Kickbacks for Detroit Conference Rooms
More tips on RESPA law, guidelines and violations for real estate agents and loan originators from former HUD investigator and RESPA expert, Dr. Gary Lacefield.
This week Dr. Lacefield addresses a kickback case involving conference room rentals in the Detroit area. When another free conference room is only three blocks away, it’s no wonder HUD began asking questions. The result was $80,000 in settlements.
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Conference Room Rental Leads to Kickback Case
The Department of Housing and Urban Development announced separate settlement agreements totaling $80,000 with four Detroit area real estate brokers for violations of the Real Estate Settlement Procedures Act (RESPA). The settlements follow a related agreement with Metropolitan Title Company which HUD determined paid these real estate brokers for the use of conference rooms at rates substantially higher than their fair market value.
HUD reached agreements with the following real estate brokers in the Detroit area: RE/MAX Masters; RE/MAX in the Hills; Hometown One Associates (doing business as Remerica Hometown One); and, Schweitzer Real Estate, Inc. (doing business as Coldwell Banker Schweitzer Real Estate). In each case, HUD determined that these brokers received conference room rental fees from Metropolitan in excess of the general market rate for comparable room rentals.
While charging or paying room rental fees does not violate RESPA, the excessive charges and payments made in these circumstances were designed with the intent to disguise referral fees that would clearly violate the anti-kickback provisions of law. Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business.
Brian Montgomery, Federal Housing Commissioner stated that “Whether you give or whether you receive a thing of value in exchange for the referral of business, it’s against the law” “RESPA speaks to both sides of this equation and HUD, for its part, will vigorously enforce the law when it comes to controlling kickbacks, whether you pay or whether you’re paid.”
Last July, HUD reached a settlement with Metropolitan Title Company for paying excessive hourly rates to lease conference rooms from real estate brokers. HUD investigators researched the general market value of conference facilities in the Detroit area and found the average hourly rental of comparable rental space was much lower than what Metropolitan paid to these brokers.
HUD determined that Metropolitan Title Company paid real estate brokers for the use of conference rooms at rates substantially higher than their fair market value in violation of RESPA’s anti-kickback provisions. While charging room rental fees does not violate RESPA, HUD found that the excessive payments made in this case were designed to disguise referral fees that the law prohibits.
The settlement agreement accused Metropolitan of violating both Section 8(a) of RESPA as well as HUD’s Rental of Office Space, Lockouts and Retaliation. SOP 1996-3 sets forth the factors that HUD uses to determine whether conference room rental agreements between settlement service providers are legitimate room rentals, or whether they constitute illegal kickbacks for referrals of settlement services.