Is this Mortgage steering and/or an ethics violation? I need all your help please read and comment!

Real Estate Agent with Key Realty Group Inc. 200512291

 Anyone who can help please reply to the following question. I recently wrote an offer  as a buyers agent. . When i first met this buyer he had a pre approval from  a country wide lender in Dalla Texas we are in Eugene Or about 2000 miles away. After speaking with this lender on the phone a felt it was best for my client to use a local agent I trusted. My client met with the agent and loved her. As she is one of my go to finance people she was able to pass a little savings onto him and also lower his rate. I found him the perfect house in his price range listed at $149900.

The listing description noted that a 24" flat screen TV was to be given with seller approved financing. The refrigerator was noted in the MLS as included.  Ther was no mention of a specific lender in the MLS notes just that the TV was to be given with seller approved financing. I thought this meant he was to approve my buyers mortgage broker before accepting the offer by interviewing or other research. I totally agree with this! I assumed once he spoke with my lender and we had full bank approval we could move forward. Boy was I wrong. However I think they crossed into blatant mortgage steering. This is a complete violation of the respa  fair trade act of the early 80's. If anyone can pleas read further and help me decipher if this is indeed a violation. Also tell me when the respa act was implimented and what the statute number of this type of steering violation is.

I wrote an offer of $145000 with seller paying $5k in closingt costs. VA financing with my buyers lender. I listed all contact info for sellers approval of the financing on the sale  agreement also included the pre approval letter. We  gave 4 response days for plenty nof time for the seller to review financing. I also list the TV and refrigerator on the personal property section of the sale Oregon sale agreement.

The seller countered with this exact addendum 36 hrs after our offer had expired. This upset my buyer as he discoverd they where hoding an open house on the day they where supposed to respond. However this is not the problem or a legal concern. They sent me a counter to our offer via email.

Here is exactly how the counter offer was written.

Sellers 1st counter:

Sales price to be $152500

 25" flatscreen TV to be included in sale.

Buyer to get financing (from a different finance company than I had listed for approval).

Seller to pay $5000 in closing costs.

I was fine with the price and closing costs as was my buyer. However he did not want to use thier financing. Further more the counter offer wording is illegal. You cannot make the buyers change finance companys as a contingencie to a sale. My buyer was very upset at the prospect of having to change finance company's. I aasured him he did not have to use the  company in the sellers counter, and called the listing agent and asked if my buyer could use his own lender and seller keep his TV to try to avoid the steering situation altogether. He said indeed my buyer using this financing company was  very important  to the seller and he did not think he budge on the subject. I said "my buyer has to use the seller as a licenced morgage broker paying him a commission to purchase his house" He said yes thats what his seller insists but he will not actually be doing the loan. I said "he must be getting a referral or it would not matter as long as he was comfotable with the lender my buyer chooses". He did not answer. I then said "Thats totally illegal you know"! He told me he would call me back after speaking with his principal broker about it.

 At first the listing broker agreed that this was illegal and apologized after speaking with his principal broker. I said I was willing to forget the whole thing I just wanted my buyer to get the house and use a lender he trusted.  He then called me back after meeting with his seller 2 hrs later the same day. He stated on the phone that the counter offer wording was indeed legal because of the TV offered for seller approved finance was an incentive to use his finance company. I stated the wording did not reflect just an insentive as they where not connected in any way on the counter but two seperate contingencies to the sale. 

I discontinued the argument and told the listing broker my buyer would not take the TV as he did not know anything about this company or it's fees and rates. I also told the listing  broker my buyer had  a fiduciary relationship with his lender and it would be unethical to interfere with that. however we would be more than happy to give him time to interview the lender and open escrow only after initial approval  is satisfactory to to seller.

I then rejected sellers 1st counter and countered as such thinking once again the seller wanting to be the lender was off the table. 

Buyers 1st counter:

Sale price to be $150000

Seller to contribute $5k to closing

Buyers finance to remain the same as listed on the sale contract. and added buyers Lenders phone # name etc.

 24" TV not to be included in sale.

The seller then rejected my buyers 1st counter and counted and countered with this wor for word.

Sellers 2nd counter:

Sale price to be $154000.

seller to pay $5k in buyers closing costs.

TV not to be included in sale.

Buyer to use his own financing

Buyer to be pre approved by (The lender  the seller   works for ) within 48 hrs of mutual agreement.

I immediatly called the listing agent and said your seller is actually going to raise the price of his last counter if my buyer does not use him as a lender. He said yes. He then told me I should consider having my consulting my buyer to use  the sellers finance company to get the lower price, and end the negotiation. I said I will over look giving up the TV even though you never specified buyers where to use the sellers own finance company in the MLS listing. I can accept that is an incentive for such. Your seller can also raise the price at will while negotiating at any point before mutual agreement. Where  I Belive they are breaking the law is changing previous offers of price, and threataning not to sell (though mostly verbal the sellers 1st counter is arguablly written fact of this) unless they use the sellers finance company> Worse yet wanting my buyer to agree in a binding sale agreement with $1500 of his money in earnist without any kind of good faith.

Am I right? Is this blatant mortgage steering? If my buyer agrees to use thier financing to get the better price so he can qualify is his $1500 in earnist money going to be in jepordy if he diagrees with fees,  rate, or personallity of  the seller and refuses to use him after the good faith estimate? What would you do? My buyer still really wants this house he cant qualify for $154000. He also is not willing to use the seller or anyone associated with him for financing.

Comments (12)

Darin Haughie
Esslinger-Wooten-Maxwell, Inc. (EWM) - Pinecrest, FL

This is a tough one, surely not ethical but most likely legal?

Feb 10, 2009 11:25 PM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~

I would threaten to send all correspondence to appropriate authorities and Hud and the local rea lestate board.  I would get your broker involved.

Feb 10, 2009 11:34 PM
Team Thayer Key Realty Group Inc
Key Realty Group Inc. - Eugene, OR
We will sell your house faster for more money

 Thank guys however I just studied the respa act. This is not legal. In fact DR horton just got sued for offering insentives for using thier own mortgage company. This violates  § 3500.14 Prohibition against kickbacks and unearned fees.  of the REAL ESTATE SETTLEMENT PROCEDURES ACT.  Here it is and it covers just about every perk known to man in relation to a federally insured motgage loan including offering the TV as they did above as compensation for using a particular federally insured loan company. Wow before I found this I read about 15 blogs on here where people are saying its not a violation to offer insentives. according to this its a violation to do most of the things we all thought where OK. Everybody is reading the short abreviated version and interpriting it how they want. Read this it covers evrything we cant do when it comes to kickbacks. That means buyers and brokers

(a)  Section 8 violation. Any violation of this section is a violation of section 8 of RESPA (12 U.S.C. 2607) and is subject to enforcement as such under § 3500.19.
  (b)  No referral fees. No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in § 3500.14(g)(1). A business entity (whether or not in an affiliate relationship) may not pay any other business entity or the employees of any other business entity for the referral of settlement service business.
  (c)  No split of charges except for actual services performed. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee.
  (d)  Thing of value. This term is broadly defined in section 3(2) of RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person's expenses, or reduction in credit against an existing obligation. The term "payment" is used throughout §§ 3500.14 and 3500.15 as synonymous with the giving or receiving any "thing of value'' and does not require transfer of money.
  (e)  Agreement or understanding. An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business.
{{6-30-05 p.7005}}
  (f)  Referral--(1) A referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business.
    (2)  A referral also occurs whenever a person paying for a settlement service or business incident thereto is required to use (see
§ 3500.2, "required use") a particular provider of a settlement service or business incident thereto.
  (g)  Fees, salaries, compensation, or other payments. (1) Section 8 of RESPA permits:
      (i)  A payment to an attorney at law for services actually rendered;
      (ii)  A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance;
      (iii)  A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan;
      (iv)  A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed;
      (v)  A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. (The statutory exemption restated in this paragraph refers only to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and has no applicability to any fee arrangements between real estate brokers and mortgage brokers or between mortgage brokers.);
      (vi)  Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; or
      (vii)  An employer's payment to its own employees for any referral activities.
    (2)  The Department may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited.
    (3)  Multiple services. When a person in a position to refer settlement service business, such as an attorney, mortgage lender, real estate broker or agent, or developer or builder, receives a payment for providing additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person. For example, for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing.
  (h)  Recordkeeping. Any documents provided pursuant to this section shall be retained for five (5) years from the date of execution.
  (i)  Appendix B of this part. Illustrations in Appendix B of this part demonstrate some of the requirements of this section.

[Codified to 24 C.F.R. § 3500.14]

Feb 11, 2009 12:42 AM
Sharon Harris
Keller Williams Keystone Realty - Hanover, PA

Wow this is crazy. If I was the buyer i would run fast.  I know that this may be the home of there dreams but I would be scared of taking any risks with my money.

Feb 11, 2009 12:59 AM
James Habermehl
Eben Realty LLC - Clarksville, MD

I don't know the legalities of it. I do know that it is important always to have these conversations with agents in writing ie; email or fax. If someone did decide to take action, well the said" is not going to cut it in court. Just my two cents and that's propbably all it's worth."

May 17, 2009 06:43 AM
Tim Sandvall

Thanks Elizabeth and Justin!

I just had a buyer get their offer accepted but it was contingent upon them using the seller's lender. The buyer's agent called me and said this can't be legal can it.

I just sent back a message with this section hightlighted.

Jan 02, 2010 08:38 AM

Yes it is steering,  you should file a RESPA complaint against the Realtor and Loan Officer.

HUD's RESPA regulations also cover acts that are expressly prohibited in connection with the making of federally related mortgage loans.  Such acts are considered Section 8 violations, referring to Section 8 of RESPA (12 U.S.C. §2607).  These are things that most often get real estate agents and others involved in the real estate business into trouble under RESPA. The violations covered under Section 8 are:

1.         No referral fees.  No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person.


They mean that "any thing of value" bit, if you peruse down the the definitions. It's defined very literally by about a paragraph of text that boils down to four words: ANY thing of value. You refer business to them, they give you approvals you can count on. It doesn't matter if you require "only" a prequalification - they now have the prospective borrowers information, including credit information and home telephone number. This means that even if there's no application fee, no deposit, not even a credit report fee, you have still given that loan originator a "business relationship" with the borrower. That makes for legal consideration on both sides of the equation, and both the originator and agent are guilty.

Apr 17, 2010 03:25 AM

Tim,  Because you would receive a commission due to the information you gave to the buyer ,  you are indeed in violation of RESPA

Apr 17, 2010 03:27 AM

I just went through a similar hassle. I am a buyer, no contingiencies, pre-qualed, pre-approved, ready to go!  Not so fast - they insist that we must be pre-approved by the Seller's lender (BofA). Supposedly this is not a short sale, or an REO - just some "investment group" attempting to call the shots on my loan. As in this instance, they claim I can use my own lender. So, what does Bank of America think they are doing by looking over my personal paperwork? Obviously, it is to shake down as much as possible from any given buyer. Once they look at your balance sheet - their counter offer is created from it, not from the actual worth of a given property. This is a scam and more than blogging must be done about it. I agree with the first respondant. I am collecting all my paperwork and submitting it to HUD, State of California, National Board of Realtors, and anyone else you'd suggest.

As for my agent. She's been great, but this contingiency seemed to surprise her - she hadn't ever seen such a thing unless it was a bank owned or short sale. This week, however, we've come across a similar deal. These properties are being taken over by realty thugs. Perhaps the seller's agent was also going to get a finder's fee. Well, we at least know he was going to end up with the buyer's tv.

You see, I considered going along at first and I imagine there are people who don't understand real estate transactions who would jump right in. I worked in the escrow industry and have learned to question everything. There was no tv involved - just the demand we do it there way or the high way. We didn't budge in our offer - we offered asking price (overpriced by 30K by Zillow's estimate). They also wanted us to release $8,000.00 from escrow about two weeks before closing! Unheard of in my experience - no one gets one dollar until the key is in MY hand. Lets just say that the whole ordeal was so off putting that we walked - nay, we RAN away from that deal. The sad part is that we really wanted the property. We did alot of homework to prepare ourselves in this foray - we are not stupid - just ready buyers that need protection from a terribly crooked industry.

Yep! I said it - I know it offends, but as long as their fellow agents are doing little to report it, agents for the buyers are merely aiding and abeting the listing agent in these situations by demanding untennable terms. The net result being that an entire industry will suffer from the bad reputations earned by the greed of a few. I really do want to complain about this realtor in particular. I don't wish to lambaste realtors as a whole, but the paying customer is the Buyer, no matter how its worded in the escrow papers. The funds may get disbursed from the Seller's side, but we know who pays - and for 30 years! This agent, by voluntarily bringing these contingiencies to a buyer's agent is assisting these illegal acts. Verbally, they tell you all sorts of stuff (yea right - there's three offers, my foot!) The funny thing is, last week I noticed that the property , but every time you turn around there is a new hoop to jump through. Ironically, the home I bid on is back on the market. Seems the poor sucker that attempted escrow caught wind of the appraisal contingiencies (i.e. if the property overappraises, the buyer has to come up with the difference in cash - no re-negotiation! - at the same time they increased the price on the counter). I just hope those buyers got out with their deposit in time. I wonder how many times this agent has got away with this scam already, don't you?

Something must be done!

Jun 02, 2010 09:48 AM
Steven Wyrick
Stormin Norman Pest Control - Maricopa, AZ

Please post the results of what happens. Thanks.

Sep 02, 2010 04:35 AM
Jason M. Keith
Caliber Home Loans - Parker, CO
Equal Housing Lender

Please keep us posted on the results of this.  Very interesting story thank you for sharing!

Sep 02, 2010 04:42 AM

Just a thought, and I'm not completely clear if the seller was the lender or he had a realtionship with the lender.
It is assumed that there is a kick back some where.  What if this lender is paying closing fees for the buyer to help the seller.  Is that a kick back.  these are funds going to help the buyer buy and the seller to be able to accept the offer.

I have seen a similar situation where the seller was a lender and offerd to pay the closing cost for the buyer if used.  Other wise no closing cost would be covered and or no deal.  Same better rate and fees also.  I doubt the buyer actually ever caught wind of this because the realtor did not relay to her client. 

There are way to many assumtions here to be jumping all over the RESPA band wagon.  Yes it is very clear about the law.  What is not completel clear is the one sided story.

Sep 02, 2010 06:02 AM