BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Co-Branded Advertising with Lenders or Other Settlement Service Providers
Q: A mortgage broker in our area is offering to print and provide me with marketing flyers for my listings. I would provide the information and the mortgage broker would engage a photographer who will shoot pictures of the listed property and produce the flyers which I can mail to my farm and distribute to the brokerage community. He says it is okay because he is not asking for a referral of clients and so there is no RESPA violation. I don’t want to break any laws; is this okay?
A: NO, not okay! You are right to be concerned because this IS a RESPA violation.
A real estate agent may not accept any such offer from lenders when the expenses are paid by the lender, since that would result in the lender bearing a portion of, and defraying, the real estate agent’s advertising expenses. This applies to all advertising and marketing media such as print advertising, marketing pieces and videos.
RESPA BASICS: RESPA (the “Real Estate Settlement Procedures Act”) is a federal law which applies to residential 1-4 unit properties on which a buyer places a “federally-related loan,” which is essentially any institutional loan. RESPA regulates “settlement service providers” (“SSP’s”) which include real estate brokers, lenders, title and escrow companies, appraisers, home and pest inspectors, homeowner insurance brokers, home warranty companies, and any other closing service which requires a buyer or seller to pay. (Note: In California, the term “settlement service” is not generally used; but essentially means the same thing as any “closing service” related to the closing of a real estate sale.)
It is a RESPA violation if one SSP (e.g., a lender) provides goods or services to another SSP (e.g., real estate agent) which essentially defrays the expenses that otherwise would be incurred by persons in a position to refer settlement services or business.
It is permissible if, for example, a mortgage broker and a real estate agent jointly advertise their services in a publication or flyer provided that each pays their pro rata share of the cost which is in proportion to his or her prominence in that publication.
However, if, for example, the mortgage broker was to pay a disproportionate share of such expense, that disproportionate portion of the expense would be considered to be an illegal kickback under RESPA.
PROMOTIONAL AND EDUCATION SERVICES: SSP’s can generally provide to real estate agents and brokers normal promotional and educational activities provided they cannot be in exchange for, or tied in any way to, referral of business. Special rules apply to these services as well.
TITLE AND ESCROW COMPANY RULES: Under California law, title companies and controlled escrow companies are subject to stricter rules regarding promotional and educational expenditures. See: Business & Professions Code 10177.4, Insurance Code 12404.
PRACTICE TIPS:
1. Do not accept offers from lenders to pay for marketing materials for you unless you and the lender split the cost proportional to the prominence of each of you in those materials.
2. Do not accept any gifts from lenders or other SSPs that would defray expenses that you would otherwise incur related to your real estate business. Some examples would be if a SSP offers to provide you with equipment you can use in your business such as a computer, cell phone, etc. These would constitute a RESPA violation.
3. Report to your manager or broker any such proposals from a lender or other SSP, and obtain his/her approval before proceeding.
4. RESPA violators are usually caught when a competitor turns them in to the regulators.
5. RESPA was previously regulated by HUD. However, RESPA is now enforced by the new federal Consumer Financial Protection Bureau (“CFPB”) and it is taking more strong enforcement actions on RESPA violations. So there is a new sheriff in town.
6. A violation by an agent is also a violation by the broker. Exercise good judgment.
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© Copyright Broker Risk Management 2015 02/20/15