Respa issues berkshirerealtors

The most recent RESPA Rule makes obtaining mortgage financing clearer and, ultimately, cheaper for consumers. The new Rule includes a required, standardized Good Faith Estimate (GFE) to facilitate shopping among settlement service providers and to improve disclosure of settlement costs and interest rate related terms. The HUD-1 was improved to help consumers determine if their actual closing costs were within established tolerance requirements.

RESPA is about closing costs and settlement procedures. RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.

• Settlement service providers, such as mortgage bankers, mortgage brokers, title insurance companies, and title agents, can provide normal promotional and educational activities under RESPA. These activities must not defray the expenses that the real estate broker/agent otherwise would have had to pay. The activity cannot be in exchange for or tied in any way to referrals.

A real estate broker or agent must provide goods, facilities, and services that are actual, necessary, and distinct from what they already provide. The amount paid to a real estate broker or agent must be commensurate with the value of those goods and services. If the payment exceeds market value, the excess will be considered a kickback and violates RESPA. The payments should not be “transactionally based.” A payment for services rendered is transactionally based if the amount of the payment is determined by whether the real estate broker/agent’s services resulted in a successful transaction. Payments may not be tied to the success of the real estate broker/agent’s efforts, but must be a flat fee that represents fair market value.

• Does not receive any payments from the joint venture company other than a return on its ownership interest in the company. These payments cannot vary based on the volume of referrals to the joint venture company. The joint venture mortgage broker or title company must be a bona fide, stand-alone business with sufficient capital, employees, and separate office space, and must perform core services associated with that industry.

• A mortgage lender sponsors an educational lunch for real estate agents where employees of the lender are invited to speak. If, however, the mortgage lender subsidizes the costs of continuing education credits, this activity may be seen as defraying costs the agent would otherwise incur, and may be characterized as an unallowable referral fee.

A mortgage lender only pays a real estate agent for taking the loan application and collecting credit documents if the activity results in a loan. Before you undertake any activity with a SSP or accept any payments, goods, or services from a SSP, you should speak with an attorney familiar with RESPA and make sure the activity complies with state and local laws. Some of these laws prohibit activities that are otherwise permissible under RESPA.

A. In 1974, Congress enacted the Real Estate Settlement Procedures Act (“RESPA”) to protect consumers during the home purchase process. The purposes of RESPA include (a) giving consumers better advance disclosures of settlement costs, and (b) eliminating kickbacks or referral fees that unnecessarily increase certain settlement costs. Real estate brokers and agents must comply with RESPA. Violators of RESPA may receive harsh penalties, including triple damages, fines, and even imprisonment. While the enforcement of RESPA by the U.S. Department of Housing and Urban Development, or HUD, has been dormant in the past, HUD has stepped up its efforts in this area in the past 18 months. HUD hired new staff and entered into a contract with an investigation firm in Arlington, Virginia to conduct on-site reviews to monitor conformity with RESPA. Now, more than ever, real estate brokers and agents must ensure they are complying with RESPA.

A. RESPA prohibits a real estate broker or agent from receiving a “thing of value” for referring business to a settlement service provider (“SSP”) such as a mortgage banker, mortgage broker, title company, or title agent. Further, RESPA also prohibits SSP’ from splitting fees received for settlement services, unless the fee is for a service actually performed. Not all referral arrangements fall under RESPA’s referral restriction. In fact, RESPA and its regulation feature a number of exceptions. Three examples are promotional and educational activities, payments in return for goods provided or services performed, and Affiliated Business Arrangements. For more on these exceptions, as well a list of permissible actions under RESPA, visit the legal section of and click on the RESPA information.