The Law & You: RESPA-permitted Fees

Exception reveals when fees are fees, not kickbacks.

August 1, 2002

The Real Estate Settlement Procedures Act is strict, to be sure. But understanding and following the letter of its exceptions can mean additional income for you.

RESPA prohibits you from receiving a “thing of value” for referring business to a mortgage or title company. Violators may receive harsh penalties, including triple damages, fines, and even imprisonment.

But not all referral arrangements fall under RESPA’s referral policy. In fact, RESPA features a number of exceptions, including Section 8(c)(2), which states that the anti-kickback provisions don’t apply to payments for goods and facilities provided or services actually performed. This means brokers can be paid a fee for promoting a lender’s or title agent’s products.

Let’s look at the exemption to see how you and an attorney might structure a compliant marketing agreement with a lender or title company.

In enacting RESPA, the U.S. Congress sought to prevent mortgage and title companies from paying referral fees to real estate practitioners and others who could refer settlement services to consumers. Otherwise, Congress reasoned, those costs would be passed along to consumers. However, Congress recognized that if real estate professionals provide legitimate goods and services, they’re entitled to be compensated.

The U.S. Department of Housing and Urban Development has set forth a two-part test to determine whether referral payments are lawful.

  1. Real estate salespeople must provide goods, facilities, and services that are actual, necessary, and distinctfrom what they already provide. Say a lender wants to rent a desk from you to prequalify applicants. A desk, copy machine, and phone line are actual goods and facilities; are necessary to the lender; and are distinct from the other goods and facilities you would provide in selling a home.
  2. The amount paid to you must be commensurate with the value of those goods and services. Let’s say that same lender wants to pay you for taking a loan application. Taking a 30-minute loan application (if allowed by your state) and collecting credit documents is an actual service; it’s necessary to the loan origination process; and it’s distinct from other services you provide in listing or selling property. Assuming the payment is commensurate with the market rate for taking an application, and otherwise complies with state law, the payment should be legal under RESPA. If payment exceeds market value, that excess will be considered a kickback that violates the act.

Further, HUD informal advisory opinions have stated that if payments aren’t transactionally based, they’re not prohibited by RESPA. A payment for services rendered is transactionally based if the amount of the payment is determined by whether the services resulted in a successful transaction. Therefore, payment may not be tied to the success of your efforts but must be a flat fee that represents the fair market value.

For instance, if a marketing agreement provides for a $1,000-per-month marketing fee and you perform every service contracted for in the agreement, you must be paid the monthly fee even if the lender doesn’t receive a single loan from the activity. So too, if you’re wildly successful and the lender receives twice as many applications as anticipated, your monthly fee may not be increased. It’s important to remember that the payment compensates the broker for the service, not for the referral itself.

The marketing agreements we prepare for clients have included such services to lenders or title agents as helping market and promote loan or title products through the brokerage’s publications, placing the lender or title agent’s banner on the brokerage’s Web site, displaying the lender or title agent’s sign in the real estate office and at open houses, handing out brochures, providing a list of individuals who have visited open houses or signed listing agreements or sales contracts, permitting limited use of the brokerage’s logo to identify the company as the preferred vendor, permitting the lender or title agent to make presentations to the real estate sales staff, and providing office space and facilities.

One final warning: Don’t try to structure a marketing agreement on your own. In some states, only licensed mortgage brokers may be paid for taking loan applications, and in others, real estate brokers may be prohibited from receiving dual compensation in the same transaction. Proceed with the guidance of an attorney familiar with RESPA.

Phillip L. Schulman, a former assistant general counsel of the inspector general at the U.S. Department of Housing and Urban Development, is a partner with K&L Gates in Washington, D.C. He can be reached at

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