Compliance Blog

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel, NAFCU

Every spring, both tulips and realtor signs start to sprout from lawns across America. It's the height of the real estate season and the number of RESPA questions seen by the NAFCU Regulatory Compliance Team increases correspondingly. We've seen a handful of related questions about hosting events and RESPA's prohibition against kickbacks. Here is one that might be of interest.

The bottom-line on these questions is always going to be it depends. While there are some bright line rules in RESPA's Section 8 (codified at 12 U.S.C. § 2607) and its implementing regulation (12 C.F.R. § 1024.14), whether sponsoring or hosting an event is prohibited is a fact-intensive analysis that would require understanding the purpose of the event, examining the benefits and costs to both parties, and may require the opinion of counsel.

Primer on RESPA's Prohibition Against Kickbacks

RESPA prohibits any person from giving or receiving any "thing of value" in exchange for a referral of settlement services. 12 C.F.R. § 1024.14(b). As both a credit union and realtors may be providing settlement services, whether a particular event is a "kickback" in violation of this prohibition will largely depend on the benefits flowing between the parties.

A "thing of value" is defined very broadly in the rule to include not only payments going to or from the parties but also discounts on services, free rent or use of office space, and discounted or free advertising. 12 C.F.R. § 1024.14(d).  

A "referral" is defined as "any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service …when such person will pay for such settlement …". 12 C.F.R. § 1024.14(f).  

Can a credit union sponsor a luncheon or other event for a realtor association?

Whether an event is "conditioned on the referral of business" and does not involve "the defraying of expenses that otherwise would be incurred" would depend on the logistics of the program and whether and how any "thing of value" is being exchanged among those involved. Prior to being ported over to the Bureau, HUD had authority over RESPA and issued a great deal of guidance on the topic. The Bureau has declined to adopt HUD's guidance, or issue much of its own. In the absence of guidance from the Bureau, previous Q&As and other guidance from HUD may be instructive.

A RESPA Q&A by a HUD official from 2005 does address this situation:

"July 19, 2005

Is it a RESPA violation for a mortgage company to sponsor a Board of Realtors luncheon?

A mortgage company asked:

“In a recent training for mortgage loan officers we were warned about practices regarding RESPA law. One topic of conversation was the "compensation" to Realtors issue. Our mortgage company is an affiliate member of the local board of Realtors in the areas in which we have offices. One question that we have is in regard to sponsoring the board of Realtors meetings. In the past our competitors have sponsored such events, however before we do the same we would like clarification on the practice in regard to the law.”

Tawanna Matthews, in HUD's Office of RESPA and Interstate Land Sales, answered:

“You are asking if it is a violation of the Real Estate Settlement Procedures Act (RESPA) to sponsor your local board of Realtors meeting.

‘You stated that in the past years your competitors have sponsored this event, however, you would like clarification as to whether it violates RESPA.

“Section 8 of RESPA prohibits anyone  from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. Unfortunately, sponsoring an event, on behalf of an organization that provides services to federally related mortgage loans, may be considered a "thing of value," because it defrays that organization expense. Thus, members of the board of Realtors are in a position to refer business to your company.

“However, there is nothing under RESPA regulations to prevent joint advertising, as long as each party pays their share of the expense.” (Emphasis added.)

While not from a governmental agency, another set of FAQs from the National Association of Realtors on RESPA may be useful:

"B. Association RESPA Issues

Q: Can a REALTOR® association solicit sponsorships from affiliate members who provide settlement services for association functions that are not education-related, such as awards and recognition ceremonies and association fundraisers?

A: Maybe—this will need to be examined on a case-by-case basis. While the association is not a settlement service provider, the subsidizing of the costs of the event for real estate professionals could be seen as conferring a benefit upon the members in return for referrals, as the members may not have to pay the costs normally associated with such an event. In order for the event to not violate RESPA, the affiliate would need to qualify for the advertising exception in Section 8(c) and so the affiliate member would need to advertise its services during the event and there would need to be a reasonable relationship between the costs of sponsorship and the advertising." (Emphasis added.)

So the sponsoring of a luncheon is not a violation in-and-of itself, however, HUD took the position that it implicitly positions realtors to refer business. This raises the issue of what the purpose of sponsoring the luncheon is, if it is something other than to generate referrals, and how the credit union could document that purpose. The Bureau has made it clear that it does not look kindly on disguising the purposes of activities to avoid kickbacks issues. Ultimately, the credit union will want to review the sponsorship arrangement carefully, perhaps with the assistance of counsel, to make a determination whether it violates RESPA.