RESPA ENFORCEMENT CAN TAKE SEVERAL FORMS
Enforcement of the anti-business referral provisions of the federal Real Estate Settlement Procedures Act1 has certainly had its ups and downs over the years. Originally enacted in 1974, RESPA provides the following prohibition against payment or receipt of anything of value in exchange for the referral of settlement service business in connection with a federally-related mortgage:
(a) Business referrals
No person shall give, and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.
(b) Splitting charges
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 in connection with a transaction involving a federally related mortgage loan other than for services actually performed.
12 U.S.C. § 2607.
Enforcement of RESPA can take several forms. Administrative enforcement may come from the Federal Consumer Financial Protection Bureau (“CFPB”); although for FDIC-insured financial institutions the FDIC includes RESPA review in its compliance exams. State banking authorities also have included RESPA compliance in their routine examinations. RESPA specifically authorizes state Attorneys General to enforce the RESPA anti-kickback provisions. There is also a private right of action with potential treble damages and attorney’s fees.
During the Obama administration, the newly created CFPB became very aggressive in its RESPA enforcement activity, opening dozens of investigations and filing many enforcement actions against industry members seeking monetary penalties in the millions to over $100 Million. The advent of the Trump administration has seen what has been viewed as a less aggressive approach. However, the CFPB did not “stand down” on any but those enforcement actions that seriously “pushed the envelope.” Many of those continuing investigations were undertaken jointly with state Attorneys General or other state regulatory authorities. Moreover, we have continued to see an aggressive plaintiff’s bar seek class action status in quite a few
RESPA cases. Our firm is presently defending two such cases.
The increase in home mortgage rates has had the effect of drying up consumer demand for refinances. Consequently, purchase money has become a much higher percentage of the industry’s production. This has meant that financial institutions and other lenders have gravitated towards “cozying up” to real estate brokers and individual agents. Real estate brokers and agents often have the ability to steer their purchasing customers to a particular lender, title company or other service provider. That circumstance has made the real estate sales industry fertile turf for “pay to play” schemes that clearly violate the RESPA provisions cited above.
The referral fee schemes can take many forms, including, for example, (1) the lender paying for the real estate agent’s advertising expanses; (2) the lender renting space from the real estate broker or its principals at a rate higher than market value; (3) the lender entering into some form of “marketing agreement” with the real estate company whereby the company is paid a monthly fee for the lender’s getting access to its real estate agents. That “access” can take various forms such as allowing lenders to attend sales meetings for the broker’s agents, disseminating literature about the lender to the agents, designating the lender as “preferred,” and providing economic incentives to the agents to steer purchasers to the lender, and similar so-called “marketing” activities.
Our firm encountered a widespread misconception in the title industry that paying for lunches at a targeted real estate broker’s sales meeting was an exception to the RESPA anti-kickback provisions. Such is not the case. There are exceptions to RESPA, but they are limited, and complex in their application. For example, some of the “schemes” described in the preceding paragraph may be legitimate if properly structured. Joint advertising by a lender and real estate agent can be perfectly legal under RESPA if the contribution of each party to the cost of the advertising matches the respective media exposure of the two parties in the ad itself. Joint advertising must, however, be directed toward persons other than the real estate broker’s agents and employees.
RESPA is one of those statutes that should be revisited from time to time to ensure continuing compliance because the ingenuity of the industry in finding ways around the prohibition can easily drift into serious violations.