RESPA - October Research

Transcription

Webinar
Tuesday, April 23, 2013
2:00 – 3:30 p.m. ET
Audio Dial-in: 800 404 5245
Webinar
Tuesday, April 23, 2013
2:00 – 3:30 p.m. ET
Audio Dial-in: 800 404 5245
Moderator
Angela Rulffes
Editor
RESPA News
October Research, LLC
arulffes@octoberresearch.com
www.RESPAnews.com
Submit questions and comments
through the instant chat box feature.
Questions can be submitted at any
time throughout the Webinar.
Handouts
The following materials can be downloaded at
www.OctoberResearch.com/Handouts
• Today’s PowerPoint presentation
• Articles from RESPA News
•
•
•
•
“Supreme Court takes stance in RESPA action”
“Keep your affinity relationship RESPA compliant “
“Could your use of social media violate RESPA?”
“Real estate agents have to beware of RESPA too”
Presenters
Phillip L. Schulman, Esq.
Holly Spencer Bunting, Esq.
K&L Gates LLP
1601 K Street NW
Washington, DC 20006
202.778.9000
phil.schulman@klgates.com
holly.bunting@klgates.com
INTRODUCTION
Real Estate Settlement Procedures Act (RESPA)
1.
Most important and most controversial statute affecting settlement
service industry
2.
Statute defies BUSINESS LOGIC
3.
Why is RESPA important for my business?



Criminal penalties and fines
Treble damages
Loss of license, reputation
9
Real Estate Brokers and Mortgage Companies
Occupy 1st Class Seats on the Train
to Homeownership
1. Uniquely situated at the Crossroads
2. Real estate brokers and mortgage companies find
themselves Referrers of settlement service
business
3. Mortgage companies and title/escrow companies,
Referees of such business
10
Outline for Today’s Session
1. RESPA Primer


Section 8(a) Anti-Kickback Provisions
Section 8(b) Splitting of Unearned Fees
2. Exceptions


Affiliated Business Arrangements
Section 8(c)(2)
3. Penalties and Enforcement
4. Section 9 Sellers and Title Insurance
5. RESPA Compliance Quiz
11
RESPA Primer
1. Early 70’s mortgagees and title companies
approach Congress
2. Result: Real Estate Settlement Procedures Act

Passed 1974

Consumer disclosure and anti-kickback act
12
Consumer Disclosure Law
1. Idea: Give Buyers and Sellers full disclosure of
costs of transaction
2. Disclosures

GFE

Special Information Booklets

HUD-1 Settlement Statements
Recent Additions

Servicing transfer information

Escrow Information

Full disclosure Mortgage Broker Fees
13
Section 8(a) – Anti-Kickback Provisions
14
Anti-kickback Law
1. Idea: Eliminate abusive practices such as payment
of kickback fees which drive up cost of product to
consumers
2. 5 Elements of a Section 8(a) kickback
Section 8(a) says it is illegal to Give or
Receive any: (i) thing of value pursuant to (ii)
an agreement or understanding to (iii) refer
(iv) settlement services, in connection with
(v) a federally related mortgage loan
15
Anti-kickback Law (cont’d)
i. Federally Related Mortgage Loan = Any loan
secured by a first or subsequent lien on a
1 – 4 family residential property
includes
excludes
Refinances
Purchase money mortgages
Second liens
ARMs
Reverse mortgages
Interest only mortgages
Commercial loans
Construction loans
Temporary financing
Property over 25 acres
Business purpose loans
16
ii. Settlement Services = Anything done by Title
Agents; Attorneys; Real Estate Agents;
Mortgage Brokers; Banks
 Title searches
 Credit reports / appraisals
 Origination of loans
 Title insurance, etc.
17
iii. Referral = Any conduct intended to influence
the selection of a particular settlement service
provider
iv. Agreement or Understanding = Need not be in
writing or even articulated or verbalized – may
include a practice or course of action where the
receipt of a THING OF VALUE is understood
 Wink, wink
18
v. Thing of Value = Broadly defined to be virtually
anything one receives in consideration for
making a referral
$
Commissions
Property
Trips
Discounts
Low interest
loans
Fax machines
Computer
Ipods
Free advertising
VIAGRA
Football tickets
IMPORTANT: ALL 5 ELEMENTS MUST BE
PRESENT. ANY ONE MISSING: Not a violation
of RESPA
19
Section 8(b) – Splitting of Unearned Fees
20
Splitting Fees May Also Be a Problem
Section 8(b) says
No person shall give . . . No person shall accept a split
or percentage in connection with a real estate
settlement service other than for services rendered
A referral is not required to violate Section 8(b).
21
Circuit Courts Split on Fee Splitting
1. 4 Circuit Courts (7, 4, 8 and 5) say if you don’t split
mark-up = no violation of 8(b)
2. 3 Circuit Courts (11, 2 and 3) say if you mark up a
third-party fee without doing any service = violation of
8(b)
3. U.S. Supreme Court settles the split
22
Circuit Courts Split on Fee Splitting (cont’d)
4. HUD Statement of Policy
i.
2 or more persons split a fee for settlement service
where fee is unearned
ii. One settlement service provider marks up cost of
service performed by another
iii. One settlement service provider charges a fee
where no nominal or duplicative work is done, or
the fee is in excess of the reasonable value of the
services actually performed
23
Circuit Courts Split on Fee Splitting (cont’d)
5. Nearly every court rejects HUD’s (iii) point

Courts say a direct charge by a settlement service
provider that is not a mark-up of a third-party vendor
fee is not covered by RESPA
24
Until Cohen v. JP Morgan Chase
August 2007 – Second Circuit Court
1. Plaintiff alleges $225 closing fee was a junk fee =
no services performed
2. Much to surprise of RESPA junkies, 2nd Circuit
Court says

We adopt HUD’s view

If no service for fee = 8(b) violation
25
Until Cohen v. JP Morgan Chase
August 2007 – Second Circuit Court (cont’d)
3. Calls into question real estate broker
administrative fees
4. Even if not RESPA violation, to avoid state
unfair/deceptive trade practice laws

Be able to defend fee

Make sure you are doing actual services
26
Freeman v. Quicken Loans
 Split in the Circuit Courts resolved by the U.S. Supreme
Court during 2012 term
 Does the charging of a fee for no services constitute a
violation of Section 8(b)?
 Defendant charged a discount fee that allegedly did not
reduce the interest rate
 Defendant argued:
 Statute requires two parties for violation
 RESPA is not a rate-setting statute
 Court sided with Defendant and held that two or more parties
must split an unearned fee to violate Section 8(b)
27
Section 8(c) – Exceptions to RESPA
Anti-Kickback Provisions
28
Exceptions - Section 8(c)
Congress recognized certain exceptions where paying
a referral fee is ok

To an Attorney for services actually performed

By a Title Company to its duly appointed Title
Agent for services performed in issuance of a title
policy

By a Lender to its duly appointed Agent

Cooperative Agreements between listing and
selling agents
29
Exceptions - Section 8(c) (cont’d)
Congress recognized certain exceptions where paying
a referral fee is ok (cont’d)

Payments by Employer to Employee

Section 8(c)(2) payments for services rendered or
goods/facilities actually provided

Secondary Market Transactions

Affiliated Business Arrangements
30
Affiliated Business Arrangements (AfBAs)
Exception
A. AfBAs
1. Prior to 1983 affiliations unlawful
2. Example: ABC Mortgage Company
 Real estate broker A and B, and mortgage broker C
form ABC Mortgage Company
3. 1983 RESPA Act amendments
 4-part Safe Harbor Test
31
Exception (cont’d)
B. 1992 RESPA Regulations Give Distinct
Advantages to AfBAs
1. Employer may pay Employee for any referral
activities
2. Discounts or rebates to consumers to entice them to
use AfBAs are permitted
32
C. 1996 HUD Policy Statement
1. HUD addresses abuses
2. 10 factors considered to determine bona fide AfBAs
3. Need not meet all 10 factors
4. Weigh factors to determine if AfBA is bona fide
33
D. Elements of a Lawful AfBA
1. Capitalization
6. Contracting out services
2. Employees
7. Who receives contracts
3. Management
8. How contracts priced
4. Separate Space
9. Competing in marketplace
5. Core Services
10. Exclusivity with owners
34
Elements of Section 8(c)(2)
 RESPA Does Not Prohibit Payments for Goods
Provided and/or Services Performed
 Goods/Services must be actual, necessary and
distinct
 Payment must be commensurate with the value of
goods/services
35
Two Examples
A.
Marketing and Service Agreements
1.
Perform actual marketing services
2.
Pay fair market value for marketing services
B.
Office Rental Agreements
1.
Provide actual office space
2.
Pay fair market value rent for office space
36
Section 8(d) – Penalties and Enforcement
37
RESPA – Statutory Penalties and Enforcement
A. Section 8(d):
1. A person that violates Section 8 of RESPA could
face:



Fine of up to $10,000 and/or imprisonment for up to one
year
Treble damages in class actions
Government actions to enjoin violations
38
First American Financial Corp. v. Edwards
1. Does consumer have standing to bring suit under RESPA if
a kickback does not affect the price or quality of the services
provided?


Edwards purchased title insurance from a title agency in an
exclusive referral relationship with First American
First American argued:
i. Same title insurance rate charged to all borrowers in state
ii. Constitutional doctrine of “standing” requires an actual injury
2. Federal Circuit Courts split on this issue


3 Federal Circuit Courts say no injury needed to prevail under
RESPA
2 Federal Circuit Courts say without injury, no standing to sue
39
First American Financial Corp. v. Edwards
3. In 2012, Edwards case goes to U.S. Supreme
Court for definitive decision


U.S. Supreme Court held that cert. was
“improvidently granted”
U.S. Supreme Court punts
4. Split in Federal Circuit Courts continue
40
Consumer Financial Protection Bureau – Penalties
1.
Nuclear arsenal of weaponry, including:
●
●
●
●
●
●
Rescission
Refunds
Restitution
Damages
Unjust enrichment
Public notification
2.
Enforcement authority beyond original statutes
3.
Civil money penalties
41
Section 9 – Sellers and Title Insurance
 A seller cannot require a buyer to purchase title insurance
from a particular title company.
 If a seller pays for title insurance, then the seller can require
the use of a particular company for title insurance.
 What if seller only pays for owner’s title policy issued by its
preferred title company?
 At least one court says an economic incentive for buyer to
purchase lender’s policy from seller’s title company does not
amount to required use.
 If a seller violates Section 9, it is liable to the buyer in an
amount equal to 3 times all charges paid by the buyer for title
insurance.
42
RESPA Compliance Quiz
43
RESPA Pop Quiz for Real Estate Agents,
Lenders, Title Agents and Wayward Souls
* * * SCORING * * *
0–3
Get yourself fitted for prison garb
4–6
Still susceptible to visit from RESPA Police
7-9
Impressive
10
What are you trying to do? Put me out of
business?
44
RESPA Pop Quiz for Real Estate Agents, Lenders, Title
Agents and Wayward Souls (cont’d)
1. A real estate agent agrees to buy an interest in a joint
venture title agency, along with 10 other agents.
However, the agent never refers any business to this
title agency. What can they do to the real estate agent?
a. Put a provision in the Operating Agreement that allows the title
agency to remove partners that refuse to refer business.
b. Nuttin Honey. They’re stuck with the real estate agent for life.
c.
The venture can buy the agent out, if they offer the agent at
least twice what the agent paid for his interest.
45
1. A real estate agent agrees to buy an interest in a joint
venture title agency, along with 10 other agents.
However, the agent never refers any business to this
title agency. What can they do to the real estate agent?
b. Nuttin Honey. They’re stuck with the real estate agent for life.
46
2.
A real estate agent tells her former customers that if they
refer a friend or relative to the agent, and that friend or
relative buys or sells a house through the agent, the agent
will give that former customer $250. RESPA violation?
a.
No. While RESPA prohibits paying a thing of value to settlement
service providers, the Act does not prohibit paying consumers.
b.
Yes. Act says no person shall receive a thing of value for referral
of business, and that includes former customers.
c.
Tough call. Most customers can’t remember the name of their
agent ten minutes after closing, and besides, most of them don’t
seem to have any friends.
47
2.
A real estate agent tells her former customers that if they
refer a friend or relative to the agent, and that friend or
relative buys or sells a house through the agent, the agent
will give that former customer $250. RESPA violation?
b.
Yes. Act says no person shall receive a thing of value for referral
of business, and that includes former customers.
48
3. You’re a real estate broker sponsoring a charity golf
tournament. You ask a local lender to sponsor a holein-one contest for the outing. RESPA violation?
a. Because it’s a charitable event, no RESPA violation.
b. OK, if the lender is allowed to put up a sign advertising that his
mortgage company is a sponsor of the event.
c.
Not a RESPA violation, because those hole-in-one contests
are rigged. No one ever wins.
49
3. You’re a real estate broker sponsoring a charity golf
tournament. You ask a local lender to sponsor a holein-one contest for the outing. RESPA violation?
b. OK, if the lender is allowed to put up a sign advertising that his
mortgage company is a sponsor of the event.
50
4.
A real estate agent wants to send out post cards
advertising homes he is listing, so he contacts a local title
agency and offers to let them put their logo on the post
card if the title agency pays for the printing and mailing of
the cards. RESPA violation?
a.
Sure, by paying the cost of printing and postage, the title agent is
providing the agent a thing of value with the hope the agent will refer
him business.
b.
No, the agent is providing the title agent access to his customer base;
in lieu of paying for that, the title agency picks up the tab for cards.
c.
Yes, it’s a violation if the real estate agent requests payment from the
title agent, but if he offers to pay, with no expectation of being
reimbursed for expenses, not a violation.
51
4.
A real estate agent wants to send out post cards
advertising homes he is listing, so he contacts a local title
agency and offers to let them put their logo on the post
card if the title agency pays for the printing and mailing of
the cards. RESPA violation?
a.
Sure, by paying the cost of printing and postage, the title agent is
providing the agent a thing of value with the hope the agent will refer
him business.
52
5.
A real estate agent offers to sell a mortgage banker the names and
addresses of individuals that visit the agent’s open houses. The
agent asks $10 per name, does not refer the individuals to the
mortgage banker, and gets paid the $10 even if the individuals do
not get a loan from that mortgage banker. RESPA violation?
a.
No. Sure, there is a thing of value being paid to the real estate agent, but
since the agent is not recommending the mortgage banker, no RESPA
violation.
b.
Yes, even if the real estate agent does not refer the individuals to the
mortgage company, there is an agreement or understanding that the
payment is for settlement service business (i.e., a mortgage loan).
c.
Yes, RESPA prohibits a settlement service provider from divulging
confidential personal information about customers.
53
5.
A real estate agent offers to sell a mortgage banker the names and
addresses of individuals that visit the agent’s open houses. The
agent asks $10 per name, does not refer the individuals to the
mortgage banker, and gets paid the $10 even if the individuals do
not get a loan from that mortgage banker. RESPA violation?
a.
No. Sure, there is a thing of value being paid to the real estate agent, but
since the agent is not recommending the mortgage banker, no RESPA
violation.
54
6.
A real estate brokerage firm owns a majority interest in a title
agency. The broker tells all the agents in the office that they don’t
have to refer their clients to the title agency, but if they do, and the
deal closes at the broker’s title agency, the broker will pay the
agent’s commission split at the closing table. RESPA violation?
a.
No. While the commission is to be paid to the broker, the broker can ask
the settlement agent to pay a portion of the commission directly to the
real estate agent.
b.
No. As long as the real estate broker does not require the agent to use
the broker’s title agency, not a violation.
c.
Yes. Real estate broker is offering a thing of value for the referral of
settlement service business.
55
6.
A real estate brokerage firm owns a majority interest in a title
agency. The broker tells all the agents in the office that they don’t
have to refer their clients to the title agency, but if they do, and the
deal closes at the broker’s title agency, the broker will pay the
agent’s commission split at the closing table. RESPA violation?
c.
Yes. Real estate broker is offering a thing of value for the referral of
settlement service business.
56
7.
A builder insists that the buyer use a preferred attorney for closing
services and a preferred title agency for title insurance. The
builder requires the buyer to pay for both services. RESPA
violation?
a.
Section 9 of RESPA prohibits a seller from requiring the use of a
settlement agent or a title agent.
b.
Section 9 of RESPA permits a seller to require the use of a title agent, but
not a settlement agent.
c.
The builder could avoid this issue altogether, if it paid for the cost of title
insurance, but we know builders don’t like to put their hands in their own
pockets.
57
7.
A builder insists that the buyer use a preferred attorney for closing
services and a preferred title agency for title insurance. The
builder requires the buyer to pay for both services. RESPA
violation?
c.
The builder could avoid this issue altogether, if it paid for the cost of title
insurance, but we know builders don’t like to put their hands in their own
pockets.
58
RESPA Pop Quiz for Real Estate Agents, Lenders,
Title Agents and Wayward Souls (cont’d)
8.
A new title agent in town pays every real estate agent and lender a
$250 “finder’s fee” for each customer they refer whose loan closes
with the title agent. In this particular state, the state sets the title
rates and all customers pay the exact same title insurance fees.
Can the customers successfully sue the title agent under RESPA
since the title agent paid a kickback in violation of Section 8?
a.
No. The U.S. Supreme Court said that the customer has to suffer some
economic damage in order to have standing to sue. Since the customer
did not suffer economic damage, the customer may not sue.
b.
Yes. RESPA does not require that the customer suffer economic harm to
recover – only that a kickback occur in connection with her transaction.
c.
It depends on where the customer lives. Some federal courts require the
customer to suffer damages in order to sue in court. Other federal courts
say that RESPA does not require a showing of harm and, therefore, a
customer can sue for a violation of Section 8, even if no harm is suffered.
59
8.
A new title agent in town pays every real estate agent and lender a
$250 “finder’s fee” for each customer they refer whose loan closes
with the title agent. In this particular state, the state sets the title
rates and all customers pay the exact same title insurance fees.
Can the customers successfully sue the title agent under RESPA
since the title agent paid a kickback in violation of Section 8?
c.
It depends on where the customer lives. Some federal courts require the
customer to suffer damages in order to sue in court. Other federal courts
say that RESPA does not require a showing of harm and, therefore, a
customer can sue for a violation of Section 8, even if no harm is suffered.
60
9.
A mortgage company pays its loan officers $100 for every title
order that they refer to the mortgage company’s affiliated title
insurance company. Violation of Section 8 of RESPA?
a.
Yes. Section 8 of RESPA prohibits the payment of referral fees or
kickbacks to any person that refers settlement service business.
b.
No. As long as the loan officers are W-2 employees of the mortgage
company, the mortgage company can pay referral fees to its loan officers.
c.
Yes. $100 is a valuable incentive to refer title insurance business, but if
the mortgage company had only paid the loan officers $25 for every title
order they referred to the affiliated title company, there would be no
RESPA violation.
61
9.
A mortgage company pays its loan officers $100 for every title
order that they refer to the mortgage company’s affiliated title
insurance company. Violation of Section 8 of RESPA?
b.
No. As long as the loan officers are W-2 employees of the mortgage
company, the mortgage company can pay referral fees to its loan officers.
62
10. A home warranty company sells a home warranty to a buyer of a
home for $250. After the home warranty is issued, the home
warranty company pays $75 of the $250 fee to the buyer’s real
estate agent. Violation of Section 8(b) of RESPA?
a.
It depends. Section 8(b) of RESPA prohibits the split of a fee for a
settlement service between two or more parties, unless the split is
compensation for services performed. We need to know if the buyer’s real
estate agent performed services for the home warranty company.
b.
Yes. The U.S. Supreme Court was clear that Section 8(b) prohibits the
split of a fee for a settlement service between two or more parties.
c.
No. Because a home warranty is not a settlement service, Section 8(b) is
not applicable to this split in fee.
63
10. A home warranty company sells a home warranty to a buyer of a
home for $250. After the home warranty is issued, the home
warranty company pays $75 of the $250 fee to the buyer’s real
estate agent. Violation of Section 8(b) of RESPA?
a.
It depends. Section 8(b) of RESPA prohibits the split of a fee for a
settlement service between two or more parties, unless the split is
compensation for services performed. We need to know if the buyer’s
real estate agent performed services for the home warranty company.
64
QUESTIONS
Submit questions through the instant chat feature.
65
Thank You
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conclusion of this Webinar.
• A CD of today’s webinar can be purchased on October
Research’s product site at www.OctoberStore.com.
• Today’s PPT presentation and other handouts can be
found at: www.OctoberResearch.com/Handouts.
66

RESPA - October Research

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