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Pennsylvania’s Attorney General filed a complaint against a Lehigh Valley-based mortgage broker and their manager regarding a kick-back scheme that involved real estate agents directing potential home buyers to the mortgage broker. The complaint alleges that the mortgage broker discounted ownership in a joint venture mortgage brokerage company and handed out sporting event tickets, dinners, and other kickbacks, in exchange for agents steering clients to the mortgage brokerage. Additionally, the complaint alleges that the mortgage brokerage attempted to skirt RESPA’s federal ban on kickbacks by coming up with a complex scheme to try to disguise the kickbacks as stock sales and cash to real estate agents.
The Real Estate Settlement Procedures Act (RESPA) attempts to provide consumers with greater and more timely information on the nature and costs of settlement and protects consumers from unnecessarily high settlement costs caused by abusive practices. RESPA prohibits any person from giving or receiving any “thing of value” in exchange for the referral of settlement service business. There is an exception that allows brokers and agents to exchange reasonable payments in return for goods provided or services performed by other settlement service providers, so long as those arrangements are carefully structured to comply with the law and regulations.
It is important for all real estate professionals to be aware of RESPA, which applies to most consumer real estate transactions, to disclose joint venture agreements as required by law, and to avoid accepting kickbacks. The punishment for a RESPA violation can include a fine of up to $10,000, potential jail time for up to one year, and civil liability to pay the borrower up to three times the amount of the improper charge for settlement services in a private lawsuit; depending on the severity of the violation and the specific section of RESPA breached.
This article is not intended to provide legal advice. This email does not create an Attorney-Client relationship, and nothing set forth herein is to be construed as legal advice or as a substitute for the advice of a duly licensed attorney. Seek legal counsel from an attorney admitted to practice in your jurisdiction if you need legal advice or representation.
