2007 Source www.realtors.org
The answers provided here are based on interpretations of RESPA. Real estate
brokers and agents should also check any bulletins issued on these subjects by state
regulators.
1. Q. RESPA prohibits service providers from giving anything of value in exchange
for referrals of business. Does that prohibition apply only to certain types of
service providers (i.e. lenders, title companies) from providing food at open houses
or does it apply to all service providers (i.e. home inspectors, pest control companies,
advertising companies and others)?
A. RESPA applies to settlement service providers and does not distinguish among
different types of settlement providers. A settlement service includes any service
provided in connection with a real estate settlement including, but not limited
to, title searches, title examinations, the provision of title certificates, title
insurance, services rendered by an attorney, the preparation of documents, property
surveys, the rendering of credit reports or appraisals, pest and fungus inspections,
services rendered by a real estate broker or agent, the origination of a federally
related mortgage loan and the handling of the processing and closing or settlement.
This list is broad but not all-inclusive. Anything listed on a HUD-1 form could
be a settlement service and the company providing it a settlement service provider.
2. Q. Is a home warranty company a settlement service provider?
A. As noted above a settlement service provider is one who provides services in
connection with the purchase/sale of a property that are paid for, directly or indirectly,
out of the funds at settlement. Most home warranties are sold in connection with
a property sale and therefore the company selling the warranty would be a settlement
service provider.
3. Q. If a title/mortgage company sponsors a “get-away” at a resort property for
brokers and agent and offers education, is it a violation of RESPA?
A. A title company or mortgage company paying for an educational event, so long
as the costs associated with the event do not defray the expenses that the real
estate agent would otherwise encounter, would be permissible. Note, however, that
a rule of reason should be applied. An educational event hosted by a mortgage lender
that was held at a local hotel and provided a lunch would be quite different from
an educational event held in Hawaii in which one hour was dedicated to education
and the remainder of the event was directed toward recreation.
4. Q. When a title company hosts an agent luncheon at an open house, they are providing
food in hopes of meeting agents - just as Realtors hold open houses. Doesn’t this
need to be looked at in a much more practical way and allowed under RESPA?
A. If a real estate agent requested that a title company pay for a lunch that the
real estate agent was hosting, and the title company agreed, the payment would be
a thing of value for, or in the hopes of, the referral of settlement service business.
If, however, the title company paid for the lunch, but attended the open house and
gave a brief presentation, or prominently displayed a sign indicating the title
company’s name and distributed brochures about the title company during the open
house, there is a reasonable argument that this activity is a form of advertising
and therefore acceptable under Section 8(c)(2). Again, real estate agents should
apply a rule of reason. If these activities and materials are present, a casual
lunch of sandwiches for $200 likely would be acceptable. A catered lunch by an expensive
restaurant at a cost of $800, however, would more likely be viewed as a referral
fee.
5. Q. Is it legal for a REALTOR® Association to solicit sponsorships from
affiliate members who provide settlement services for Association functions that
are not education-related such as awards and recognition ceremonies and association
fundraisers?
A. While such events provide something of value to the association, the association
is not in a position to refer business to the settlement service provider. Since
real estate agents do not receive anything of value from the affiliate member by
their attendance at these events, such sponsorships would not violate the law. In
addition, it would be helpful if some sign or brochures are posted so that the affiliate
member can claim this activity as an advertising cost.
6. Q. Does RESPA bar local boards or associations of REALTORS® or NAR affiliates
of their local chapters from accepting from settlement service providers donations
or sponsorships of meetings, awards and fundraisers?
A. Sponsorship of an association event is not prohibited by RESPA unless, as noted
above, such sponsorship means that the association does not charge brokers and agents
attending the fee that they would normally be obligated to pay. The association
is not in the real estate business and therefore not in a position to refer buyers
or sellers to the party sponsoring the event.
7. Q. Is it legal for Affiliate Members who are settlement service providers to
sponsor continuing education or new-member orientation classes?
A. It depends on whether some of the expenses an agent would otherwise bear are
defrayed by the affiliate member. In the case of an orientation course there is
probably no problem because new members pay an application fee which is the same
whether an affiliate sponsors the course or not. If the affiliate is simply recognized
as a sponsor it is similar to an affiliate running an ad in the association paper
and would be considered normal marketing activity. Sponsorship of continuing education
is more likely to be a violation because members normally have to pay a fee to attend
such programs. If the cost of the course is underwritten by the affiliate so that
the agents need not pay fees that they otherwise would have to pay, such sponsorship
could be interpreted as a thing of value received by the agent for RESPA purposes.
8. Q. Is it legal for Affiliate Members to put on education courses about the services
the affiliate member provides for REALTORS®?
A. Yes, Affiliate Members may put on classes about their business, since such informational
programs are consistent with the marketing of an affiliate's business.
9. Q. Can an Affiliate Member donate items to the Association’s Political Action
Committee auctions?
A. RESPA does not prohibit such donations, but the association should check with
a campaign finance expert.
10. Q. May a mortgage company cater the food to be offered at a broker's open house
tour?
A. Again, if the mortgage company came to the lunch and provided a short presentation
regarding interest rates and loan programs, the payment would likely be permissible
under Section 8(c)(2). Furthermore, if the mortgage company prominently displayed
a sign indicating its sponsorship of the lunch and distributed brochures during
the open house, the payment would likely be permissible. A rule of reason should
be applied. If these activities or materials are present, a casual lunch of sandwiches
for brokers could reasonably be a permissible marketing cost.
11. Q. Can brokers and agents accept from lenders and distribute to prospective
buyers flyers containing financing information? For instance, at an open house,
may a lender provide flyers that offer closing cost calculations for various down
payment scenarios, to be distributed by brokers and agents?
A. Distribution of such flyers provided by lenders does not violate RESPA. The information gathered is consistent with the real estate agent’s responsibilities
to his or her client to facilitate the sale of the property and no separate benefit
flows to the agent from the lender. The agent may not, however, accept from lenders
flyers which also promote the listed property, since that would result in the lender
bearing a portion of the agent’s advertising expenses, which are the agent’s responsibility.