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.