What is a “Referral” under RESPA?

by | Dec 1, 2017 | Legal Tips

We have recently examined various topics involving the Real Estate Settlement Procedures Act also known as RESPA.  As we have discussed, one of the main tenants of RESPA is that a settlement service provider may not pay a real estate agent for closing referrals.  Section 8(a) of RESPA states that 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.

Today we look at how the Consumer Financial Protection Bureau (CFPB) defines “referral.”  One of the main defenses to alleged violations that the real estate industry has been espousing is that regulators should focus on whether or not the person “affirmatively influenced” another person to utilize the service.  They argue that because there was no action to affirmatively influence the other person there was no quid pro quo and thus, no violation. They argue that since the party receiving the payment did nothing to push that referral, the payment could not have been for a referral .*

The CFPB recognizes that such arrangements are rarely so clear-cut and that most financial arrangements for referrals have been created to disguise the payment.  As such, regulators have held that the mere use of a settlement service provider is sufficient “if the regulator could draw a connection, however tenuous, between the payor and the payee.”* The connection does not even have to be contemporaneous to the payment.

Therefore, having a scheme where there is a transfer of a “thing of value” can be illegal if the end result is more referrals to the paying service provider. It is important to understand that there does not have to be an affirmative action on behalf of the real estate agent to push the referral for the payment to be illegal. Simply using that service provider who has paid the real estate agent a thing of value may be sufficient to show the connection to the illegal payment.

BLAIR CATO PICKREN CASTERLINE is proud to announce the Brandon Gregg was sworn in by the South Carolina Supreme Court on November 13. Brandon is now working in our Columbia office and will concentrate on estate planning, probate and real estate. Brandon is from Newport News, Virginia. He graduated from Hampden-Sydney College and the University of South Carolina School of Law. He lives downtown with his wife, who teaches second grade, and their two dogs. 

*For more information on referrals see RESPA Section 8 Under the New CFPB Interpretation (2015) by Jeffrey W. Kibbey

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