The Real Estate Settlement Procedures Act (RESPA) provides consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks. RESPA was signed into law in December 1974, and became effective on June 20, 1975.
RESPA does not apply to extensions of credit to the government, government agencies, or instrumentalities, or in situations where the borrower plans to use property or land primarily for business, commercial, or agricultural purposes.
No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.
An example of a kickback that is prohibited by RESPA is a fee paid by a surveyor to a broker for referring a property to be surveyed. The Real Estate Settlement Procedures Act (RESPA) is a federal law that prohibits specific practices to ensure fairness and transparency in the real estate settlement process.
Giving of gifts, no matter the cost, to broker/agent on any occasion, including birthdays and holidays. Providing gifts, no matter the cost, including door prizes at a broker/agent sponsored events. Making donations to a particular broker/agent charity event. Wining and dining the broker/agent.
The following transactions are not covered by RESPA: An all-cash sale; • A sale where the individual home seller takes back the mortgage; and • Business, Commercial, or Agricultural purpose loans. RESPA requires disclosures to be given to applicants for a federally related mortgage loan.
Kickbacks & Referral Fees
Section 8b of RESPA prohibits giving or receiving any portion or percentage of a fee received for real estate settlement services unless it's for services actually performed. These fees must be split between two or more persons for it to be a direct violation of the law.
For these reasons, the practice of kickbacks is highly illegal in real estate. Here are a few examples of illegal kickbacks in real estate: A mortgage broker receives a payment from a lender in exchange for directing clients to that lender, regardless of whether it's in the client's best interest.
Transactions generally not covered under RESPA include: “an all cash sale, a sale where the individual home seller takes back the mortgage, a rental property transaction or other business purpose transaction.” “The sale of a loan after the original funding of the loan at settlement is a secondary market transaction.
A kickback is also similar to referral fees; however, it tends to have more of a negative connotation. It may involve offering incentives in return for false advertisement or favoritism. Referral fees, on the other hand, are given for honest recommendations.
Final answer: RESPA prohibits kickbacks, referral fees, and surreptitious payments, but reasonable fees and premiums are not prohibited.
The Act requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. The Act also prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts.
The AKS prohibits any individual or entity from “knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person . . . to purchase . . . or arrange for or recommend purchasing . ...
RESPA doesn't apply to cash sales, seller carrybacks, vacant land, or commercial real estate sales. It also doesn't apply to property management. However, it is still good practice for real estate licensees who offer property management as a service to disclose any referral fees.
The Anti-Kickback Statute (AKS) prohibits “kickbacks” for medical referrals. There's a federal AKS as well as a state analog. Broadly, the laws prohibit the offer of anything of value in exchange for a referral for a patient who participates in a federal or state health program.
Generally speaking, RESPA prohibits parties engaged in providing settlement services from giving or receiving “kickbacks” in connection with a mortgage loan.
Under RESPA section 8a, giving gifts or kickbacks in exchange for business is illegal. Specifically, it prohibits any “unearned” fees or bonuses paid for services that weren't performed.
A kickback is an illegal payment made to someone, often in a position of power or influence, as compensation for facilitating a service, favor, or preferential treatment. While kickbacks often involve cash, they can include anything valuable to another party, such as a credit, a gift, or an act done in return.
Final answer: RESPA applies to a variety of real estate transactions but generally does not apply to a seller-financed loan when the seller does not regularly extend credit. It covers transactions such as condominium purchases, second mortgages, and federally-insured loans.
- Section 8 of RESPA prohibits the giving or receipt of any item of value, called a kickback, in return for referring business to any settlement service provider (SSP), such as mortgage lenders, title insurance companies, and home inspectors.
RESPA Section 9: Section 9 prohibits home sellers from requiring home buyers to purchase title insurance from a particular company either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to 3x all charges made for title insurance.
RESPA eliminates abusive practices, such as kickbacks and referral fees, which increase the costs paid by consumers. RESPA reduces the amounts that homebuyers must place in escrow accounts.
This form integrates and replaces the existing RESPA GFE and the initial TIL for these transactions. The creditor is generally required to provide the Loan Estimate within three-business days of the receipt of the consumer's loan application.
Final answer: Out of steering, paying of kickbacks, blockbusting, and redlining, the Real Estate Settlement Procedures Act (RESPA) directly prohibits the paying of kickbacks. Other acts are prohibited under Fair Housing Act and the Community Reinvestment Act.