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Kickback Violations - A Few Examples!


We were astounded by the response we received on the editorial in our last issue about Section 8 of the Real Estate Settlement and Procedures Act (RESPA).

In addition to over 500 emails requesting copies of the NAR White Paper, we were amazed at the number of phone calls from loan originators from all over the country telling us about some of the alleged kickbacks happening in their own backyards.

There were a couple of reoccurring "issues" that seemed to be mentioned over and over again:

  • Home builder incentive (buyers had to use their mortgage company or pay thousands of dollars more for the home).


  • Incentives paid by loan officers (paying for Realtors' ads or something as simple as a gift certificate) in exchange for referrals.

Read the 1-05-2005 Editorial Now.

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The National Association of RealtorsTM had released a white paper called "How HUD Determines Whether a Mortgage Company or Title Company is a Sham". Good for them!

However, in my research, telephone calls and emails to the National Association of Home Builders, it does not seem that they have even addressed this issue (RESPA Section 8) with their members.

Many of you has asked for examples of some of the best-known settlements. Well, we found some using a quick Google search.

We are also providing you with examples of what HUD feels are questionable activities (as outlined by Kirkpatrick & Lockhart) in a newsletter issued to mortgage companies.

Here is an example of a settlement where a homebuilder charged consumers more money if they did not use their affiliated company. (This seems to fall under the same category as a builder charging a homebuyer more money for the home if they don't use their mortgage company.)

ARVIDA: HUD negotiated a settlement with ARVIDA/JMB Partners, a large builder and realty services company in Florida. The settlement resolved allegations of violations of RESPA Sections 8(b) and 9, in the Weston Community in Broward County, Florida. The Section 8(b) allegation addressed ARVIDA's practice of charging a percentage of the house sales price for closing costs, a portion of which was paid for certain closing costs and a portion of which was retained by ARVIDA and not specifically accounted for. The Section 9 allegation involved an added $300 fee to buyers who opted to use their own title agent rather than ARVIDA's affiliate. The Settlement Agreement provides for the cessation of these practices and for the refund of $45,750, most of the additional fee that ARVIDA charged for buyers' using their own title agents.

(Editors note: ARVIDA/JMB Partners started to liquidate the company in June 2004 and could not be reached for comment.)

Example of Loan Officer "Referral Program".

Brian Sacks, branch manager of Integrity Home Funding, Owings Mills, MD was accused of RESPA violations for his "Refer a Friend" program under which former clients, who sent referrals, were entered into a raffle to receive tickets to sporting events, theatre productions and other prizes. One winner per month was announced and their name was distributed in his monthly newsletter. (See the full details at www.RespaReform.com, although you must be a paid subscriber to access the article.) He also sold materials through his website instructing loan officers to pay referral fees. Sacks agreed to pay $1,500 in fines to the US Department of Treasury and send a notice to anyone who has purchased or received his materials.

Example of Free Virtual Home Tours.

Two Coldwell Banker offices in Austin, Texas accepted free, virtual home tours from title companies. HUD stated that they received the free tours in exchange for referral business and in violation of Section 8 of RESPA. Combined, they agreed to pay the US Treasury $19,200.

Within the last year, HUD has tripled their RESPA police force, which is now called R.E.D. (RESPA Enforcement Division) for short. Here are a few of the "RED" flags (according to Kirkpatrick & Lockhart LLC) that will bring them knocking on your door. www.KL.com

  • Providing virtual tours or placing their information on your website in exchange for referral business.
  • Charging homebuyers a percentage or flat fee of the purchase price to cover fees without regard to what the "actual" fees really are.
  • Imposing an additional fee on homebuyers who elect not to use an affiliated company.
  • Setting up "sham" employment arrangements with real estate agents for the purpose of paying fees for referrals under HUD's employer-employee exception.
  • Failing to disclose affiliated business arrangements to consumers.
  • Providing ANYTHING of value for the referral of business; including money, discounts, free rent, sharing fees, reduction in credit, gifts, vacations, use of office space or office equipment of anything of value.

You are losing loans and money to those bullies who are not playing fair! I urge you to take action and report violations to:

Director
Interstate Land Sales/RESPA Division
Office of Consumer and Regulatory Affairs
US Department of Housing and Urban Development
Room 9146
451 - 7th Street SW
Washington, DC 20410

Regards ~ Karen Deis

Related Articles

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