Referral Fees, an Affiliated Title Agency, and Required Use
Piedmont Creek Realty refers nearly every buyer to Summit Lending and to Pine Title, a title agency owned by the broker's spouse. Summit pays the firm $400 per closed loan as a 'marketing support fee'; Pine Title pays $600 per closing as 'desk rent,' although Pine Title has no desk or office space at the brokerage. The broker's buyer agency agreement says, 'Buyer agrees to use Pine Title for closing and Summit Lending for financing unless buyer obtains broker's written waiver.' A buyer's Closing Disclosure shows $1,450 in title services, a $500 broker administrative fee, and a $400 'courier/processing' charge paid to the brokerage. The buyer asks the broker whether these charges are required and negotiable. The loan is a federally related mortgage loan.
1. Identify the RESPA and license-law problems in the referral and fee arrangements.
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The $400 per loan payment from Summit Lending and the $600 per closing payment from Pine Title look like payments for referrals, not for actual goods or services. RESPA Section 8 prohibits fees, kickbacks, and things of value for referrals of settlement services in federally related mortgage loans. Calling the title payment 'desk rent' does not cure it if Pine Title has no desk and pays no fair-market rent. The buyer agency clause requiring Pine Title and Summit unless the buyer obtains the broker's waiver is also improper because it conditions the buyer's use of an affiliated provider. RESPA's affiliated business arrangement rules require timely written disclosure of the affiliation and no required use.
2. What disclosures and corrections should the broker make before or at closing?
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The broker must disclose in writing that Pine Title is owned by the broker's spouse and that the broker may benefit from its use. The disclosure should be given at or before referral, state the estimated charges, and make clear that the buyer may shop for title and lending services. The broker should stop requiring Summit or Pine Title and should not tie the waiver to the buyer's cooperation. The broker-admin fee and courier fee need a bona fide service basis; if they are referral fees or duplicative charges, they should be removed and refunded. The broker should also review the Closing Disclosure with the buyer and explain which charges are shoppable.
3. Can the broker keep the marketing support fee and desk rent? What should happen to them?
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The broker cannot keep referral fees. The marketing support fee and the desk rent should be discontinued and, to the extent already paid, refunded or credited. The broker should terminate any agreement that compensates the firm for sending settlement business. The affiliated title company can continue to be recommended only after proper written disclosure and only if the buyer is free to choose another provider. The broker should keep records of the disclosures, the fees, and the refunds. The broker should also train licensees not to tell buyers they must use the affiliate. If the payments were concealed, the broker should consult counsel about RESPA cure and self-reporting.