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Title Company Marketing Service Agreements Draw $200,000 RESPA Penalty

The following article is copyrighted by and reprinted with the permission of the Association of Real Estate License Officials (ARELLO).

A recent enforcement action announced  by the Consumer Financial Protection Bureau (CFPB) serves as a timely reminder  of federal Real Estate Settlement Procedures Act (RESPA) provisions that govern the business relationships, and marketing services agreements in particular, between “settlement service providers” including real estate licensees.

Among those provisions, RESPA section 8(a) prohibits giving or accepting a “fee, kickback, or thing of value” pursuant to an agreement  or understanding to refer business related to real estate settlement services for a federally-related mortgage loan [12 U.S.C. section 2607(a)].Covered services include, but are not limited to, those provided by title compani es  attorneys,surveyors, appraisers, real estate agents/brokers, mortgage loan originators and others.

In the real estate industry, marketing services agreements (MSAs) are sometimes executed to create a business relationship in which a real estate brokerage agrees to market or promote the services of a title or mortgage company, for example, which pays a marketing fee to the brokerage. In general, such agreements are not necessarily unlawful. However, any “fee, kickback or thing of value” that is given or accepted for the referral of settlement service business violates RESPA and can have serious consequences;such as cases in which MSAs are used to circumvent RESPA through payments to real estate brokers that are disguised as advertising or marketing fees.

In its recent announcement,the CFPB said that Michigan-based Lighthouse Title will pay a $200,000 civil monetary penalty for illegal “quid pro quo” agreements. The CFPB found that the company entered into MSAs with various companies, including real estate brokers, with the understanding that the companies would refer mortgage closing and title insurance business. According to the CFPB, the agreements made it appear that payments would be based on marketing services the companies would provide to Lighthouse. However, the CFPB said, “… 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 also found that “The companies on average referred significantly more business  to Lighthouse when they had MSAs than when they did not.” Pursuant to a stipulated consent agreement, the company agreed to pay the civil penalty, but neither admitted nor denied the CFPB findings.

The CFPB’s announcement and consent order do not specifically identify the MSA terms, or the services provided by real estate agents and/or others, that allegedly violated RESPA. However,the order notes that repeated payments “connected  in any way with the volume or value of the business referred” are evidence of a prohibited referral agreement. Also, “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 exempt.” And, “A fair market value… is based only on the value of the goods or services in and of themselves and cannot include any consideration of the value of any referrals of [settlement service] business…” [citations omitted].

In addition to the civil penalty,the company must refrain from entering into future  MSAs to provide any “thing of value” to any person who is in a position to refer RESPA-covered mortgage settlement service business, in exchange for advertising or endorsing the company’s services; except mass advertising provided by a non-settlement service provider.

This article came from the October 2015-Vol46-2 edition of the bulletin.

Subdivision Street Disclosure Issues

By Steven L. Fussell, Senior Consumer Protection Officer

When listing and selling properties in residential subdivisions, especially newly developed subdivisions, brokers should check on the status of the streets (public vs. private). Brokers should not assume that all streets are public. All streets essentially begin as private streets and some eventually become public streets.

A public street is one that was constructed in compliance with state (North Carolina Department of Transportation – NCDOT) standards and then was transferred to the NCDOT –  usually upon the sale of a certain number of dwellings along the street or in the subdivision, .

Upon acceptance of a street by the NCDOT, ownership and maintenance of the street will lie with the NCDOT. During the period between the construction of the street and the transfer of the street to the NCDOT, the developer and/or the lot owners are responsible for street maintenance. A street that is constructed to State standards, but falls into disrepair while waiting for the NCDOT to accept the street, may have to be repaired by the developer and/or residents before the NCDOT will accept it.

Private streets may or may not be constructed to state standards and the responsibility for maintaining them remains with the developer and/or the residents who live along the street. Persons who live on private streets that were not constructed in compliance with State standards would be wise to have a written road maintenance agreement signed by all of the property owners on that street.

Pursuant to North Carolina General Statute § 136-102.6(f), developers are required to give lot purchasers a subdivision street disclosure statement. This requirement applies to the first sale of a lot. Brokers who list lots for developers should remind the developers of the requirement.

There is no standard preprinted form for making this disclosure. Brokers assisting buyers of lots from developers should request a copy of the disclosure statement from the developer. Brokers who list and/or sell homes in relatively new subdivisions should inquire about the status of the roads, because the roads may not have been transferred to the NCDOT and a buyer may bear some or all of the responsibility for road maintenance until this transfer occurs.

The high cost of maintaining and repairing streets makes the status of a street a material fact. Over the years, the Commission has dealt with a number of complaints, usually from buyers who learned after their closings that the streets in their subdivision were private and that they would share in the cost of maintaining and repairing the roads.

In a few cases, buyers learned shortly after their closings that the neighborhoods were preparing to issue assessments to obtain the money necessary to repair the streets. In one case, the buyer of an unimproved lot in a 20-year old subdivision learned that the streets in his section of the neighborhood were private. Two years later, the streets had fallen into such disrepair that public school buses and emergency vehicles were unable to travel the streets.

Astute brokers will add “Verify street status” to their regular transaction checklist and verify the status of streets in order to better protect their clients. To verify that a street has been accepted into the State system, you may visit either the NCDOT website, https://apps.ncdot.gov/srlookup/, and enter the necessary information or go to www.ncdot.gov/doh/divisions/, hover over each division on the state map to determine the correct division for the county in which a road is located, click on the correct division and select “Directory” to contact someone within that division to confirm that a street has been accepted into the state system.

Verifying that a street has or has not been accepted into the State system will better protect your clients as well as reduce the incidence of complaints and the likelihood of disciplinary actions against brokers.

This article came from the October 2015-Vol46-2 edition of the bulletin.

FHA Drops Anti-Flipping Waiver, 90-Day Rules Reinstated

The following article is copyrighted by and reprinted with the permission of the Association of Real Estate License Law Officials (ARELLO®).

The U.S. Federal Housing Administration (FHA) has announced that, for the first time since 2010, it will  not extend its waiver of the “anti-flipping rule”; which means that, effective December 31, 2014, federal regulations will prohibit the use of FHA-insured financing to purchase single family properties that are resold within 90 days of their previous acquisition.

The FHA defines “property flipping” as the practice in which recently acquired properties are resold for a considerable profit at an artificially inflated price, often as the result of a lender’s collusion with an appraiser [or other transaction participants, such as mortgage originators and real estate licensees.]

According to the FHA, most property flipping occurs within a matter of days after acquisition, and usually with only minor cosmetic improvements, if any, to the property.

In an effort to preclude the practice with respect to FHA-insured mortgages, HUD issued a final rule in May 2003 [24 CFR 203.37a] that prohibits the issuance of FHA insurance if the contract of purchase and sale for the property securing the mortgage is executed within 90 days of the prior acquisition by the seller.

Under the rule, re-sales occurring between 91 and 180 days and between 91 days and one year, from acquisition may be eligible for FHA insurance,  subject to special valuation documentation requirements. Exemptions from the resale restrictions apply to HUD and other federal agency sales of real estate-owned (REO) properties, sales by approved nonprofit organizations, sales by state- and federally-chartered financial institutions and government-sponsored enterprises (GSEs), and sales of properties in designated federal disaster areas.

In 2010, the FHA waived the 90-day anti-flipping rule in order to encourage investors to renovate foreclosed and abandoned homes, help stabilize real estate prices and support communities with high foreclosure activity.

To qualify for the waiver, transactions had to be “arm’s length” (as defined by the waiver rules) and if the sale price was more than 20 percent above the seller’s acquisition cost, the lender was required to take specific steps to document and justify the increase.

FHA’s waiver of the 90-day rule has been periodically extended through 2014, with strong support from industry groups such as the National Association of REALTORS®.

However, the Office of the Inspector General for the U.S. Department of Housing and Urban development (OIG-HUD) recently issued a report raising concerns about HUD’s oversight of lender compliance with the waiver requirements The OIG report estimated that the situation presented significant risk to the FHA Mutual Mortgage Insurance Fund (MMIF), which supports the insurance program. The OIG recommended that HUD either strengthen tis oversight controls or discontinue the waiver at the end of 2014. FHA apparently has made its choice, announcing in early December that it will not extend the waiver beyond December 31, 2014.

In a November news release, RealtyTrac®, “the nation’s leading source for comprehensive housing data”, released its “Q3 2014 U.S. Home Flipping Report” showing that 26,947 U.S. single family homes were “flipped” (purchases followed by re-sales within 12 months) nationwide in the third quarter of 2014.

The statistic represents 4.0 percent of all U.S. single family home sales and is down from 4.6 percent in the second quarter of 2014 and 5.6 percent in the third quarter of 2013; the lowest level since the second quarter of 2009.

This article came from the October 2015-Vol46-2 edition of the bulletin.

Six New Videos Added to Video Library

The Commission’s Video Library has added six new videos covering:

Real Estate Safety – common sense safety guidelines for brokers to follow

Trust Account Reconciliation – how to reconcile trust account records to comply with Commission rules

Broker-in-Charge Statement of Eligibility – how to maintain your broker-in-charge eligibility

Complaints – how to file a complaint

AMP Licensing Examinations for Brokers – everything you need to know about testing for a broker license

Continuing Education Requirements – CE requirements in order to maintain a broker license

This article came from the October 2015-Vol46-2 edition of the bulletin.

Schools, Instructors Outstanding Examination Performance Records July 1, 2014 – June 30, 2015

The North Carolina Real Estate Commission monitors applicant performance on the license examination and regularly reports this information to schools and instructors. In particular, the Commission  uses information about the performance of applicants who are taking the licensing examination for the first time in order to assure that quality instruction is being provided in prelicensing courses by schools and instructors. The most recent performance record for each school can be found on the Commission’s website at http://www.ncrec.gov/Pdfs/Schools/LicExamPerfRep.pdf.

The overall examination performance (passing rate) for all first-time candidates taking the comprehensive real estate examination for the license year July 1, 2014 – June 30, 2015 was 60%. The Commission congratulates each of the following schools and instructors for achieving an outstanding examination performance record of 80% or higher during the most recent annual reporting period. The Commission recognizes that to have students perform at such a level on the license examination requires a combination of high quality instruction and high course completion standards.


Agent’s Choice School of Real Estate, Charlotte  Central Carolina Community College, Sanford  Sandhills Community College, Pinehurst  Pitt Community College, Greenville  American Properties Real Estate School, Jacksonville.


Travis Everette   Stephen Lawson  Jack Marinello  Andrew McPherson   Arthur Poling  Tiffany Stiles  Erica Thomas   Kathy Woodell   Melea Lemon  Parker Dunahay  Oscar Agurs   James Weese  Jan Secor  Christopher Barnett   Judith Elliott   Roy Faron   Scott Greeson   Allan Nanney, Jr.   Pamela Trafton   Pamela Vesper

This article came from the October 2015-Vol46-2 edition of the bulletin.

Miriam Baer Elected as ARELLO President-Elect

Miriam J. Baer, Executive Director of the Real Estate Commission, has been elected as President-Elect of the Association of Real Estate License Law Officials (ARELLO)®.

This article came from the October 2015-Vol46-2 edition of the bulletin.

Cindy Chandler Named 2015 REALTOR® of the Year

Cindy S. Chandler, Chairman of the Real Estate Commission, has been named 2015 REALTOR® of the Year by the North Carolina Association of REALTORS®.

This article came from the October 2015-Vol46-2 edition of the bulletin.

New TILA-RESPA Integrated Disclosure Rules Effective October 3, 2015

By Glenn M. Wylie, Consumer Protection Officer 

Summarized from 2015-16 GenUP/BICUP materials)

Major changes are coming October 3, 2015 to the disclosure and settlement forms used in most residential loan transactions. The former Good Faith Estimate will be replaced by the Loan Estimate and two Closing Disclosure forms, one for the buyer and one for the seller, will replace the HUD-1 settlement statement. The timing of the delivery of these forms/disclosures will also be strictly defined and mandated. While a broker’s responsibilities regarding these matters will not change, it is important that residential brokers are informed regarding these new forms and requirements.

The new TILA-RESPA integrated disclosure rules (TRID rules) were required by the Dodd-Frank Act to eliminate duplicate forms lenders were required to provide under TILA and RESPA. The new integrated disclosure forms, the Loan Estimate and the Closing Disclosures, must be used by lenders in transactions involving federally related mortgage loans governed by RESPA as well as loans for personal, family, or household purposes subject to the Truth in Lending Act (TILA). What triggers the new rules is receipt of a loan application on or after October 3, 2015 for a loan made by an institutional lender and/or to be sold in the secondary market that will be secured by a lien against real property owned by the borrower. Essentially, the new rules will affect most residential transactions involving a mortgage.

Beginning October 3rd, lenders must provide a Loan Estimate (or denial) to prospective borrowers within three (3) business days of loan application so long as the borrower has provided the lender the following information: 1) legal name, 2) statement of gross income, 3) Social Security Number, 4) property address, 5) estimate of property value, and 6) amount of mortgage loan requested. The lender may request other information, but may not require documentary support of the information prior to issuing a Loan Estimate.

Of greater importance to brokers are the new Closing Disclosures, one for the borrower/buyer and the other for the seller. The Closing Disclosure is a statement of final loan terms and closing costs.

TRID rules permit a settlement agent to provide the seller with a separate Closing Disclosure or with a copy of the Buyer/Borrowers’ Closing Disclosure as long as it contains all of the seller’s transaction information. If the settlement agent provides the seller with a separate Disclosure, then the settlement agent must also provide a copy of the Seller Closing Disclosure to the borrowers’ lender, but not to the borrower. While the buyer will not necessarily see the Sellers’ Closing Disclosure, the buyer will have a summary of the sellers’ side of the transaction on page 3 of the buyer’s Closing Disclosure, as with the current HUD-1.

A broker’s obligations concerning the accuracy of settlement statements have not substantially changed with the new forms; however, the information will be found in different locations. The Commission is aware that in some cases, brokers may not have access to the form for the other side of the transaction.

The change that may have the most significant impact is the requirement that the lender must ensure that the borrower receives the completed Borrower Closing Disclosure three (3) business days prior to consummation (defined as the point at which the borrower becomes obligated to the loan). If the Closing Disclosure is delivered to the borrower by any method other than personally, the lender generally must add three more business days for delivery, meaning that it must be sent not later than six business days prior to settlement. For Closing Disclosure purposes, “business day” includes Saturdays, excluding only Sundays and ten federal public holidays. If it is mailed or delivered electronically, the borrower is considered to have received the Closing Disclosure three business days after it is delivered or placed in the mail. However, if the lender has evidence that the borrower received the Closing Disclosure earlier than three business days after it is mailed or delivered, it may rely on that evidence and consider it to be received on that date. For example, if the borrower has consented to receive the Disclosure by email and then acknowledges receipt of the Disclosure by email, the three-day clock starts from the date the borrower acknowledged receipt.

THE 3/6-DAY TIMELINE FOR ADVANCE DELIVERY OF THE BORROWER’S CLOSING DISCLOSURE IS MANDATORY AND GENERALLY CANNOT BE WAIVED. While it is the lender’s responsibility to comply with these requirements, brokers must educate their clients and customers about these timelines. Other important facts to know:

1) The 3/6-day advance delivery applies only to the Borrower’s Closing Disclosure. There is no rule requiring advance delivery of the Seller’s Closing Disclosure. Delivery must be to the borrowers personally, not to a broker acting as a buyer agent.

2) The lender, not the settlement agent, will decide whether to issue one or two separate Closing Disclosures and any other settlement statements. If the lender decides to issue two separate Closing Disclosures, a broker acting as a dual agent should only give each party that party’s Disclosure.

3) Only three changes will require a new borrower Closing Disclosure and a new three-day waiting period:

An increase in the APR,

A change in the loan product, or

The addition of a prepayment penalty.

For any other changes, the lender must still provide a corrected Closing Disclosure with the terms or costs that have changed and ensure that the consumer receives it. However, no additional three-business-day waiting period is required.

While this article has covered the important highlights of the new TRID rules, it is only a cursory treatment of the topic. TRID is a primary focus of the 2015-16 Update Course, both General and BICUP. Brokers involved in residential sales transactions are strongly urged to take the applicable Update Course as soon as possible to be informed and prepared for these significant changes in the residential mortgage loan process.

This article came from the October 2015-Vol46-2 edition of the bulletin.

In Memoriam

Raymond A. “Buddy” Bass, Jr., of Fayetteville, Chairman of the Commission in 1995 and 2006, and a member from 1993 to 2007.

Larry A. Outlaw, Commission Director of Education and Licensing, from 1979 to 2014.

This article came from the October 2015-Vol46-2 edition of the bulletin.

Robert Ramseur Reappointed

Governor Pat McCrory has reappointed Robert J. “Bob” Ramseur of Raleigh as a public member of the Commission for a three-year term beginning August 1, 2015.

This article came from the October 2015-Vol46-2 edition of the bulletin.