California Real Estate SalespersonFinancingMedium
Under RESPA, a mortgage broker refers a borrower to a title company in exchange for a referral fee, without providing any actual service for that fee. This arrangement is:
- ALegal if the fee is less than 1% of the loan amount
- BLegal as long as it is disclosed on the Loan Estimate
- CLegal only if the borrower consents in writing at closing
- DProhibited as an illegal kickback under RESPA Section 8
Show answer & explanationAnswer & explanation
Correct answer: D. Prohibited as an illegal kickback under RESPA Section 8
RESPA Section 8 prohibits giving or accepting anything of value in exchange for referrals of settlement service business when no actual service is performed for that fee, regardless of disclosure or amount.
Why the other options are wrong
- A. There is no dollar or percentage safe harbor for undisclosed referral fees under RESPA.
- B. Disclosure does not cure an illegal kickback arrangement under RESPA.
- C. Borrower consent does not make an illegal kickback for referrals legal.
RESPA Section 8 Kickback Prohibition
RESPA prohibits paying or receiving fees for the mere referral of business involving federally related mortgage loans unless a service is actually performed.
- Applies to federally related mortgage loans
- Prohibits fee-splitting for referrals with no service rendered
- Violations can result in civil and criminal penalties
Memory trick: No pay for play in settlement services.