RESPA Police Target Title Agents
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.
Dr. Lacefield discusses how Title Companies continue to be a stationary target for regulators, particularly sham operations from the state perspectives in Texas, Ohio, Colorado and California just to mention a few.
View the RESPANewsUpdate.com video here. This educational video and the RESPANewsUpdate.com website were created by WebCasting.com, based in Dallas, Texas. This video is provided for free, compliments of Premier Mortgage Funding, Inc and Century 21 Mike Bowman, Inc.
For more about Dr. Lacefield, his training and compliance programs and CDs, please visit RiskMitigation.net or GoGetRealEstate.com/Get/GLacefield.
RESPA Police Target Title Agents
RESPA requires full disclosure with the primary purpose of eliminating abusive kickback practices and referral fees resulting in the reduction of the amount homebuyers have to place in escrow and reforms and modernizes local recordkeeping and land title information.
There are four primary elements HUD reviews that are violations of Section 8(a) including a settlement service involving a federally related mortgage loan, referral of business to or part of a settlement service pursuant to an agreement of understanding, payment of receipt for a fee or thing of value and a payment in consideration for the referral of business rather than for goods or facilities furnished or services performed.
It is confusing from a compliance standpoint regarding split fees because the federal district courts that have addressed the Section (b) issue are split (no pun intended) on their interpretations of the statutory language and the deference granted to HUD. The 4th, 7th and 8th circuits have found that there must be a split of the unearned portion of a fee between two more parties in order for a violation to occur.
In Echevarria v. Chicago Title and Trust Co. a 7th Circuit decision in 2001 where the plaintiffs alleged the title company had charged them more money than was required to record a deed and retained the difference. The 7th District Court found that the title company had not violated Section 8(b) because it had not shared the excessive fees with any other party and a mere mark-up charged by a third-party vendor does not constitute a RESPA violation.
In 2002, in Boulware v. Crossland Mortgage Corp. where consumers in this class-action suit alleged that the mortgage lender charged $65 for credit reports that cost $15 or less and retained the difference, the 4th Circuit held that the mortgage company’s mark-up was permissible because Section 8(b) is not a price control provision and does not apply to overcharges or the marking up of third parties’ fees.
Finally, in Krzalic v. Old Republic Title Co. (7th Circuit, 2002), the class-action plaintiffs alleged that Old Republic charged them $50 for recording their mortgages but paid the county recorder only $36 and retained the $14 difference. The court found in favor of the title company and held that RESPA was not a price control statute, that there was no kickback and that Section 8(b) does not prohibit markups that are not split between two or more parties. The judge said that HUD’s view was “contorted” and “silly.”
After the ruling, HUD released a statement reiterating its position that no split was required as stated in Regulation X. Since the statement, two circuit courts have sided with HUD and reasoned that a split in the unearned portion of a fee between two or more parties is not required to constitute a Section 8(b) violation.
Title agents can legally get money into the hands of real estate agents, homebuilders and lenders.
The exceptions to the anti-kickback prohibitions include:
- Payments to an attorney for services actually rendered.
- Payments by a title company to its duly appointed title agent for services performed in the issuance of a title policy. *
- Payments by a lender to its dully appointed agent for services performed in making of a loan. *
- Cooperative agreements between listing and selling Realtors. *
- Payments by an employer to its employees. *
- Payments for services actually rendered by goods actually provided. *
- Payments among affiliated business arrangements.
Phil Schulman, a noted attorney and a RESPA expert has stated “If you are a title agent and you want to rent a desk at a real estate broker’s office, you can pay the real estate broker to rent the desk. Is it duplication if they are being paid? No. So if he charges you fair market rent for the space, it’s not a violation. If you pay him three times the value it is a violation.”
Schulman also has stated that, “Marketing agreements are also kosher under RESPA. A real estate broker can put a title agent’s banner on its Web page, put up a rack in its office with a title agent’s brochures or allow access to staff once a month, among other things. The difficult part in this is determining fair-market value.” Schulman likens the cost to advertising in the Wall Street Journal compared to advertising in the small county newspaper. Schulman states that, “You aren’t going to pay the same price for a company with one office and 10 agents as opposed to a company with 10 offices and a hundred agents.”
You want to ensure that the costs and fees associated with your marketing efforts are reasonable based upon the venue and marketing service provided. HUD enforcers will certainly require that you quantify and qualify those costs and/or payments for RESPA compliance.