Affiliated Business: The new trend.

First off, Affiliated Business Arrangements (AfBA) are not new. They have been around for years. They are however, starting to be seen more and more. They can be seen as good or bad, depending on where you stand on this matter.

What is an Affiliated Business Arrangement?

An AfBA is when someone is able to refer business to a company that the person has part or complete ownership in.

Example:

A mortgage broker and a real estate agent decide to jointly open a title company. The mortgage broker agrees to direct his customers to the real estate agent and the real estate agent will use the title company for the closing. At the end of the year they split the profits from the title company.

RESPA (Real Estate Settlement and Procedures Act) strictly enforces these type relationships.


Anyone that is involved in an AfBA can follow these steps to be safe.

• Provide a written disclosure of the AfBA and the potential monetary gain from any transactions. Have all parties involved sign it. A great example and guide on disclosures can be found on the HUD’s website here.
  

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• Make sure the customer is aware they do not HAVE to use the AfBA. Forcing them to use the AfBA through either intimidation or any other coercion is illegal.
  
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• Do not give any form of kickback. The only money able to be received has to be for services rendered and represent ownership percentage in the receiving company.
  

For example: If the mortgage broker and real estate agent from the first example each put in 50% to startup the title company, all the profits have to be distributed representing the 50% split.



This is some basic information on how to protect yourself legally. This is by no means all that needs to be done. For more information checkout the HUD website or contact a RESPA specialist.