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What is RESPA and why should I care?

RESPA is an acronym, standing for the Real Estate Settlement Procedures Act. It’s a consumer protection statute, first passed in 1971. It is about closing costs and settlement procedures. RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.

RESPA covers things like the adequate disclosure by mortgage lenders to consumers of charges related to the origination of a loan, the requirement that the lender provide a Good Faith Estimate (GFE) of settlement costs, the disclosure of affiliated business arrangements to Buyers, etc.

There is also a section related to kickbacks, fee-splitting and unearned fees. Section 8 (not the Housing Choice Voucher Program) of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

This week, the Metropolitan Indianapolis Board of REALTORS® sponsored an event downtown called the “Central Indiana Housing Summit.” It was a yearly gathering of REALTORS® from across the state at the Convention Center, and provides an opportunity to learn from expert economists, politicians, builders, developers and other REALTORS® about the general state of the Real Estate market in Central Indiana.

So here's the thing...A local mortgage company offered free rides on a shuttle bus to the Summit from the Glendale area. Local Real Estate Agents were invited to gather early and ride along, lessen the impact on the environment, avoiding the hassles of traffic, parking, etc.

Don’t get me wrong. I’m all for mass transit and carpooling. Anything we can do to lessen our carbon footprint makes me happy. But I’m also a bit of a real estate law wonk. My interest was piqued. I honestly didn't know if this was something that would get me crossways with HUD. Was this bus ride, as generous and well-intended as it was, a violation of Section 8 of RESPA?

I asked HUD by email about the bus. Amazingly, I received a phone call from Geri Hansen, Compliance Specialist at the Office of RESPA and Interstate Land Sales, US Department of Housing & Urban Development. I re-explained the scenario and her response was clear and unequivocal.

The free bus ride was a violation of Section 8. It would be viewed by HUD as an attempt by this mortgage lender to solicit referrals from Real Estate agents by giving them something of value. Plain and simple. And while the “value” of that thing may have been small to some individuals, it was, nonetheless, a thing of some value.

The response from my fellow REALTORS® was…well…mighty disturbing.

An employee of our local Board of REALTORS® said, “Joe, hate to tell you but there is no violation and I checked. So they were being good citizens, saving gas and the environment.”

I’m not sure whom she checked with, but when a Compliance Specialist at HUD says that it’s a violation, I’m going believe the HUD employee. I’m a bit disturbed, too, to think that a very decent and loyal employee of our local Board – one of my favorite humans on the planet, actually – is incorrect about this issue and her information is coming from within MIBOR. Yikes!

Another REALTOR® - someone who actually manages a large north side office and trains new agents – said in a very condescending way, “knock yourself out and file a complaint. One of my title reps sent me a Valentine’s Day card. I’m turning him in!”

An awfully flippant response to a violation of Federal Housing statute, don’t you think? And this person’s actually running an office and is responsible for millions of dollars in transactions every year?

Yet another agent who is on the Board of one of the MIBOR Divisions responded, “What are you serious??? A Bus ride to a free seminar on housing. I think that’s taking it to the extreme buy [sic] calling thing of value. That's ridiculous!! We are just trying to encourge [sic] folks to go to the housing summit. To call it an item of value is a complete strecth. [sic]”

Heavy sigh…

Should you care if the REALTOR® you hire follows or understands federal housing statute? If they don’t understand the law, but instead choose to overtly ignore it – or interpret it to their own liking – can they adequately represent your interests?

I believe that you should care about RESPA. I do.