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NAR White Paper Gives Agents the Heads Up Sham Referral & Kickback Arrangements! (...and it's about time!)


Written By: Karen Deis

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I don't know if there is a polite way to say it - but there are real estate, mortgage, and title companies who are breaking the law right now - getting away with it - and some of them don't even know it's illegal.

What am I talking about? RESPA's Anti-Kickback Rule - more commonly known as the Section 8 provision.

HUD has increased the number of investigators (RESPA police) within the last few years. A record number of companies (almost 1,000) are currently being investigated and some have paid fines as high as $2.5 million. And, in the past, a majority of the fines have been levied against mortgage and title companies.


Not any more! HUD has finally realized that the "mitigating source" of some of the more serious violations are by Realtors and homebuilders, who steer business to mortgage and title companies because they receive "something of value".

In a show of concern, as more and more real estate companies are being reported and investigated by HUD, the National Association of Realtors released a white paper in October, 2004, explaining some of the "sham arrangements" that are in violation of the Anti-Kickback rules.

Yep, the Section 8 provision has been in effect since 1974 and it has taken 30 years for the NAR to be concerned about it! What's up with that?

The name of the report is:

"How HUD Determines Whether a Mortgage or Title Company is a Sham"

...and it provides 5 different examples of Realtor/Title/Mortgage "arrangements" that are considered illegal. The 11-page report also provides an illustrated chart (from the Federal Register) showing the real estate companies at the top of the food chain.

According to the law firm, Kirkpatrick & Lockhart (a well-known law firm in the mortgage industry), some of the more common violations are:

  • Imposing an additional fee on homebuyers who elect NOT to use their affiliated company.
  • Providing fees to real estate agents such as click-thru referrals and paying to link to lender's websites.
  • Sham "employment" arrangements for the purpose of paying a fee for referrals.
  • Providing anything of value such as free rent in your office, paying for listing ads in real estate magazines, vacation trips or seminars, buying them office equipment, and reduction in credit against existing obligations.
  • Failure to disclose affiliated business arrangements to consumers (there is a special form affiliated businesses need to have the consumer sign).

Now, I'm all for free enterprise and fair competition - but if you are losing business because someone is not playing by the rules and kicking (back) sand in your face - you have nothing to lose by reporting them to HUD!

Here's my suggestion: If you suspect a real estate, mortgage, title company or homebuilder of not playing by the rules, send them a copy of the recent NAR report. You might want to give them a copy or send (to them) anonymously. In either case, it puts them on notice that "someone" is "watching" them and they are violating the law. Maybe they will discontinue the illegal practices voluntarily.

Another suggestion would be to share the report with your fellow loan originators at your association meetings.

Here's some good news! Builders are now on HUD's radar screen for requiring consumers to use their preferred lender. Even though this is a NAR white paper, give them a copy too.

My purpose in writing this editorial is to level the playing field for all loan originators and for everyone reading this editorial by giving you a free copy of the white paper as ammunition if you think someone in your area is violating Section 8 of RESPA.

Since I am a licensed real estate broker, I have access to this new report. If you would like a copy of the NAR report (regardless if you are a subscriber or not), fill out the following information, and a copy will be emailed to you.

Money is being taken out of your pocket because some people are cheating the system.

You have nothing to lose and everything to gain.

Let's level the playing field and see if we can get everyone to play by the rules.

Regards, Karen Deis

P.S. To report violations, write to: Director, Interstate Land Sales/RESPA Division, Office of Consumer and Regulatory Affairs, U.S. Department of Housing and Urban Development, Room 9146, 451 7th St. S.W., Washington, DC 50410.

You don't have to disclose your identity but you will need to refer to Section 8 (the section of the law being broken), and send in some sort of proof of the violation. When it comes to builders, nothing is better than a letter from a consumer.

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RESPA Cracking Down on Kickbacks and Referral Gifts.
Written By: Karen Deis


Copyright, 2005, LoanOfficerMagazine.com

Written By: Karen Deis

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