Gifts, Referral Fees, and MSAs - RESPA Updates and More
November 17, 2020
The Consumer Financial Protection Bureau (CFPB) recently provided updated FAQs on the Real Estate Settlement Procedures Act’s (RESPA) Section 8 and withdrew old guidance on marketing services agreements (MSAs). The update largely reinforces current practices, clarifies rules on MSAs, and shows that each specific case must be analyzed separately. This article provides highlights of the RESPA update.
Referrals, Gifts, and Related Basics
Reading the FAQs (here) is the best way to understand the nuances of what is and is not allowed, but here are some highlights for real estate agents.
- Marketing Services Agreements (MSAs)– Prior guidance on MSAs strongly disfavored them. The new guidance provides more definite requirements for permissible MSAs, but MSAs are still scrutinized closely. In a mouthful, a legal MSA must be unrelated to referrals and is an agreement where one party pays another party for marketing services, and as such the payments are reasonably related to the value of the services performed. These parameters should be followed very carefully.
- Referrals and Things of Value – RESPA prohibits settlement service providers from giving or receiving kickbacks, referral fees or things of value when dealing with federally related mortgage loans. However, referral fees between real estate agents are allowed as an exception. The FAQs provide great examples of what is and is not allowed.
- Gifts – Gifts to a client are allowed but not for referrals. Gifts should be given in advance of or at closing and disclosed to all parties. No exception exists for de minimis gifts. Keep in mind that state license law distinguishes rebates from gifts, prohibiting rebates while allowing gifts.
- Promotions – Promotions are not allowed if given or accepted due to a referral incident to a real estate settlement service involving a federally related mortgage. Promotions given to a referral source may be allowed if they are a “normal promotional or educational activity,” which is determined by two factors.
- First, the promotion must not be conditioned on referrals. This factor largely looks at the group to which the promotion is directed. Generally, the group should be available to the public or to a larger group than just those who have made referrals in the past.
- Second, the promotion must not defray expenses that a referral source would otherwise incur. This factor does not mean a promotion cannot defray any expenses for referral sources, but looks at whether the promotion defrays expenses for only settlement service providers (e.g., continuing education class available for a fee to public but fee waived for real estate agents).
The Alabama REALTORS® legal team continues to monitor and report on federal and state laws and rules. If you have a legal question about real estate, consider submitting it to AAR’s Legal Helpdesk here.