Section 8 of the Real Estate Settlement Procedures Act (RESPA) says two short things. 12 USC s. 2607(a) bars giving or accepting any fee, kickback or thing of value under an agreement or understanding that business incident to or part of a settlement service involving a federally related mortgage loan will be referred to someone. Subsection (b) bars giving or accepting any portion, split or percentage of a settlement service charge other than for services actually performed. A violation is a crime punishable by a fine of not more than $10,000, imprisonment of not more than one year, or both, and it makes the violators jointly and severally liable to the person charged three times that charge. The Dodd-Frank Act’s 2010 amendments moved enforcement to the Consumer Financial Protection Bureau (CFPB) and left the prohibitions alone.
How Regulation X restates it
Section 1024.14 of Regulation X (12 CFR Part 1024) opens by making any violation of itself a violation of section 8, then sharpens the statute.
Paragraph (b) adds that referring a settlement service counts as no service at all, except as (g)(1) allows, and that a company may not pay another company, or its employees, for referring settlement service business. Paragraph (c) adds that a charge for which no or only nominal services are performed, or for which duplicative fees are charged, is an unearned fee; that the source of the payment does not decide whether a service is compensable; and that the ban cannot be dodged by having the purchaser split the fee.
Thing of value, referral, agreement
The section defines three of its own terms.
A thing of value is defined broadly in RESPA s. 3(2), and s. 1024.14(d) prints a list running well past cash: discounts, salaries, commissions, duplicate payments of a charge, stock, dividends, partnership profit distributions, franchise royalties, credits payable later, the chance to join a money-making program, retained or increased earnings, increased equity in a parent or subsidiary, special bank deposits or banking terms, services at special or free rates, sales or rentals at special prices, lease payments tied to referred business, trips, payment of another’s expenses, and a reduction of credit against an existing obligation. Throughout ss. 1024.14 and 1024.15 “payment” means giving or receiving any thing of value, and no money need change hands.
A referral under (f)(1) is any oral or written action directed to a person that affirmatively influences their selection of a settlement service provider, where that person will pay for the service or a charge attributable to it. Under (f)(2) a referral also happens whenever the payer is required to use a particular provider, “required use” being defined in s. 1024.2.
An agreement or understanding under (e) need not be written or even spoken. A practice, a pattern or a course of conduct establishes one. Where a thing of value is received repeatedly and is connected in any way with the volume or value of business referred, that receipt is evidence of an agreement.
The payments section 8 permits
Section 1024.14(g)(1) lists seven, and that list is closed. Two routes sit outside it: 12 USC s. 2607(c)(5) lets the CFPB specify further payments by regulation, and the affiliated business arrangement exemption in s. 1024.15(b), below, takes an arrangement out of section 8 altogether.
- A payment to an attorney for services actually rendered.
- A payment by a title company to its duly appointed agent for services actually performed in issuing a title policy.
- A payment by a lender to its duly appointed agent or contractor for services actually performed in originating, processing or funding a loan.
- A payment to anyone of a bona fide salary or compensation, or other payment for goods or facilities actually furnished or services actually performed.
- A payment under a cooperative brokerage or referral arrangement between real estate agents and brokers. The regulation says this covers fee divisions inside real estate brokerage, all parties acting in that capacity, and reaches no arrangement between a real estate broker and a mortgage broker, or between mortgage brokers.
- Normal promotional and educational activities not conditioned on referrals and not defraying expenses a referrer would otherwise have borne.
- An employer’s payment to its own employees for referral activities.
A real estate broker splitting a commission with a cooperating broker is inside item 5. The same broker taking a share of a mortgage broker’s fee falls outside it.
Pricing and multiple services
Paragraph (g)(2) lets the CFPB look at a high price to see whether it hides a referral fee or a fee split. Where a thing of value bears no reasonable relationship to the market value of what was provided, the excess covers nothing actually performed, which can be evidence of a violation. The paragraph adds that a high price alone is not proof of a violation. The referral’s own value is left out of the calculation, and it makes no difference that the giver raised no charge to cover the thing of value.
Paragraph (g)(3) governs the person in a position to refer who also performs a second service: an attorney, lender, real estate broker or agent, or a developer or builder. The payment has to be for services that are actual, necessary and distinct from that person’s primary services. The regulation’s example is an attorney taking title agent compensation, who has to do core title agent work carrying its own liability: evaluating the title search for insurability, clearing underwriting objections, issuing the policy, and where customary the commitment, the search and the closing.
Documents provided under s. 1024.14 are kept five years from the date of execution, under paragraph (h), and Appendix B illustrates the section with worked examples.
Affiliated business arrangements
An affiliated business arrangement, defined at RESPA s. 3(7), escapes section 8 where the three conditions in s. 1024.15(b) hold.
The disclosure condition: the referrer gives the person referred a written disclosure in the format of the Affiliated Business Arrangement Disclosure Statement in Appendix D, stating the ownership and financial interest between provider and referrer and an estimated charge or range of charges. It goes on a separate piece of paper, no later than each referral, or at loan application where the lender requires a particular provider. A lender referring may instead give it with the good faith estimate or a s. 1024.7(d) statement, and an attorney requiring a client to use a particular title agent gives it no later than being engaged.
The no-required-use condition: nobody making a referral has required the use of a particular provider. Two carve-outs sit inside it. A lender may require the borrower to pay for an attorney, credit reporting agency or appraiser it chose to represent its own interest, and an attorney or law firm may arrange title insurance for its own client.
The return condition: the only thing of value taken from the arrangement, beyond the payments s. 1024.14(g) allows, is a return on an ownership interest or a franchise relationship. Bona fide dividends and capital or equity distributions between affiliates are permissible, as are bona fide loans, advances and capital contributions in either direction, so long as they serve ordinary business purposes and are neither referral fees nor unearned fees.
Two liability rules travel with it. Section 2607(d)(3) gives a defense where the person proves by a preponderance of the evidence that a disclosure failure was unintentional and came from a bona fide error despite procedures reasonably adapted to avoid it, and s. 1024.15(b)(1)(iii) adds that an error of legal judgment about RESPA obligations does not qualify. Section 2607(d)(6) says a stricter state law on affiliated business arrangements is not inconsistent with section 8.
Marketing services agreements
Regulation X never names marketing services agreements, and the CFPB has no bulletin on them that this page can cite. Three provisions of s. 1024.14 decide one anyway. The payment has to be for goods, facilities or services actually furnished; it has to bear a reasonable relationship to their market value under (g)(2); and it must not track the volume or value of referrals. A monthly fee that moves with the number of loans sent over is caught by s. 1024.14(e) as evidence of an agreement, under whatever name the contract gives it.
The CFPB’s September 2023 list of HUD documents it still applies, at p. 2, includes RESPA Statement of Policy 1996-2 on sham controlled business arrangements, 1996-3 on rental of office space, lock-outs and retaliation, and 1999-1 with its 2001-1 clarification on lender payments to mortgage brokers. Each is a Federal Register document with its own citation, and each still shapes how section 8 is administered.
Sources
- Regulation X, 12 CFR Part 1024, including Appendices B and D.
- RESPA, 12 USC s. 2607, United States Code release point 119-102.
- CFPB, Other applicable RESPA documents: HUD documents, version 1.0, September 2023, p. 2.