Referral Payments, Vendor Tickets, and Borrower Misstatements
Alex is a newly licensed MLO at a Michigan brokerage. A real estate agent offers to refer 12 buyer clients next quarter if Alex pays the agent's LLC $1,000 per month for 'desk space' in an office Alex will never use. Separately, a title company account manager offers Alex two suite tickets to a Detroit Tigers game and says, 'Just keep sending us your closings.' A borrower asks Alex to leave a $400 monthly car lease off the application because 'it will be paid off soon,' and Alex's branch manager says, 'Everyone rounds; just put the income where the AUS likes it.' Alex needs the referrals to hit a $12 million annual production target. Alex asks you which of these actions are permissible and how to document them.
1. Is the $1,000-per-month desk space arrangement permissible?
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No. RESPA Section 8 prohibits giving or accepting a thing of value under an agreement to refer settlement-service business. The payment is disguised compensation for 12 referrals. The desk space is not bona fide because Alex never uses it and the payment is disproportionate to any real rent. A written lease does not cure a sham arrangement. Alex should decline, not sign the lease, and document the offer in writing. If the brokerage wants leads, it should use fair-market advertising that is not tied to per-referral payments and should disclose arrangements as required.
2. Should Alex accept the title company tickets or any vendor closing gift?
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Alex should decline the tickets. They are a thing of value from a settlement-service provider, and the account manager expressly tied them to future closings. Even if the dollar value is modest, the referral tie makes the offer risky and likely prohibited. A title company paying for a borrower closing gift should be reviewed under RESPA and company policy; Alex should not personally accept vendor gifts. Alex should notify compliance and keep a record of the offer.
3. How should Alex handle the borrower's request to omit the car lease and the manager's instruction to round income?
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Alex must not omit the car lease. It is a current obligation; a future payoff can be considered only if it will occur before closing and is fully documented, and even then the application must be accurate. Alex must also refuse to round or invent income to satisfy AUS. That is a misrepresentation and potentially fraud. Alex should tell the borrower that the application must be accurate, include the debt, and escalate the manager's instruction to compliance. Written documentation of the conversation and the escalation protects both Alex and the borrower.