Test Your RESPA Knowledge:
Take Our Kickback Quiz

The postponement of the effective date of some of the new Real Estate Settlement Procedures Act regulations from Oct. 7, 1996, to July 31, 1997, gives you a little breathing room to comply with those new regulations. (See ''Some RESPA Rules on Hold; NAR Efforts Key in Causing Delay,'' November 1996, p. 11.)

You must still comply with current RESPA regs regarding relationships your company has with affiliated providers, such as mortgage brokers. A RESPA violation subjects you to a fine of up to $10,000, imprisonment of up to one year, or both.

How does RESPA play out in real life? Take this quiz to see whether you're following the law or putting your company in legal jeopardy.

1. Can a mortgage company pay for refreshments at my company's open houses?
_____Yes _____No _____Maybe

2. Can a settlement company pay my salesperson's commission as an advance before or at closing?
_____Yes _____No _____Maybe

3. Can salespeople get a commission from a home warranty company for encouraging a buyer to purchase a home warranty?
_____Yes _____No _____Maybe

4. Can a title insurance company rebate a portion of the title insurance premium to my company in exchange for doing business with it?
_____Yes _____No _____Maybe

5. If my salespeople use a particular attorney to close their transactions, can they receive a discount from that attorney in a traffic or divorce case involving themselves or a member of their family?
_____Yes _____No _____Maybe

6. Can a mortgage company pay for a portion of the cost of home tours or cable advertising?
_____Yes _____No _____Maybe

7. Can I reward my salespeople with a better commission split for using my company's affiliated mortgage or settlement company?
_____Yes _____No _____Maybe

8. Can a homebuilder require buyers to use a particular settlement company or attorney if the settlement company or attorney provides the builder's services at a discounted cost?
_____Yes _____No _____Maybe

If you felt uncomfortable answering some of those questions, you have good instincts. RESPA prohibits at least six of the practices, if not all eight. Here's why.

1. Can a mortgage company pay for refreshments at my company's open houses? Maybe, depending on how the relationship is structured. According to RESPA, a mortgage company can’t pay expenses you'd otherwise have to pay as a part of doing business. At the same time, the mortgage company needs to engage in, and isn't prohibited from, marketing and promotional activities. If your company and the mortgage company share the expenses evenly and you both are visible in your marketing efforts, there might be no RESPA violation.

If the mortgage company pays for the refreshments and has them and its materials on a separate table solely for its customers with a sign that says ''XYZ Mortgage Company,'' an argument can be made that you haven't violated RESPA, but it's a risky argument because the U.S. Department of Housing and Urban Development has offered no guidance that supports it.

2. Can a settlement company pay my salesperson's commission as an advance before or at closing? No. RESPA expressly prohibits this practice.

3. Can salespeople get a commission from a home warranty company for encouraging a buyer to purchase a home warranty? No, even though in many areas this is a common practice. Generally, home warranty companies try to get around RESPA by claiming the kickback is an administrative fee. But RESPA clearly prohibits these fees if they're paid as a condition of referring business. There may well be state insurance licensing issues as well.

4. Can a title insurance company rebate a portion of the title insurance premium to my company in exchange for doing business with it? No. Again, RESPA expressly prohibits this practice. Any splitting of fees between service providers is a violation of RESPA unless it's compensation for actual services performed. A salesperson, acting as a salesperson, wouldn't be performing title company services.

RESPA goes even further and looks at the nature of the services being provided. It also looks at whether the other provider, in this case the title company, could perform the services and, if so, at what value. If the value paid to another service provider is higher than the cost the title company would incur in-house, or if the services aren't central to the title company's function, there can still be a RESPA violation.

5. If my salespeople use a particular attorney to close their transactions, can they receive a discount from that attorney in a traffic or divorce case involving themselves or a member of their family? No. Since attorneys are bound by RESPA as providers of residential settlement services, this would be a clear violation because your salespeople would be getting a thing of value by receiving the discount on the attorney's fees in exchange for past or future business referrals.

6. Can a mortgage company pay for a portion of the cost of home tours or cable advertising? Maybe, depending on how the relationship is structured. Again, a good argument could be made that no violation occurs if the mortgage company pays for the home tour or cable advertising, provided the advertising costs are split evenly and your company and the mortgage company get equal visibility in the ads.

If the mortgage company pays for more than half the cost of the ads, it's probably a RESPA violation unless you can demonstrate that a portion of its payment is reasonable compensation for actual services provided by your salespeople to the mortgage company.

7. Can I reward my salespeople with a better commission split for using my company's affiliated mortgage or settlement company? No. RESPA expressly prohibits this practice. Salespeople can't be compensated by any mortgage or settlement company for referral of business, whether affiliated or not.

8. Can a homebuilder require buyers to use a particular settlement company or attorney if the settlement company or attorney provides the builder's services at a discounted cost? No. Under RESPA, consumers can never be required to use a particular provider of settlement services. It's legal for a builder to offer a discount on settlement services if the discount is passed through to consumers and they still retain the choice to obtain the services elsewhere. Builders can also offer buyers a package of settlement services, supplied by particular providers, at a discount. But they can’t require that buyers purchase that package.

Competent attorneys may disagree with some of these conclusions, because under RESPA much is left to interpretation. And none of these situations can be answered with an unequivocal yes. What’s important for you to remember is that the fact that someone else is doing the same thing isn't a defense to a charge of violating RESPA. It's up to you to know--and follow--the law.


John G. ''Chip'' Dicks III is a partner at Mays & Valentine law firm and legal counsel to the Virginia Association of REALTORS®. You can contact him at 703/734-4385.


Need a Refresher Before You Answer?
A Real Estate Settlement Procedures Act violation occurs when ''a thing of value'' is given or received in exchange for a referral. RESPA defines a thing of value as a discount, a rebate, or even the payment of another service provider's expenses.

You don't have to have a formalized arrangement with another service provider to violate RESPA. A flow of referrals can meet the test. Even advance disclosure to consumers of the referral fee doesn’t avoid a RESPA violation.

Normal promotional and educational activities not directly conditioned on the referral of business aren't violations. The key test is whether those activities involve defraying expenses that a service provider in a position to refer business would otherwise incur. If they do, even those activities can be violations.
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