QUESTION
We are a
mortgage broker which owns a subsidiary that is a licensed real estate
education provider, which I will refer to as “Real Estate Academy”. Real Estate
Academy will be holding a continuing education class for which it charges $25
per person. A local title company has offered to sponsor the class and pay the
$25 fee for each person in attendance. Is this arrangement permissible?
ANSWER
Whether the foregoing arrangement is a violation of the Real Estate
Settlement Procedures Act (RESPA) depends on whether the real estate agents or
other attendees are receiving continuing education credits for their
attendance. If no credits are received, there is no RESPA violation. By contrast,
if credits are received, RESPA has been violated.
As a general rule, RESPA and its implementing regulation, Regulation X,
prohibit a person from giving or accepting “any fee, kickback or other thing of
value” for the referral of any business that is incident to or part of a
settlement service involving a federally related mortgage loan. [12 CFR
1024.14(b)] The term “thing of value” is construed quite broadly and includes
“payment of another person’s expenses”. [12 CFR 1024.14(d)] Certainly, the payment
by the title company of a realtor’s continuing education expenses falls within
the definition of “thing of value”, and is in violation of the general
rule.
However, there is an exception to the general rule which would permit
the title company to sponsor the class, provided no continuing education
credits or other “thing of value” is given to the realtors. RESPA permits “normal
promotional and educational activities that are not conditioned on the referral
of business and that do not involve the defraying of expenses that otherwise
would be incurred by persons in a position to refer settlement services or business
incident thereto”. [12 CFR 1024.14(g)(vi)] This exception underscores that an arrangement
that results in continuing education credits being given to the realtors is not
permissible because the title company is defraying expenses the agents would
otherwise incur, for instance, continuing education expenses.
Joyce Pollison
Director/Legal &
Regulatory Compliance
Lenders Compliance Group
