Why is Understanding RESPA so Hard?

by | Oct 27, 2017 | Legal Tips

RESPA(8)(a) states a simple concept: a person or entity may not give, accept, or transfer a fee, kickback, payment, commission, gift, tangible item, special privilege, or any other thing of value to any other person in exchange for a referral of business in a real estate settlement transaction.  If the statement is so clear why is it so difficult for real estate professionals to understand?  

The problem with the statute is threefold.  First, the language is somewhat vague and is often left open for interpretation.  For example, what does the statute mean by  “thing of value”? What exactly is in “exchange for a referral”? Does there have to be an agreement that I will give you something if you give me a closing? Cases over the years have tried to address these issues but the rulings tend to be inconsistent. 

Secondly, over many years of enforcement the regulatory boards such as HUD and CFPB  have issued conflicting and vague rulings.  The regulators have not relied on precedent and tend to suggest that the rulings cannot be relied upon by the industry.  This means you cannot use a previous case as evidence that what you are doing is allowed. Most importantly almost all guidance from the CFPB has been through punishments, rather than through bulletins or orders.  This is most unusual for the CFPB because in other areas of consumer protection the CFPB has issued warning statements to the industry.  

Lastly,  the real estate industry has a long history of  hiding bad acts behind creative means or “work arounds.”  The industry knows that paying for business is illegal but some in the industry try to subvert the law with schemes such as office rental, desk rental, conference room rental, dummy companies and  bogus marketing plans. The CFPB recognizes that companies are still violating RESPA by using these schemes. For example, after Marketing Service Agreements fell out of favor with the CFPB companies simply changed the names of the documents.  Jeffrey Kibby, General Counsel of Sierra Pacific Mortgage, once said “What has emerged from uncoordinated and overlapping enforcement is a patchwork of interpretations that invites disingenuous attempts to subvert the intent of the statute and its regulation through dangerously myopic interpretations and practices.”  Basically, people have gotten more creative with their schemes but the schemes are still illegal. 

The stark reality is that a lawyer can rarely tell you that a joint marketing plan is legal under RESPA.  I have had service providers tell me: “our lawyers have vetted this and it is legal.”  When I hear that I ask them how sure they are. When they say 100% I then ask them to indemnify my client against any fine or attorney fees my client incurs if their lawyers are wrong. Then I sit back and watch how quickly they back-track.

Did You Know?  Halloween originated from the ancient Celtic festival of Samhain when people lit bonfires and wore costumes to ward off ghosts.  In 609 Pope Boniface IV dedicated November 1 as “All Saints Day” and incorporated some of the traditions of Samhain. The day was also call “All-hallows” from Middle English. The night before became known as All-Hallows Eve and eventually Halloween. In the 1800’s, borrowing from Irish and English traditions, Americans began to dress up in costumes and go house to house asking for food or money. This practice became known as “trick-or-treat”.  For more see www.history.com. 


Photo by JohnE777

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