I know this is just semantics, but that is the point Brian is making – in his situation, RESPA compliance is only a matter of semantics. Section 8 tenant violations must be addressed while following housing laws. This Section 8 inspection is conducted by your local Public Housing Authority. This element is given the broadest meaning possible. Choosing not purchase one will mean agents will not be able to access Fannie Mae (and eventually, probably additional Gov REO homes) along with the listings that are already using them. 12 U.S.C. Prohibition under section 8(a) against kickbacks and referral fees. HUD was a very active enforcer of Section 8 violations. When you make your report, you will need to provide enough information to convince the investigating agency that fraud seems to be occurring, and … ", Mortgage Bankers Association 1919 M Street NW, 5th floor Washington, DC 20036 (202) 557-2700 (800) 793-6222, 1919 M Street NW, 5th floor Washington, DC 20036 (202) 557-2700 | (800) 793-6222, mPower, MBA's women's networking platform, mPact, MBA's young professionals networking platform, MBA Connect (Communities), login required, Membership Directory (members only), login required, Contact your Elected Officials About Industry Issues, Attend MBA's National Advocacy Conference (NAC), To the Point with Bob (Blog from CEO Bob Broeksmit). Not to sound defeatist, but a confidential letter of warning and a fine of around $200 doesn’t seem like an outcome worth investing much of my time in. Such a structure likely violates the prohibition against referral fees set forth in RESPA section 8(a). Violators of section 8 can be fined up to $10,000 or imprisoned for one year or both...The bottom line is that mortgage lenders, brokers and others involved in servicing the mortgage industry must evaluate carefully any proposed relationship with another settlement service provider, most especially the pricing structure underlying that relationship. What does a referring real estate licensee do differently than I do? Referral relates to a settlement service. Jim and Dan – Thank you for your comments. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org. Most Common Section 8 Inspection Violations. Written or even oral contracts are not necessary. Mariana – I find that most agents really don’t understand RESPA. 2. The educational aspect has been addressed in a robust manner in almost all of the FL. Section 8 is specific in its distinction between simple referrals and payment for services actually performed. Section 8(a) “No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan … (I am providing a service, as Mariana defines the service). This is not a state law, here. Matthew – I think that this particular RESPA section is an interesting balance. The required use of the SSP's services constitutes a referral by the lender to the provider. How do you think we, as an industry, can help consumers in their quest to find a trustworthy agent? A blog post about your experience with our enforcing bodies would be enlightening and probably very entertaining to all of us who care about cleaning up our own mess. WHAT Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits unearned fees and kickbacks. Ask Ed Rybczynski. Section 8 participants can be terminated for drug-related or violent criminal activity by a household member that takes place anywhere - it doesn’t have to occur in the apartment. In the back of real estate trade magazines, I find classified ads competing on the percentage amount. Of course, that opened up an animated discussion on the value of etchics training and the lack of enforcement when the rules are violated. A RESPA violation, if reported, should trigger a HUD audit at the offender’s brokerage. We are not bigger than our clients. Some of us take listings that are out of our area of expertise. You refer clients in need of a mortgage to Brian on the condition that he refer his buyers or sellers to you. She manages Bankers' Compliance Group, a legal service the firm provides to more than 100 California banks, thrifts and credit unions, and serves as the editor of all BCG publications. The Bureau noted that "any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction." There are seventeen possible grounds for considering eviction using a Section 8 notice. I have to tell you in my local area the adherence to the rules and regs of our business is suffering a terrible drop-off. “Sanctioning Guidelines” – (Appendix VII of Part 4 of the 2011 manual for the very curious), guides member boards to impose disciplinary consequences that are progressive and fair, taking all considerations into account. I was with the police department as a patrol officer. I’d argue none of us ever should have to read it again. Don’t forget about essential workers in a post-COVID world (be kind), 7 ways to carve out me time while working from home, Why robots freak us out, and what it means for the future of AI, 4 simple tips to ease friction with your boss while working remotely, 3 things to do if you *really* want to be an ally to women in tech. Personally, I am perfectly fine with paying a referral fee to a LICENSED RE AGENT if/when they refer me a client. 1st grade level: You want a referral fee – get a license and hang it on referral at some broker’s office. As I read RESPA, I understand it means no items of value to un-licensed people for REFERRALS. There’s a heck of a lot more paperwork for one. for the elementary school where I attended first grade. In 2003, our police department here in Chattanooga, Tennessee decided to investigate waste and abuse of assisted units Section 8 and public housing. Evicting Section 8 Tenants for Violation of Lease. You try to follow-up on every case to prove that an unauthorized person is living in the unit and the tenant insists that he or she is just a “guest.”. Perhaps he was just seeing how far he could push it by cheating during an ethics test, to see if anyone else around him caught the extreme irony there. Tesla: One company, or a collection of innovative startups? Teresa – This small little section of RESPA has some far-reaching fingers. Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits unearned fees and kickbacks. The allegations in this consumer class action lawsuit largely surround issues involving violations of Section 8(a) and Section 8(c)(4) of the Real Estate Settlement Procedures Act of 1974, as amended, 12 U.S.C. I think some would be amazed at how many are turned in by settlement providers who follow the rules but are told by the agent that they use others because of what they are given by other vendors. Brian – “Is that advertising acceptable because of the license?” In my opinion, yes…. To violate the RESPA Section 8 (a) prohibition against fees, kickbacks, or things of value and the equivalent Regulation X, Section 3500.14, three elements must be present. For example, in one enforcement action the Bureau found that fees paid under an MSA agreement were based, in part, on how many referrals were received and the revenue those referrals generated. These consumers are being “referred” to real estate agents that MAY NOT BE the best fit for them.”. Easiest thing to do here is eliminate the referral fee, because you cant close the loopholes. I guess I don’t understand what “affiliated business relationships” are then …, Brian – “What service, other than delivering a rock-solid,pre-sold customer, does a referring agent bring to a licensee?”. Probably not many. the owners of certain mortgaged properties pursuant to a HAP Contract. --Section 8(b) approaches the issue in a slightly different way. Section 8 Violations to Avoid 1. I didn’t mean to rant. The tough times is producing a “Free For All” mentality among a large number of those in the field. The agent needs to choose wisely when working with a Broker. Outside of real estate, blogging and training, she loves spending time with her husband and 2 sons, reading, re-watching Sci-Fi movies and ... long walks on the beach? Missy – My hard-nosed response is that even the candybar is an “item of value” … though probabably never will cause you a problem. What specific violation would occur if neither broker was receiving a referral fee, but rather being compensated for actual work performed in originating and competing the transaction on behalf of a client? If you’re looking to become a Section 8 landlord, here’s a quick overview of what you need to know, and how to get started. courses (sales, Broker, Post-lic.). Prior to joining Aldrich & Bonnefin, she was a staff attorney (1982-1984) and law clerk (1980-1982) with Security Pacific National Bank in Los Angeles. You can also evict Section 8 for repeated or serious lease violations. Why should I have to defend my. This is probably higher in some local markets. (she’s owned more homes than most agents have sold), “Should I be able to be compensated for that referral? What I am confused about is the difference between the real estate license law and the mortgage broker license law. I KNOW that paying referral fees to unlicensed people is ILLEGAL – THUS the point of my post. What did they do that requires a real estate license, Mariana. Without the hard work on the 1st agents part (pre-home qualifying, maybe selling their home, being related …) the 2nd agent would not have that client. For example, a home builder may refer its customers (homebuyers) to a "preferred lender" with the understanding that the lender will offer reduced fees to the homebuyer but nothing to the builder. I hope this is a wave and will be washed away soon; the level of some of the folks is akin to petty criminal. “When one professional RE agent refers a “rock-solid,pre-sold customer” to another professional RE agent, I believe that the 1st agent has the right to receive a fee”. The court also may award the prevailing party its court costs and reasonable attorney's fees. Mariana, I noticed your article about RESPA violations in the Agent Genius magazine online when I Googled “RESPA violations real estate advertising”. In this current shifting real estate market, I have seen several local real estate agents reverting back to bribing non-licensed people to give them business. "The flag should never touch anything beneath it, such as the ground." Do you really think that revenue sharing, with an unlicensed “agent”, is detrimental to the consumer? To process a Section 8 tenant eviction, landlords may have to provide proof of a contract violation. We need to compare like services for like services. Purpose. According to the Bulletin, when services promised under an MSA are not performed but payments are still made, a reasonable inference can be drawn that the MSA is part of an agreement to refer settlement service business in exchange for kickbacks. The buyer has one year to bring suit, but a state AG, insurance commissioner, and HUD have three years. The consumer’s best interest is not being represented. I suggest abandoning the requirement that it be paid to a licensed real estate brokerage. find a new way around it, yielding the need for even more legislation. Two Flag Code violations were committed by this ceremony: (Section 8b.) Bob suggests that abandoning the practice of referral fees is good. Few of these reasons have anything to do with what is in the best interests of the title company. Is giving your first time home buyer a Lowe's gift card so they can buy paint a RESPA violation? Be the source of the source, but not the source. In addition, the violator may be held civilly liable for treble damages (three times the amount of the settlement service charge). RESPA applies to what is referred to as a "federally related mortgage loan," which generally speaking is a consumer-purpose loan that is secured by a first or subordinate lien on residential real property that contains a one- to four-family dwelling or a manufactured home, and is federally related in that, among other things, the lender is an insured depository institution, or the lender intends to sell the loan to Fannie Mae or Freddie Mac, or the loan is insured or guaranteed by a government agency (refer to RESPA section 3(1)). There needs to be more education. The NAR Code of Ethics takes up pages and pages of tiny print, and it runs each year in their trade magazine (I think it’s the January issue). “I know this is just semantics, but that is the point Brian is making – in his situation, RESPA compliance is only a matter of semantics”. My association’s bylaws (and probably yours) give it the power to discipline any member based on the results of a Code of Ethics hearing, “provided that the discipline imposed is consistent with the discipline authorized by the Professional Standards Committee of the National Association of REALTORS® as set forth in the Code of Ethics and Arbitration Manual of the National Association.”. Everyone (I’m certain of this) would ONLY see these as friendly gestures that have nothing to do with reciprocation. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance. “What makes my referral different from my wife’s hairdresser? When these things occur we are putting our own interests first, not our clients’. Likewise, a title company cannot compensate real estate agents or mortgage brokers for referrals. The fee goes to the broker who then pays the licensee (and frequently at the normal split). I think you’re missing something here. Recently, my awesome parents dug through a few boxes and rounded up one of my first art projects. Ethics violations in the real estate industry can make or break a Realtor’s career, depending on the severity, so it would stand to reason that all would be mindful of the rules, but there are always individuals in the field that act as if the Code of Ethics is irrelevant. The inspectors have a checklist of items that they are looking for when they look at a rental unit. Brian – I believe that licensing laws ARE about consumer protection. However, if Brian and I started SD Homes & Loans tomorrow, Brian could take a listing, originate a loan, AND receive a referral from you. 2607(d)(1). He probably didn’t mean any harm by it.” So there goes my star witness, who doesn’t want to rock the boat. If he stops bringing buyers to my properties then my sellers ultimately lose, right? Some of us don’t have Supra/e-Keys, and miss out on those listings entirely. If I don’t refer someone who does the job right, then I look bad. No. Chasing Clubhouse success? He turned wishy washy on me at that point and his story changed from “The other agent tried to get me to dump you as the listing agent to cut you out” to “Well he really only asked a few questions and I told him to call you. Third, a referral must occur. Adding MORE people to whom we can give referral fees to or taking them away all together will, in my opinion, just cause MORE need for legislation. I work very hard to do things the “right way” and I get frustrated when people don’t follow suit. While you can serve both notices to one tenant at the same time, it’s important to … “My company is a licensed real estate brokerage, in California. Section 8(b) prohibits the giving or acceptance of any portion of a fee or price paid by the purchaser of a settlement service other than for services actually performed in a RESPA-covered transaction. I have seen everything from failure to disclose to forgery in the last couple of years. I do not believe in paying referral fees to companies – just individuals… Individuals who are personally and professionally referring me clients. Some of us won’t show short sales or REOs. The hypocrisy of the middle ground is the argument with which I take umbrage. The ongoing debate about a need for a license is much deeper rooted than this level of engagement could sort out. On the other hand, the Consumer Financial Protection Bureau and state attorneys general and insurance commissioners may file suit up to three years from the date the violation occurred. Can you direct me to a RESPA “Answer Person” – authority with whom I could address my question? The Bureau issued Bulletin 2015-05 in October 2015 taking square aim at MSAs, which are arrangements by which a party who is in a position to refer mortgage business, often a larger mortgage broker, agrees to provide certain marketing services to a mortgage lender. Things are way more complicated now, than when I was six. abandon the client to find someone on their own (I’m ok with that) or b.) Should I be able to be compensated for that referral? Primary examples of such breaches include: ”. An eviction from Section 8 housing where a judge found a serious violation of the lease. The intent of this post was more general – a reminder to everyone about what is and is not acceptable, in regards to RESPA Section 8. Prior to July 2011, the Department of Housing and Urban Development (HUD) had primary responsibility for enforcement of RESPA. Unauthorized occupancy is the most difficult thing in the world to prove in affordable housing. If I share with my mail carrier that I am moving, and they offer a name; it’s important to me to know that they are only giving me this recommendation because they are getting paid – not that they actually trust the agent. My interest in picking the right agent is purely economic. – A client that Seattle Agent B does not need to “convert”. Do inter- or intra-brokerage referrals actually get listed on a HUD? Same with the lenders / settlement companies. Get all your digital organization in one place with Routine. I feel the need to HELP them find the right agent. Great discussion. Thomas – I do not operate that way. It is perfectly legal for an unlicensed friend or family member to receive a “finder’s fee” for referring real estate clients to you and being paid through or after the closing from your real estate commissions. Staff may get a salary, but it must be consistent and not connected to services rendered for a transaction. Apparently that's what someone in my office is interpreting as an issue. If RESPA starts allowing referral fees to those that are NOT licensed real estate agents, then where would the lines be drawn? I refer sellers to agents across the country, however. I understand that the focus is on unearned fees. You don’t need MLS, lockboxes of associations – just saying. The answer will most likely be, if I’m licensed. In Real Estate, some things are always changing, like financing, education, laws, rules and technology. Chatbots: Are they still useful, or ready to be retired? Brian, you always have such a way with words. We may think that by having as many listings as possible is a good thing, that’s what we’re taught after all, isn’t it? Your email address will not be published. Section 1024.14(d) also clarifies that the term "payment" is "synonymous with the giving or receiving of any ‘thing of value' and does not [necessarily] require a transfer of money.". Of course we want to thank people who help our business, and there are ways to do this that are NOT RESPA Violations. Lenders are governed by HUD and HUD is explicit about revenue sharing among lenders. Couple of areas I am working through and would appreciate input on: 1) Practical difference between real estate agents and mortgage brokers in RESPA I would like to see referral fees removed from the process completely. I am not making an overblown comment here. All Section 8 tenants are required to provide access to HPD employees to allow them to perform the inspection. Sample first-time disciplinary actions include suggestions of a letter of warning, a fine (amounts range from $200 to $5,000 depending on the severity of the violation), and attendance at relevant education sessions. “How would that agreement be “skirting” the law, when the law is only addressing referral fees or kickbacks to non-licensed persons?”. HUD was a very active enforcer of Section 8 violations. 2) Difference between simple referral (“unearned fees”) and sharing the workload of services There are plenty of alternatives to playing the Section 8 RESPA Violation game. Brian Brady Says: “What service, other than delivering a rock-solid,pre-sold customer, does a referring agent bring to a licensee?”. Violators of section 8 can be fined up to $10,000 or imprisoned for one year or both. Section 8’s can often be one of the most aggressive and complicated approaches. RESPA section 3(2) broadly defines the term "thing of value" as "any payment, advance, funds, loan, service or other consideration." As demonstrated by Hunter v. Southam, the protection of … Good cause includes non-payment of rent, another serious lease violation or a violation of the law that impacts the tenancy. These consumers are being “referred” to real estate agents that MAY NOT BE the best fit for them. It happened years ago as well, but not at this level of frequency. How would that agreement be “skirting” the law, when the law is only addressing referral fees or kickbacks to non-licensed persons? I agree with the notion to disallow referral fees outside of one’s own brokerage. There are many other examples of situations involving referrals, some lawful and some not. How I see it: If a consumer knows of someone looking to buy a house, and agent A offers $ and Agent B offer $$ and Agent C offers nothing, oftentimes the consumer will just refer the home buyer to whomever offers more $$. It is designed to: Referrals to non-licensed people (friends, family, past clients, etc.) This certainly looks like the SSP is giving a discount to the lender in return for the lender sending its tax and flood business to the SSP. That’s less than one good referral fee. You cant take a referral fee as an attorney. I teach and I sell (not a lot:) I see breach of fiduciary duty regularly. What I am unclear on is why real estate agents can make and take referrals within their own profession with no concern, while mortgage brokers, similarly licensed and regulated, are apparently not able to do so? Private actions for violations of section 8 may be brought within one year from the date of the violation. Section 8 housing refers to federally assisted housing provided by the U.S. Department of Housing and Urban Development (HUD) under Title 42, Chapter 8. I am only referring business to people who I cannot geographically service myself. Our local board has spent the last week analyzing RESPA section 9 due to an issue with lo/so remarks. The elements are easier to meet than may at first appear. more. Section 8 landlords can make good money, with a lower risk of rent defaults – at least on the government-paid portion. In this pricing model, the lender passes on fees for services provided by the SSP (tax and flood services, for example) for which the borrower pays full price, in return for the lender purchasing other services (that are included in the bundled services) from the SSP at a below-market price. Comments: The rendering of services by A to B at little or no charge constitutes a thing of value given by A to B in return for the referral of settlement services business, and both A and B are in violation of section 8 of RESPA.
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