Case Study: A Violation of the Real Estate Settlement Procedures Act

By Lisa Scoble posted 21 days ago

  

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A mortgage brokerage firm had an arrangement with a lender who paid the firm based on the number of referrals received. The brokerage firm required clients to obtain a mortgage pre-approval from this specific lender, even if the client had already received pre-approval from another lender.

According to the Consumer Financial Protection Bureau (CFPB), this is a violation of the Real Estate Settlement Procedures Act (RESPA). RESPA prohibits real estate agents and brokerage firms from recommending settlement services, such as title insurance, appraisals, inspections, and loan origination to consumers in exchange for payment from service providers. This activity is known as an illegal kickback scheme.

The Mistake
The brokerage firm should have known that it is illegal to make or accept payments for mortgage referrals.

The Result
The lender and brokerage company were ordered by the CFPB to pay civil penalties and consumer compensation.

Prevention
Never make or accept payments for referrals, because it is illegal. To ensure you are always working within the law, familiarize yourself with RESPA and keep up to date on additions and/or amendments to the law.

It should be noted that fines, penalties, and sanctions are not covered by errors and omissions policies. Review your policy to make sure you have proper coverage in place for your business.

This article was produced in conjunction with XL Catlin and is not to be taken as legal advice.

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