On September 30th the Consumer Financial Protection Bureau - created under the sweeping Dodd Frank Act - showed it is continuing its campaign to penalize violations of kickback schemes in the real estate industry.
Citing illegal quid pro quo referral agreements as being a violation of RESPA, it sanctioned Lighthouse Title in Michigan for providing something of value to a person with an agreement or understanding that the person will refer real estate settlement services to the agency. The CFPB stated in its news release that:
Lighthouse Title entered into marketing services agreements (MSAs) with various companies, including, for example, real estate brokers, with the understanding that the companies would refer mortgage closings and title insurance business to Lighthouse. The agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse. However, Lighthouse actually set the fees it would pay under the MSAs, in part, by considering the number of referrals it received or expected to receive from each company. The CFPB’s investigation found that the companies on average referred significantly more business to Lighthouse when they had MSAs than when they did not.
This is a continuing effort by the CFPB. In June the CFPB fined a New Jersey title agency saying, "The Consumer Bureau will continue to take action against companies that seek to attract consumers through illegal schemes".
The press release against Stonebridge Title Services said: The Bureau charged that Stonebridge paid commissions to more than twenty independent salespeople who referred title insurance business to Stonebridge. Stonebridge solicited people to provide it with referrals of title insurance business, offering to pay commissions of up to 40% of the title insurance premiums Stonebridge itself received. These practices violated Section 8 of the Real Estate Settlement Procedures Act (RESPA), which prohibits kickbacks and payment of unearned fees in the context of residential real estate transactions.
Paying commissions for referrals is allowed under RESPA if the recipient of the payment is an employee of the company that is paying the referral. In this case, although the individuals received W-2 tax forms, the Bureau’s investigation determined that these individuals were independent contractors and not bona fide employees.
Certainly getting more business is the top priority of any business, especially the title insurance business. How to get that business without using popular MSA's or referral bonuses or gifts or cruises or whatever is a challenge. What about pricing? Or service? Or (oh my gosh!) quality, professionalism and accuracy?
RESPA rules are not new in this realm. Neither are kickback schemes, however they may be packaged - and they are indeed rampant in the industry even today. The above are just two examples of those that got caught.
This reminds me of the concept of commercials where the kids are asked by the grown-up, "Which house to you want to play in? The one with just books or the one with books, TV, candy and ice cream?"
What would be the potential liability of the real estate agent and broker for knowingly receiving the gift or payment? Can't the recipient also be charged with wrongdoing? Should they? Are not they also benefiting to the "detriment" of the consumer?
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© 2014 Richard P Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., AUTOMATED LAND TITLE COMPANY and ZARETSKY LAW GROUP, ATTORNEYS AT LAW, 1615 FORUM PLACE, SUITE 3A, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com Website www.Florida-Counsel.com.
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