Author: LegalEase Solutions
- Are ATTORNEYS exempt from Section 8 of RESPA and the Affiliated Business Disclosure?
Section 8(a) of RESPA prohibits the giving or accepting of any “fee, kickback, or thing of value” in exchange for referrals of federally related mortgage loans. 12 U.S.C. § 2607(a). Section 8(b) prohibits the giving or accepting of “any portion, split, or percentage” of unearned fees. Id. § 2607(b). Drennen v. PNC Bank Nat’l Ass’n (In re Cmty. Bank of Northern Virginia), 622 F.3d 275, 280 (3rd Cir., 2010). “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 real estate settlement service … other than for services actually performed.” Id. § 2607(b). Alston v. Countrywide Financial Corp., 585 F.3d 753, 755 (3rd Cir., 2009). The statute forbids that a “portion, split, or percentage of any charge made or received for the rendering of real estate settlement” be paid for services that are not actually rendered to the customer. …. In re Carter, 553 F.3d 979, 986 (6th Cir., 2009).
However, Section 8(c) is a safe harbor provision for certain activities otherwise prohibited by section 8(a) and section 8(b). Alston v. Countrywide Financial Corp., 585 F.3d 753, 755 (3rd Cir., 2009). Section 8(c) (1) (A) does not prohibit the payment of a fee to attorneys at law for services actually rendered. Section 8(c) (2) does not prohibit the 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. Section 8(c) (3) does not prohibit payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers.
Additionally, Section 8(c) (4) does not prohibit affiliated business arrangements so long as (A) a disclosure is made of the existence of such an arrangement to the person being referred and, in connection with such referral, such person is provided a written estimate of the charge or range of charges generally made by the provider to which the person is referred, (B) such person is not required to use any particular provider of settlement services, and (C) the only thing of value that is received from the arrangement, other than the payments permitted under this subsection, is a return on the ownership interest or franchise relationship. § 2607(c)(4). So, In case of controlled business arrangements it would be legal only if certain disclosures are made and the borrower is not required to use the affiliated provider for settlement services.
RESPA defines “settlement services” as “any service provided in connection with a real estate settlement” including, but not limited to, title searches, title insurance, attorney services, appraisals, credit reports, pest and fungus inspections, real estate agent or broker services, loan processing, etc. See 12 U.S.C. § 2602(3). “[In controlled business arrangements] the advice of the person making the referral may lose its impartiality and may not be based on his professional evaluation of the quality of service provided if the referror or his associates have a financial interest in the company being recommended.”… In re Carter, 553 F.3d 979, 987 (6th Cir., 2009).
In “controlled business arrangements,” whereby real estate settlement business is referred between two affiliated entities,… one entity is able to provide a benefit to its affiliate without the direct payment of a referral fee which … could result in harm to consumers beyond an increase in settlement charges…. Specifically, … the advice of the person making the referral may lose its impartiality and may not be based on his professional evaluation of the quality of service provided if the referror or his associates have a financial interest in the company being recommended. In addition, since the real estate industry is structured so that settlement service providers do not compete for a consumer’s business directly, but almost exclusively rely on referrals from real estate brokers, lenders or their associates for their business, the growth of controlled business arrangements effectively reduce the kind of healthy competition generated by independent settlement service providers. In re Carter, 553 F.3d 979, 988 (6th Cir., 2009).
As per the above discussions, § 8 of RESPA does not prohibit the payment of fees to attorneys for actual services rendered. However, 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 real estate settlement service. The definition of ‘settlement services’ in RESPA includes Attorney services also. So it can be concluded that except as permitted under the RESPA for receiving payments as an attorney, ATTORNEYS are not exempt from the prohibitions provided under Section 8 of RESPA.