The Title Agency's Per-Loan 'Marketing' Payment
Dana has been an MLO at Meridian Home Lending for four years. Meridian's affiliated title agency, ClearDeed, is owned by the same holding company. Under a written marketing services agreement, ClearDeed pays Meridian $3,500 a month for desk space in the branch plus a $175 performance fee for every loan that closes with ClearDeed. Meridian's compliance officer approved the arrangement and points to the affiliated business arrangement (AfBA) disclosure borrowers receive at application. Dana's branch manager now tells her to route every purchase loan to ClearDeed and to tell borrowers 'we're one team, so it's smoother.' Dana notices ClearDeed's title premium runs about 18% above two local competitors, and that her pipeline report now highlights loans not sent to ClearDeed. On a recent file, the borrower's Loan Estimate showed the higher premium, and the borrower asked Dana whether she could use a different title company.
1. Does this arrangement violate RESPA Section 8? Analyze the desk rent and the per-closed-loan payment separately.
Read the worked answer
Start with the statutory text: Section 8(a) prohibits giving or accepting any thing of value under an agreement or understanding that business incident to a settlement service will be referred. The analysis differs by component.
Desk rent ($3,500/month). Payments for goods or services actually furnished may be lawful under the Section 8(c)(2) safe harbor only if three elements are all met: the goods or services are real, the payment bears a reasonable relationship to their market value, and the payment is not contingent on referral volume. Desk space is a real service, but the file needs a lease, a market-rate comparison, and proof that the fee would be the same whether Meridian sent one loan or one hundred.
Performance fee ($175 per closed loan). This is the fatal term. The payment exists only when a loan closes with ClearDeed, so it is volume- and referral-contingent on its face. Section 8(c)(2) is unavailable because the payment is not for services; referrals are not a service. It does not matter that ClearDeed also pays rent or that some marketing work is done. A per-closing payment tied to referrals is the classic Section 8(a) fact pattern and exposes both companies to treble damages, civil money penalties under 12 U.S.C. 2607(d), and licensing consequences.
Aggravating facts. The pipeline report flagging loans not sent to ClearDeed, plus the 18% premium, suggests the arrangement is being enforced as a referral mandate. That also shades into UDAAP risk if borrowers are steered to a costlier provider.
2. Does the AfBA disclosure or the compliance officer's approval cure the problem? What else would have to be true for the arrangement to be lawful?
Read the worked answer
No. The AfBA disclosure under Section 8(c)(4) is a disclosure requirement, not a safe harbor. It requires that the borrower receive, at or before the referral, a written disclosure of the affiliated relationship and an estimate of the charges, plus a statement that the borrower is not required to use the affiliate. Giving the disclosure does not authorize a payment that independently violates Section 8(a). The compliance officer's approval is an internal judgment, not a legal defense; a lender's blessing does not override the statute.
For the arrangement to be defensible, all of the following would need to be true:
- The payment is for identifiable goods or services actually provided (real office space, staffed marketing work, measurable advertising).
- The amount is at fair market value, supported by an independent appraisal or market comparison, and is not a disguised share of referral profits.
- The payment does not vary with referral volume, closed-loan count, or capture rate.
- The borrower receives the AfBA disclosure at or before the referral and is genuinely free to shop.
- No employee is evaluated, ranked, or compensated on affiliate capture rate, and no script implies the affiliate must be used.
- The title premium is competitive; charging above-market rates to borrowers who were steered is a separate unfairness problem.
If any of items 1 through 3 fails, the arrangement is not curable by paperwork.
3. What should Dana do on the current file, and what should she document?
Read the worked answer
On the current file, Dana must not imply that the borrower has to use ClearDeed. She should:
- Confirm the borrower received the AfBA disclosure and tell her, in plain terms, that she may use any licensed title company.
- Provide the written list of providers if the lender uses one, and explain that choosing a provider outside the list means that fee falls outside the tolerance category (which matters to the borrower's costs).
- If the borrower asks about price, answer honestly: ClearDeed's premium is higher than the two local competitors. Do not disparage the affiliate, but do not conceal the comparison.
- Re-disclose or route the file correctly if the borrower switches providers, since the title fee may change and the Closing Disclosure must reflect the actual provider and charge.
What she should document:
- The manager's instruction, in writing (an email confirming what was said is better than a memory).
- That the borrower was offered the choice and was not required to use the affiliate.
- The AfBA disclosure delivery date and method.
- Her escalation to compliance or the company's whistleblower channel, and the response.
She should not follow an instruction to steer. If the company retaliates, that is itself a compliance and employment issue to report. Note also that under RESPA Section 8 she is an individual who could be named in an enforcement action, so the paper trail protects her personally as well as the borrower.