[Code of Federal Regulations]

[Title 24, Volume 5]

[Revised as of April 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 24CFR3500.14]



[Page 277-280]

 

                 TITLE 24--HOUSING AND URBAN DEVELOPMENT

 

 CHAPTER XX--OFFICE OF ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING 

        COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

 

PART 3500_REAL ESTATE SETTLEMENT PROCEDURES ACT--Table of Contents

 

Sec.  3500.14  Prohibition against kickbacks and unearned fees.



    (a) Section 8 violation. Any violation of this section is a 

violation of section 8 of RESPA (12 U.S.C. 2607) and is subject to 

enforcement as such under Sec.  3500.19.

    (b) No referral fees. No person shall give and no person shall 

accept any fee, kickback or other thing of value pursuant to any 

agreement or understanding, oral or otherwise, that business incident to 

or part of a settlement service involving a federally related mortgage 

loan shall be referred to any person. Any referral of a settlement 

service is not a compensable service, except as set forth in Sec.  

3500.14(g)(1). A



[[Page 278]]



company may not pay any other company or the employees of any other 

company for the referral of settlement service business.

    (c) No split of charges except for actual services performed. No 

person shall give and no person shall accept any portion, split, or 

percentage of any charge made or received for the rendering of a 

settlement service in connection with a transaction involving a 

federally related mortgage loan other than for services actually 

performed. A charge by a person for which no or nominal services are 

performed or for which duplicative fees are charged is an unearned fee 

and violates this section. The source of the payment does not determine 

whether or not a service is compensable. Nor may the prohibitions of 

this part be avoided by creating an arrangement wherein the purchaser of 

services splits the fee.

    (d) Thing of value. This term is broadly defined in section 3(2) of 

RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, 

things, discounts, salaries, commissions, fees, duplicate payments of a 

charge, stock, dividends, distributions of partnership profits, 

franchise royalties, credits representing monies that may be paid at a 

future date, the opportunity to participate in a money-making program, 

retained or increased earnings, increased equity in a parent or 

subsidiary entity, special bank deposits or accounts, special or unusual 

banking terms, services of all types at special or free rates, sales or 

rentals at special prices or rates, lease or rental payments based in 

whole or in part on the amount of business referred, trips and payment 

of another person's expenses, or reduction in credit against an existing 

obligation. The term ``payment'' is used throughout Sec. Sec.  3500.14 

and 3500.15 as synonymous with the giving or receiving any ``thing of 

value'' and does not require transfer of money.

    (e) Agreement or understanding. An agreement or understanding for 

the referral of business incident to or part of a settlement service 

need not be written or verbalized but may be established by a practice, 

pattern or course of conduct. When a thing of value is received 

repeatedly and is connected in any way with the volume or value of the 

business referred, the receipt of the thing of value is evidence that it 

is made pursuant to an agreement or understanding for the referral of 

business.

    (f) Referral. (1) A referral includes any oral or written action 

directed to a person which has the effect of affirmatively influencing 

the selection by any person of a provider of a settlement service or 

business incident to or part of a settlement service when such person 

will pay for such settlement service or business incident thereto or pay 

a charge attributable in whole or in part to such settlement service or 

business.

    (2) A referral also occurs whenever a person paying for a settlement 

service or business incident thereto is required to use (see Sec.  

3500.2, ``required use'') a particular provider of a settlement service 

or business incident thereto.

    (g) Fees, salaries, compensation, or other payments. (1) Section 8 

of RESPA permits:

    (i) A payment to an attorney at law for services actually rendered;

    (ii) A payment by a title company to its duly appointed agent for 

services actually performed in the issuance of a policy of title 

insurance;

    (iii) A payment by a lender to its duly appointed agent or 

contractor for services actually performed in the origination, 

processing, or funding of a loan;

    (iv) A payment to any person of a bona fide salary or compensation 

or other payment for goods or facilities actually furnished or for 

services actually performed;

    (v) A payment pursuant to cooperative brokerage and referral 

arrangements or agreements between real estate agents and real estate 

brokers. (The statutory exemption restated in this paragraph refers only 

to fee divisions within real estate brokerage arrangements when all 

parties are acting in a real estate brokerage capacity, and has no 

applicability to any fee arrangements between real estate brokers and 

mortgage brokers or between mortgage brokers.);

    (vi) Normal promotional and educational activities that are not 

conditioned on the referral of business and



[[Page 279]]



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; or

    (vii) An employer's payment to its own employees for any referral 

activities.

    (2) The Department may investigate high prices to see if they are 

the result of a referral fee or a split of a fee. If the payment of a 

thing of value bears no reasonable relationship to the market value of 

the goods or services provided, then the excess is not for services or 

goods actually performed or provided. These facts may be used as 

evidence of a violation of section 8 and may serve as a basis for a 

RESPA investigation. High prices standing alone are not proof of a RESPA 

violation. The value of a referral (i.e., the value of any additional 

business obtained thereby) is not to be taken into account in 

determining whether the payment exceeds the reasonable value of such 

goods, facilities or services. The fact that the transfer of the thing 

of value does not result in an increase in any charge made by the person 

giving the thing of value is irrelevant in determining whether the act 

is prohibited.

    (3) Multiple services. When a person in a position to refer 

settlement service business, such as an attorney, mortgage lender, real 

estate broker or agent, or developer or builder, receives a payment for 

providing additional settlement services as part of a real estate 

transaction, such payment must be for services that are actual, 

necessary and distinct from the primary services provided by such 

person. For example, for an attorney of the buyer or seller to receive 

compensation as a title agent, the attorney must perform core title 

agent services (for which liability arises) separate from attorney 

services, including the evaluation of the title search to determine the 

insurability of the title, the clearance of underwriting objections, the 

actual issuance of the policy or policies on behalf of the title 

insurance company, and, where customary, issuance of the title 

commitment, and the conducting of the title search and closing.

    (h) Recordkeeping. Any documents provided pursuant to this section 

shall be retained for five (5) years from the date of execution.

    (i) Appendix B of this part. Illustrations in appendix B of this 

part demonstrate some of the requirements of this section.



[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 29252, June 7, 1996; 61 

FR 58476, Nov. 15, 1996]



    Effective Date Note: At 61 FR 29252, June 7, 1996, Sec.  3500.14 was 

amended by revising the last sentence of paragraph (b), the heading of 

paragraph (g), and paragraph (g)(1), effective Oct. 7, 1996. At 61 FR 

51782, Oct. 4, 1996, the effective date was delayed until further 

notice. For the convenience of the user, the new text is set forth as 

follows:



Sec.  3500.14  Prohibition against kickbacks and unearned fees.



                                * * * * *



    (b) * * * A business entity (whether or not in an affiliate 

relationship) may not pay any other business entity or the employees of 

any other business entity for the referral of settlement service 

business.



                                * * * * *



    (g) Exemptions for fees, salaries, compensation, or other payments. 

(1) The following are permissible:

    (i) A payment to an attorney at law for services actually rendered;

    (ii) A payment by a title company to its duly appointed agent for 

services actually performed in the issuance of a policy of title 

insurance;

    (iii) A payment by a lender to its duly appointed agent or 

contractor for services actually performed in the origination, 

processing, or funding of a loan;

    (iv) A payment to any person of a bona fide salary or compensation 

or other payment for goods or facilities actually furnished or for 

services actually performed;

    (v) A payment pursuant to cooperative brokerage and referral 

arrangements or agreements between real estate agents and real estate 

brokers. (The statutory exemption restated in this paragraph refers only 

to fee divisions within real estate brokerage arrangements when all 

parties are acting in a real estate brokerage capacity, and has no 

applicability to any fee arrangements between real estate brokers and 

mortgage brokers or between mortgage brokers.)

    (vi) Normal promotional and educational activities that are not 

conditioned on the referral of business and do not involve the defraying 

of expenses that otherwise would be



[[Page 280]]



incurred by persons in a position to refer settlement services or 

business incident thereto;

    (vii) A payment by an employer to its own bona fide employee for 

generating business for that employer;

    (viii) In a controlled business arrangement, a payment by an 

employer of a bonus to a managerial employee based on criteria relating 

to performance (such as profitability, capture rate, or other 

thresholds) of a business entity in the controlled business arrangement. 

However, the amount of such bonus may not be calculated as a multiple of 

the number or value of referrals of settlement service business to a 

business entity in a controlled business arrangement; and

    (ix)(A) A payment by an employer to its bona fide employee for the 

referral of settlement service business to a settlement service provider 

that has an affiliate relationship with the employer or in which the 

employer has a direct or beneficial ownership interest of more than 1 

percent, if the following conditions are met:

    (1) The employee does not perform settlement services in any 

transaction; and

    (2) Before the referral, the employee provides to the person being 

referred a written disclosure in the format of the Controlled Business 

Arrangement Disclosure Statement, set forth in appendix D to this part.

    (B) For purposes of this paragraph (g)(1)(ix), the marketing of a 

settlement service or product of an affiliated entity, including the 

collection and conveyance of information or the taking of an application 

or order for an affiliated entity, does not constitute the performance 

of a settlement service. Under this paragraph (g)(1)(ix), marketing of a 

settlement service or product may include incidental communications with 

the consumer after the application or order, such as providing the 

consumer with information about the status of an application or order; 

marketing shall not include serving as the ongoing point of contact for 

coordinating the delivery and provision of settlement services.



                                * * * * *