What Does RESPA Prohibit?

The Real Estate Settlement Procedures Act known as RESPA governs certain real estate sales activities. Enacted in 1974, this anti-kickback statute increases disclosure to consumers and prohibits certain abusive tactics such as referral fees.

RESPA prohibits a real estate broker or agent from receiving a “thing of value” for referring business to a settlement service provider (SSP) such as a mortgage banker, title company or title agent. It prohibits providers from splitting fees received for settlement services, unless the fee is for a service actually provided.

Under the statute, SSPs can provide normal promotional and educational activities, however, these activities must not defray the expenses that the real estate broker/agent would have otherwise had to pay. For example, a home inspector may visit a sales office to provide training for the salespeople and may provide refreshments.  But if the training provides the salespeople with required Mandatory Continuing Education credits, the home inspector may not contribute towards the expense typically borne by the agents for the course(s).

With respect to payments for goods and services, a broker or agent must provide goods, facilities and services that are actual, necessary and distinct from what they already provide. The amount paid to a broker or agent must be commensurate with the value of those goods and services; if the pay exceeds market value, the excess will be considered a kickback and a violation. If a salesperson and his client typically discuss the different types of financing, or requirements for buyer pre-qualification or the REALTOR® assists him in gathering documention for a mortgage application, the mortgage company may not compensate the agent for performing those tasks. 

Violations of Section 8’s anti-kickback, referral fees and unearned fees provisions of RESPA are subject to civil and criminal penalties of up to $10,000 and imprisonment for up to one year.