What Types of Affiliated Business Relationships Are Allowed Under RESPA?
The Real Estate Settlement Procedures Act, or RESPA, is a consumer protection statute that was originally passed in 1974. Along with helping consumers to become more educated about settlement services when closing on the purchase of real property, the other important reason for RESPA was to eliminate the “kickbacks” and “referral fees” that were once common in the industry and that unnecessarily increased costs to consumers. As a consumer, or a settlement service provider, it is important to know what types of affiliated business relationships are allowed under RESPA.
The rules found in RESPA apply when a borrower may take out a federally related mortgage loan, meaning most mortgages. RESPA requires certain disclosures to be given to borrowers at specific points during the application and loan process. In addition, RESPA prohibits certain types of affiliations between businesses involved in loan process. As a general rule, RESPA prohibits affiliated business relationships that involve giving or receiving anything of value for referrals of settlement service business.
There are, however, some limited exceptions to this general rule. A referral may be made to an affiliate if all of the following three requirements are satisfied:
- Disclosure/notice is properly given to the consumer, meaning in the form required in the regulations and given at or before the referral is made or by the time the good faith estimate of closing costs is provided;
- Except in cases where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender's interest in the transaction, the consumer cannot be required to use any specific provider of settlement services; AND
- The only thing of value that is received from the arrangement (other than reasonable payments for goods, facilities or services actually furnished) is a return on the ownership interest (such as corporate dividends or LLC distributions, as applicable, in accordance with the owners' percentage ownership interests).
The rules and regulations found in RESPA can be confusing, yet a violation of those rules and regulations can have serious consequences. If you are unsure whether or not an affiliated business relationship is allowable under RESPA, it is in your best interest to consult with an experienced Pennsylvania real estate law attorney for advice and guidance. Contact the real estate law attorneys at Curley & Rothman, LLC by calling 610-834-8819 today to schedule your free consultation to ensure that you understand the requirements of RESPA.