Appendix B to Part 1024 - Illustrations of Requirements of RESPA
12:8.0.2.1.19.5.1.1.50 : Appendix B
Appendix B to Part 1024 - Illustrations of Requirements of RESPA
The following illustrations provide additional guidance on the
meaning and coverage of the provisions of RESPA. Other provisions
of Federal or state law may also be applicable to the practices and
payments discussed in the following illustrations.
1. Facts: A, a provider of settlement services, provides
settlement services at abnormally low rates or at no charge at all
to B, a builder, in connection with a subdivision being developed
by B. B agrees to refer purchasers of the completed homes in the
subdivision to A for the purchase of settlement services in
connection with the sale of individual lots by B.
Comments: The rendering of services by A to B at little
or no charge constitutes a thing of value given by A to B in return
for the referral of settlement services business, and both A and B
are in violation of section 8 of RESPA.
2. Facts: B, a lender, encourages persons who receive
federally related mortgage loans from it to employ A, an attorney,
to perform title searches and related settlement services in
connection with their transaction. B and A have an understanding
that in return for the referral of this business A provides legal
services to B or B's officers or employees at abnormally low rates
or for no charge.
Comments: Both A and B are in violation of section 8 of
RESPA. Similarly, if an attorney gives a portion of his or her fees
to another attorney, a lender, a real estate broker or any other
provider of settlement services, who had referred prospective
clients to the attorney, section 8 would be violated by both
persons.
3. Facts: A, a real estate broker, obtains all necessary
licenses under state law to act as a title insurance agent. A
refers individuals who are purchasing homes in transactions in
which A participates as a broker to B, an unaffiliated title
company, for the purchase of title insurance services. A performs
minimal, if any, title services in connection with the issuance of
the title insurance policy (such as placing an application with the
title company). B pays A a commission (or A retains a portion of
the title insurance premium) for the transactions or alternatively
B receives a portion of the premium paid directly from the
purchaser.
Comments: The payment of a commission or portion of the
title insurance premium by B to A, or receipt of a portion of the
payment for title insurance under circumstances where no
substantial services are being performed by A, is a violation of
section 8 of RESPA. It makes no difference whether the payment
comes from B or the purchaser. The amount of the payment must bear
a reasonable relationship to the services rendered. Here A really
is being compensated for a referral of business to B.
4. Facts: A is an attorney who, as a part of his legal
representation of clients in residential real estate transactions,
orders and reviews title insurance policies for his clients. A
enters into a contract with B, a title company, to be an agent of B
under a program set up by B. Under the agreement, A agrees to
prepare and forward title insurance applications to B, to
re-examine the preliminary title commitment for accuracy and if he
chooses to attempt to clear exceptions to the title policy before
closing. A agrees to assume liability for waiving certain
exceptions to title, but never exercises this authority. B performs
the necessary title search and examination work, determines
insurability of title, prepares documents containing substantive
information in title commitments, handles closings for A's clients
and issues title policies. A receives a fee from his client for
legal services and an additional fee for his title agent “services”
from the client's title insurance premium to B.
Comments: A and B are violating section 8 of RESPA. Here,
A's clients are being double billed because the work A performs as
a “title agent” is that which he already performs for his client in
his capacity as an attorney. For A to receive a separate payment as
a title agent, A must perform necessary core title work and may not
contract out the work. To receive additional compensation as a
title agent for this transaction, A must provide his client with
core title agent services for which he assumes liability, and which
includes at a minimum, the evaluation of the title search to
determine insurability of the title, and the issuance of a title
commitment where customary, the clearance of underwriting
objections, and the actual issuance of the policy or policies on
behalf of the title company. A may not be compensated for the mere
re-examination of work performed by B. Here, A is not performing
these services and may not be compensated as a title agent under
section 8(c)(1)(B). Referral fees or splits of fees may not be
disguised as title agent commissions when the core title agent work
is not performed. Further, because B created the program and gave A
the opportunity to collect fees (a thing of value) in exchange for
the referral of settlement service business, it has violated
section 8 of RESPA.
5. Facts: A, a “mortgage originator,” receives loan
applications, funds the loans with its own money or with a
wholesale line of credit for which A is liable, and closes the
loans in A's own name. Subsequently, B, a mortgage lender,
purchases the loans and compensates A for the value of the loans,
as well as for any mortgage servicing rights.
Comments: Compensation for the sale of a mortgage loan
and servicing rights constitutes a secondary market transaction,
rather than a referral fee, and is beyond the scope of section 8 of
RESPA. For purposes of section 8, in determining whether a bona
fide transfer of the loan obligation has taken place, the
Bureau examines the real source of funding, and the real interest
of the named settlement lender.
6. Facts. A, a credit reporting company, places a
facsimile transmission machine (FAX) in the office of B, a mortgage
lender, so that B can easily transmit requests for credit reports
and A can respond. A supplies the FAX machine at no cost or at a
reduced rental rate based on the number of credit reports
ordered.
Comments: Either situation violates section 8 of RESPA.
The FAX machine is a thing of value that A provides in exchange for
the referral of business from B. Copying machines, computer
terminals, printers, or other like items which have general use to
the recipient and which are given in exchange for referrals of
business also violate RESPA.
7. Facts: A, a real estate broker, refers title business
to B, a company that is a licensed title agent for C, a title
insurance company. A owns more than 1% of B. B performs the title
search and examination, makes determinations of insurability,
issues the commitment, clears underwriting objections, and issues a
policy of title insurance on behalf of C, for which C pays B a
commission. B pays annual dividends to its owners, including A,
based on the relative amount of business each of its owners refers
to B.
Comments: The facts involve an affiliated business
arrangement. The payment of a commission by C to B is not a
violation of section 8 of RESPA if the amount of the commission
constitutes reasonable compensation for the services performed by B
for C. The payment of a dividend or the giving of any other thing
of value by B to A that is based on the amount of business referred
to B by A does not meet the affiliated business agreement exemption
provisions and such actions violate section 8. Similarly, if the
amount of stock held by A in B (or, if B were a partnership, the
distribution of partnership profits by B to A) varies based on the
amount of business referred or expected to be referred, or if B
retained any funds for subsequent distribution to A where such
funds were generally in proportion to the amount of business A
referred to B relative to the amount referred by other owners, such
arrangements would violate section 8. The exemption for controlled
business arrangements would not be available because the payments
here would not be considered returns on ownership interests.
Further, the required disclosure of the affiliated business
arrangement and estimated charges have not been provided.
8. Facts: Same as illustration 7, but B pays annual
dividends in proportion to the amount of stock held by its owners,
including A, and the distribution of annual dividends is not based
on the amount of business referred or expected to be referred.
Comments: If A and B meet the requirements of the
affiliated business arrangement exemption there is not a violation
of RESPA. Since the payment is a return on ownership interests, A
and B will be exempt from section 8 if (1) A also did not require
anyone to use the services of B, and (2) A disclosed its ownership
interest in B on a separate disclosure form and provided an
estimate of B's charges to each person referred by A to B (see
appendix D of this part), and (3) B makes no payment (nor is there
any other thing of value exchanged) to A other than dividends.
9. Facts: A, a franchisor for franchised real estate
brokers, owns B, a provider of settlement services. C, a franchisee
of A, refers business to B.
Comments: This is an affiliated business arrangement. A,
B and C will all be exempt from section 8 if C discloses its
franchise relationship with the owner of B on a separate disclosure
form and provides an estimate of B's charges to each person
referred to B (see appendix D of this part) and C does not require
anyone to use B's services and A gives no thing a value to C under
the franchise agreement (such as an adjusted level of franchise
payment based on the referrals), and B makes no payments to A other
than dividends representing a return on ownership interest (rather
than, e.g., an adjusted level of payment being based on the
referrals). Nor may B pay C anything of value for the referral.
10. Facts: A is a real estate broker who refers business
to its affiliate title company B. A makes all required written
disclosures to the homebuyer of the arrangement and estimated
charges and the homebuyer is not required to use B. B refers or
contracts out business to C who does all the title work and splits
the fee with B. B passes its fee to A in the form of dividends, a
return on ownership interest.
Comments: The relationship between A and B is an
affiliated business arrangement. However, the affiliated business
arrangement exemption does not provide exemption between an
affiliated entity, B, and a third party, C. Here, B is a mere
“shell” and provides no substantive services for its portion of the
fee. The arrangement between B and C would be in violation of
section 8(a) and (b). Even if B had an affiliate relationship with
C, the required exemption criteria have not been met and the
relationship would be subject to section 8.
11. Facts: A, a mortgage lender is affiliated with B, a
title company, and C, an escrow company and offers consumers a
package of mortgage title and escrow services at a discount from
the prices at which such services would be sold if purchased
separately. Neither A, B, nor C requires consumers to purchase the
services of their sister companies and each company sells such
services separately and as part of the package. A also pays its
employees (e.g., loan officers, secretaries, etc.) a
bonus for each loan, title insurance or closing that A's employees
generate for A, B, or C respectively. A pays such employee bonuses
out of its own funds and receives no payments or reimbursements for
such bonuses from B or C. At or before the time that customers are
told by A or its employees about the services offered by B and C
and/or the package of services that is available, the customers are
provided with an affiliated business disclosure form.
Comments: A's selling of a package of settlement services
at a discount to a settlement service purchaser does not violate
section 8 of RESPA. A's employees are making appropriate affiliated
business disclosures and since the services are available
separately and as part of a package, there is not “required use” of
the additional services. A's payments of bonuses to its employees
for the referral of business to A or A's affiliates, B and C, are
exempt from section 8 under § 1024.14(g)(1). However, if B or C
reimbursed A for any bonuses that A paid to its employees for
referring business to B or C, such reimbursements would violate
section 8. Similarly, if B or C paid bonuses to A's employees
directly for generating business for them, such payments would
violate section 8.
12. Facts. A is a mortgage broker who provides
origination services to submit a loan to a lender for approval. The
mortgage broker charges the borrower a uniform fee for the total
origination services, as well as a direct up-front charge for
reimbursement of credit reporting, appraisal services, or similar
charges.
Comment. The mortgage broker's fee must be reflected in
the Good Faith Estimate and on the HUD-1 Settlement Statement.
Other charges which are paid for by the borrower and paid in
advance are listed as P.O.C. on the HUD-1 Settlement Statement, and
reflect the actual provider charge for such services.
13. Facts. A is a dealer in home improvements who has
established funding arrangements with several lenders. Customers
for home improvements receive a proposed contract from A. The
proposal requires that customers both execute forms authorizing a
credit check and employment verification, and frequently, execute a
dealer consumer credit contract secured by a lien on the customer's
(borrower's) 1- to 4-family residential property. Simultaneously
with the completion and certification of the home improvement work,
the note is assigned by the dealer to a funding lender.
Comments. The loan that is assigned to the funding lender
is a loan covered by RESPA, when a lien is placed on the borrower's
1- to 4-family residential structure. The dealer loan or consumer
credit contract originated by a dealer is also a RESPA-covered
transaction, except when the dealer is not a “creditor” under the
definition of “federally related mortgage loan” in § 1024.2. The
lender to whom the loan will be assigned is responsible for
assuring that the lender or the dealer delivers to the borrower a
Good Faith Estimate of closing costs consistent with Regulation X,
and that the HUD-1 or HUD-1A Settlement Statement is used in
conjunction with the settlement of the loan to be assigned. A
dealer who, under § 1024.2, is covered by RESPA as a creditor is
responsible for the Good Faith Estimate of Closing Costs and the
use of the appropriate settlement statement in connection with the
loan.
[76 FR 78981, Dec. 20, 2011, as amended at 78 FR 80105, Dec. 31,
2013]