A great article was generated by Anne Cockayne and released on FloridaRealtors.org surrounding the infamous Procuring Cause issue. This is always a subject of contention and we decided to share this great article in our blog for future reference.
"The first thing to do is talk to your broker and find out if they're willing to pursue the commission because all commission disputes occur between brokers. A sales associate has a financial interest in the outcome, but they're not considered parties unless they're also a principal in the firm (sole proprietor, partner, officer, majority shareholder or office manager).
According to the National Association of Realtors® (NAR) 2018 Code of Ethics and Arbitration Manual, "While a number of definitions of procuring cause exist, and a myriad of factors may ultimately enter into any determining procuring cause, for purposes of arbitration by local Boards and Associations of Realtors, procuring cause in broker-to-broker disputes can be readily understood as an uninterrupted series of casual events which result in a transaction. Or in other words what caused the successful transaction to come about."
A "successful transaction" is a sale the closes or a lease that is executed.
I cannot tell you if you are the procuring cause because I've only heard your side of the story. Ultimately, it's up to your local association arbitration panel to determine if your efforts resulted in bringing the buyer to the closing table. Panels hear from both sides, listen to witness testimony and review evidence before deciding.
Keep in mind, arbitration panels cannot base their decision on a rule of entitlement, which are considerations such as:
Instead, the panel's job is to focus on the "series of events" and analyze the facts to determine if an interruption in the relationship between the agent and buyer occurred. Examples of breaks could include:
It's anybody's guess as to how much weight the arbitration panel will give to the buyer's act of leaving you. Generally, arbitration panels award all or nothing, and NAR policy precludes arbitration panels from including a rationale to explain their decision, so the award will only tell you who gets the money.
Only very rarely do panels "split the commission," so please don't mislead yourself to believe that the panel will award you something for your time and trouble. And never go into an arbitration believing it's a "slam dunk." If you have an "I know I am going to win" mentality, you may come away very disappointed. No one can predict the outcome of an arbitration hearing.
There are arbitration alternatives, one being mediation, which is an informal dispute resolution process that puts the who-gets-paid decision into the hands of the parties rather than a hearing panel. The parties sit down with a mediation officer from the local association to work out their differences without lawyers or witnesses present.
Another alternative is for the brokers in the dispute to sit down and discuss the issue and negotiate the outcome themselves. This avoids any need to go to the local association at all. If the brokers do mutually agree about settlement terms, it's always best to get the agreement to settle in writing.
For more information about procuring cause and the process to resolve commission disputes, contact Florida Realtors Legal Hotline at 407.438.1409."
Always remember that the deal is not done until you receive your commission and even then, it's always best to make sure you closed all open issues in every facet of the transaction. In today's litigious atmosphere, you can sue anyone over almost anything.
Just my 2 cents...
1. Schedule future Facebook messages
Speaking of time, in real estate, timing is everything, and it can be
the difference between landing a client or losing one.
Stay in touch with your sphere, and reach out to clients with Sendible. This clever
tool allows you to schedule Facebook messages to your friends ahead of time;
think birthdays, anniversaries, quarterly follow-ups, etc.
If you’re looking for a simple way to ramp up your social media game,
this is the tool.
2. Check your ‘Message Requests’
Aside from making sure you
don’t miss leads by setting up a chatbot and pixel and using
Messenger to communicate with “friends,” you can also keep track of messages
and requests from your non-friends within the Messenger app.
If you’re familiar with Facebook Messenger, then you’ll recognize the lightning bolt
icon. When you click it, the icon automatically defaults to the “Recent” tab of
your inbox, but take a closer look, and you’ll notice a “Message Requests” tab.
This is where the messages from people you’re not currently friends with
Whether it be an old pal or perspective client, best to go in and have a
look. There is also a “See filtered requests” link located directly below that
will show you outlier messages from strangers, scammers and everything between.
Browse with caution!
3. Transfer files, send money and share maps via Messenger
Facebook Messenger allows you to do so much more than send messages. In
fact, you can send images from your mobile device, share a mapped location and
even transfer money at the click of a button. Here’s how.
Open the Facebook Messenger window and look for the small icons along
the bottom bar. These icons are powerful tools that allow you to upload and
send files from your device, share a map of any location or send money from a
debit card or PayPal account.
Splitting the bill with a co-worker to share your open house has never
4. Take advantage of Facebook Notes
Longtime Facebook users know you can make the most of a milestone or
share a client story by highlighting it in Facebook Notes.
According to PCMag, Facebook Notes is basically “a personal blog post that
lives inside the Facebook ecosystem.”
Click on Facebook Notes
to share entire paragraphs of text and images just like a regular Facebook
post, or save it and come back to work on it later. You’ll be able to publish
whenever you’re ready.
Here’s a great “how-to” on using Facebook Notes.
5. Save news feed posts for later
If you never noticed it before, today is your lucky day! Facebook has a “Save for Later” function that allows you to save posts and
read later when you have more time — basically Facebook’s way of taking on
content savers such as Pinterest.
Click the ellipsis in the top-right of any post, which will pull up a
number of options including the Save button. This will send the link to
your “Saved” folder, which doesn’t exist until you, in fact, save something.
Next, look for the “Saved” ribbon in the left-hand side of your explore
bar, and let the daily catch-up begin.
6. Wow clients with 360-degree pics and vids
Have you noticed those “360-degree” photos and videos popping up all
over your Facebook feed? The “360” feature allows Facebook users to pivot and
look at all angles and directions. The same goes for users on a desktop.
With “360,” you can give your clients and followers a truly immersive
experience – whether broadcasting a listing to an international audience,
promoting an open house, or simply showcasing what you see in your day-to-day.
Get started with
this Facebok360 tutorial to learn the ins and outs of 360 media.
7. Create a fundraiser that resonates
Most real estate agents are big on giving back, and Facebook makes it
even easier to show you care.
Scroll the left-side of your explore bar until you find the “Fundraiser”
icon (a little coin with a heart in the middle). Here, you can start a charity,
use the power of your sphere and crowdsource funds via donations for your
There are, however, policies and sometimes fees associated with Facebook fundraisers and
charitable donations. TechCrunch recently reported changes to Facebook’s policy
which includes dropping the fee for certain donations and matching up to $50
million a year!
8. Up your security game
Security should be top priority for every Facebook user. The main
threat? People can try to get into your account to steal personal information.
PCMag suggests these top three tips to protect yourself, which
you can access via Settings > Security and Login > Setting Up Extra
Security; this includes two-factor authentication, enabled alerts for
unrecognized logins and trusted contacts for when you get locked out.
9. Keep an eye out for Facebook’s city-specific feature
According to AdEspresso by Hootsuite, Facebook is testing a new area of its
app called “Today In,” a mix of city-specific events, announcements and local
This will make it easier for users to stay in-the-know about their
communities and could be a valuable marketing tool for agents once officially
Currently, only a few chosen cities are testing it: New Orleans,
Louisiana; Olympia, Washington; Billings, Montana; Binghamton, New York;
Peoria, Illinois; and Little Rock, Arkansas.
10. Biggest change to Facebook’s news
Perhaps the most talked about update of 2018 includes Facebook’s
decision to prioritize news from family and friends at the expense of public
content, news publishers and marketers.
This isn’t all that bad for agents looking to foster meaningful
connections in their sphere.
AdEspresso by Hootsuite details Mark Zuckerburg’s reasoning behind the decision and dives
deeper into how Facebook’s 2018 updates affect marketers and users of the
You can also check out Katie Lance’s take on the update, “What the
Facebook news feed change means for real estate pros.”
Now that you know about these highly
underutilized Facebook tricks, you can go forth and become the Facebook power
user/real estate marketer you were born to be.
by Amy Puchaty
Courtesy of Inman news
Those hoping that the next generation of 100-percent commission brokerages would just die a death may want to see a therapist about their denial.
These thick-skinned companies are alive and well, and the tenacious breed of broker-owners who run them have gotten used to being called flat-fee scumbags.
They say they know what it feels like to be Netflix at a Blockbuster conference — they’ve been sent hate mail; they’ve been shunned from industry conferences, stopped from joining real estate boards, had their signs defaced — but they have brushed it off and kept going.
And the accolades are going to start rolling in.
According to Real Trends’ president, Steve Murray, companies using the 100-percent commission model snagged three out of the top 11 slots on the Real Trends 500, due out at the end of the month, when their identities will officially be unveiled.
“In all of their varieties, they are here to stay. The data supports it,” Murray said. “They are a huge part of the industry; it wouldn’t surprise me if they were getting to be 15 to 25 percent of the industry. They are all over and they are multiplying.”
He tells the more traditional brokerages not happy with this competition: “It’s just a different way of doing business, not good or bad, they just are, and it’s making you work harder to prove your value.”
Realty Executives International pioneered the 100-percent model in 1965. But Re/Max founder Dave Liniger made his name with the formula when launching in 1973 and proved to be very effective at it, said Re/Max president Geoff Lewis.
“In a sense he blazed a trail for the 100-percent model,” he said.
Lewis has heard the stories from Liniger. “There was opposition to us joining boards, having signs stolen and defaced; there was a real effort to make the business model fail,” he said.
Re/Max’s 100-percent model allowed it to surge in market share and to establish a brand, which the company considers one of its biggest competitive advantages, he said.
The 100-percent commission concept allowed the company to attract the experienced, productive agent who was more profitable on a fixed monthly fee than on a commission split, said Lewis. The average Re/Max agent of a large brokerage does 16.5 transactions annually.
Lewis warns: “But no competitive advantage lasts forever; you can’t patent a business model. You have to find sustainable advantages in other areas rather than the business model.”
Re/Max has watched with interest as the next generation of 100-percent commission brokerages has sprung up.
Said Lewis: “The jury is still out on some of the models that have gone further than Re/Max — those that only have a transaction fee, for instance. In any version of the 100-percent model, the agent has always paid something,” he said.
As Re/Max has matured, it is now promoting a 95/5 split, which it started around 12 years ago.
The move from 100/0 to 95/5 was to help brokers improve their profit margins, which were getting squeezed, said Lewis.
Of Re/Max, Murray of Real Trends added: “[The company is] going to do over one million sides for last year, and there’s only one company in shouting distance of that, and that’s Keller Williams,” he said.
Re/Max attracts agents coming from 100-percent commission brokerages who don’t mind this small split.
“They are looking for more tech, support and a recognized brand name,” said the Re/Max president.
Of the next-generation companies, Re/Max should perhaps watch Realty One Group most closely.
The largest in its cohort, the Las Vegas upstart that also operates in Arizona and Southern California has just announced its imminent arrival in New York from its start 12 years ago. Next year, it’s going international.
According to Burke Smith, EVP of home warranty protection plan company American Home Shield. and someone who has consulted with a number of 100-percent commission brokerages, Realty One Group is streets ahead of the others.
“Kuba Jewgieniew, Realty One Group founder, is the innovator in this space right now — he’s like the Facebook versus all the other social media sites,” Smith said. “In terms of transactions, you could probably add up all the other companies’ numbers to equal what Realty One Group is doing.”
The company’s figures are impressive: In 2016, nearly 3,000 real estate professionals joined Realty One Group. The company saw a 24-percent increase in sales volume, and transactions totaled 44,000, a total of over $15 billion in 2016.
Last year, agents earned around $300 million in commission; this year, it will be closer to $400 million.
“It will be interesting going forward; we are going to see a much clearer line drawn between the brands which are consumer-driven and those that are agent-driven,” Smith added.
“The winner of this 100-percent commission brokerage race will be the one that creates a brand that is recognizable by both consumer and the agent. A brand that doesn’t work in concert with its agents is not sustainable.”
For more small- to medium-sized independent brokerages competing in markets with a tight listing inventory, it would be smarter for them to join a 100-percent commission brokerage as a franchise, he said. That way they maintain the autonomy but unload the logistics of running a brokerage.
Smith has no doubt that being with the 100-percent brokerage model can give agents an edge.
“The reality of it is, a good agent in a 100-percent model will be able to provide more for their client because they have more financial resources available,” he said. “An agent in a 100-percent brokerage should spend more on marketing for the client than the traditional model agent.”
Smith believes companies including Realty One Group, Big Block Realty and Signature Real Estate, have all done a good job of creating a high-quality brand image that in some respects outclasses a lot of the traditional brands with outdated images and slogans.
Realty One Group no longer competes with 100-percent companies, according to Smith. It competes with the established brands.
CEO and founder of Realty One Group, Kuba Jewgieniew, explains his approach.
“With HomeSmart, we don’t see them as a competitor; it’s more Keller Williams, Coldwell Banker and the Berkshire Hathaways. We really respect these brands and admire what they’ve built.”
The traditional brokerages are coming round to the idea of his company, he thinks.
“I feel that they are taking us seriously; they know we are a threat, that we are strategically expanding nationally,” he said.
Unlike Re/Max, Realty One Group has no intention of deviating from the 100 percent.
“We know it works; our margins are lower, as long as we align with the right people,” Jewgieniew said.
Another major player in the 100-percent commission brokerage space is HomeSmart.
Its sales volume in 2016 was more than $12.67 billion, up nearly 26 percent over last year, while its transactions came in at 46,568, up over 20 percent over the same time frame. It hired 2,287 agents nationwide in 2016, bringing its count to 11,300 total.
The company added 22 new franchised offices last year, and founder Matt Widdows stresses that he is being selective: “The biggest thing is we want to find good partners; it’s very, very important that we get alignment of vision and culture. We’ve started to get very picky with who we are bringing on,” he said.
Widdows, based in Phoenix, takes pride that the 100-percent commission model all started in the Phoenix market — it’s the business formula’s birthplace.
He believes that increasing numbers of traditional brokerages are taking a page out of the 100-percent commission brokerage’s book, and that this is good for the industry.
“If you asked traditional brokerages a few years ago if they had a 90/10 split, they wouldn’t have,” he said. “That’s a testament to where we are going. The agents’ commission is being pushed down, earning is pushing down on the broker side and broker splits are making the broker more competitive.”
How does HomeSmart make its model work financially? “We use tech to keep on a path of consistent delivery of service — that is how you afford to do it, very efficient very high-end, high-touch, customer service,” he said.
“We write all of our own software, including all of the things we offer consumers to market homes and purchase homes,” he added.
While traditional brokerages might say you won’t get the support at 100-percent commission brokerages, Widdows reply is: “We have to give great service to the agents; our reputation is more important than ever to make sure that we are protecting and representing the brand well.”
While Widdows is proud of the number of 100-percent brokerages to come out of Phoenix — Las Vegas is another hotbed of activity.
The co-founders of Signature Real Estate Group, which launched in May 2013 in Sin City, would like to have 2,000 agents in Vegas alone in the next few years.
They believe the 100-percent brokerage model will become the new norm — and also that those that don’t support agents won’t last.
“For us, we are trying to go above and beyond the competition in support,” said co-founder Mike Rasmussen.
The business, which is attracting agents across the board, is trying to offer training every day, he said.
Co-founder Brandon Roberts said that in their third year, they are at 600 agents and expanding on a franchise basis, opening two new offices a month on average. Their latest markets include Massachusetts and Florida.
Roberts, a former regional owner at Exit Realty, Nevada, said Signature’s next office is set up to cater to teams specifically.
They say imitation is the highest form of flattery, and there is definitely some copycat action happening across the country.
In Fathom Realty’s Dallas-Fort Worth market, founder Josh Harley is seeing some traditional brokerages trying to offer plans with 100-percent splits but with little success.
“These companies are charging high monthly fees with low transaction fees but then tacking on separate E&O fees, handling fees, and their typical franchise fee of 6 percent or more,” he said. “When it is all said and done, the agent paid almost the same amount as they did before when they were on a 30-percent split.”
On the other hand, he doesn’t think any of the 100-percent commission brokerages have really “nailed it” yet, including his.
“To be successful, we must become experts on streamlining our business while helping our agents become more successful than ever before,” Harley added, “The 100-percent companies who grasp this idea will thrive, while those who try to get away with charging less but also giving less, will go out of business.”
It’s only a matter of time before brokerages who offer the 100-percent model dominate the real estate industry, thereby becoming the new “traditional” brokerage model, said Harley.
“Once our model reaches a 15-percent market share of agents, our model will cross a pivotal point in the adoption lifecycle and the industry will begin to see a significant shift of agents moving to 100 percent companies like Fathom,” he said.
You know you are doing something right when a big company makes an offer for you.
In the case of another Texas company, J.P. & Associates Realtors (JPAR) was approached by a large, public real estate company that had its own 100-percent commission brokerage already but liked the JPAR model and structure.
Said founder JP Piccinini: “I wouldn’t sell it for a billion bucks.”
He’s now getting to the fun part, where business is easier now his brand is known.
In his sixth year, he is recruiting 60 agents a month in Dallas-Fort Worth alone.
When he started, he took agents straight out of real estate school, then mid-producers. Now he is getting serious producers doing 100 to 200 transactions, with $40 million sales volume a year. This is what he wants — agents with high productivity.
How do you win in this market? Like any other business, you still have to have something new to say. NextHome’s chief strategic officer, Keith Robinson, former COO of Better Homes and Gardens Mason McDuffie Real Estate, said that most residential brands at this point will say they excel over the competition when it comes to technology and branding.
“That’s the stock answer, and I think our manifestations of those two statements are different and need to be different,” Robinson said. “The world doesn’t need just another real estate franchise; you’ve got to be passionate about what you bring to the party.”
NextHome, launched in 2014, is in 40 states today with 170 offices and 1,200 members, and its goal is to be in all states by end of 2017.
Being California-based, tech is a big part of NextHome’s appeal, which targets millennial consumers in its marketing.
One project it is working on at the moment is helping its agents on converting leads.
“Our tech is focused on making all of these fractured disparate tools communicate for the agent,” said Robinson.
Whatever the economic model might be, it doesn’t always translate to success if the culture and leadership aren’t there, said the seasoned executive.
The founders of Big Block Realty (Big Block), a 100-percent commission brokerage making a big noise in San Diego, are well aware of this.
“With the 100-percent model, you have to be smart — you have to look big,” said Big Block co-founder Sam Khorramian. “For a boutique brokerage, to have 10 to 15 agents on a model like this, it’s not worth it. You have to think big and be in a constant recruitment position, and they have to be productive agents.
“If you have a roster of non-productive agents, you help with the story everybody else is trying to tell,” he adds.
Co-founder Oliver Graf is not interested in the debate on whether the 100-percent brokerage will take over the industry.
Murray, meanwhile, reels off names of these brokerages all over the country and Canada: Solid Source Realty in Atlanta, Rutenberg Realty in Florida, among others.
Graf boils it down: “The biggest thing comes down to how you support the agent,” he said. “Most brokerages are used to getting paid by their agents and not giving value.
“At brokerages where the agents are not receiving anything and they are paying 20 or 30 percent commission, those brokerages will become extinct because they are not supporting the agent.
“It’s all about what the agent wants,” he said.
Courtesy of Inman
The Real Estate Settlement Procedures Act has been around since 1974 — but the changes over the past few years, combined with the creation and implementation of the Consumer Financial Protection Bureau (CFPB), have caused some confusion in the industry.
What is the act? What does it mean for agents and for consumers?
Here’s what you need to know about RESPA — explained.
It’s the Real Estate Settlement Procedures Act, a consumer protection statute passed by the U.S. Congress in 1974.
The statute has two main purposes:
The consumer side of RESPA requires that borrowers receive disclosures at certain times during the mortgage loan transaction that plainly describe the terms of the loan, all settlement service charges associated with the loan and the business relationships between the lender and other settlement service providers, if any.
RESPA also addresses certain industry practices that have in the past been shown to increase the cost of settlement services. Specifically, it prohibits any person (or company) from giving or accepting anything of value in exchange for business referrals. It also prohibits a person from giving or accepting any portion of a charge for a service that wasn’t actually performed.
RESPA is codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§ 2601-2617.
Why was RESPA enacted?
In the 1970s, Congress became concerned that mortgage loan applicants were being overcharged for settlement services. A 1972 study by HUD and the Administrator of Veterans Affairs (VA) found that most borrowers were not shopping around for their settlement service providers, and instead, their real estate brokers, closing attorneys and other professionals were referring them to lenders, title insurance companies and other providers.
Of particular concern to Congress was the report’s finding that there was little price competition for those services, and consumers were being overcharged by companies that were engaged in systematic kickbacks and referral fees schemes.
The HUD/VA report requested that Congress give the agencies the power to establish maximum allowable settlement charges and to require the use of uniform consumer disclosures.
This recommendation didn’t sit well with the real estate industry, so Congress instead opted to enact a statute that would give consumers more advance disclosure of their settlement costs and crack down on the practice of kickbacks and referral fees.
Who administers RESPA?
From the time RESPA was enacted in 1974 until 2011, HUD administered and enforced the act. In July 2011, those duties transferred to the Consumer Financial Protection Bureau (CFPB), a federal agency created in 2010 by the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act.
Most states also have laws similar to RESPA on the books. Some are even stricter than RESPA, creating a debate in some areas of the country about what business practices are deemed legal.
Regardless, most states have the authority to enforce their own versions of RESPA. There have been cases where companies simultaneously faced RESPA charges on both a federal level and a state level.
Sometimes states will “piggyback” on federal cases, especially if they believe the conduct at issue is a serious problem in their market. But state officials have sometimes initiated RESPA investigations and worked in tandem with federal officials, as well.
What kinds of loans are governed by RESPA?
RESPA applies to “federally related” mortgage loans that are secured by a mortgage loan on a one- to four- family residential property.
A federally related mortgage loan is one made by any lender whose deposits or accounts are insured by any federal agency, intended to be sold to any of the government-sponsored enterprise or made by any creditor who makes or invests in residential real estate loans aggregating more than $1 million per year.
RESPA governs purchase loans, assumptions, refinances, property improvement loans and lines of credit associated with those federally related mortgage loans.
How does RESPA define “settlement service provider”? Who, exactly, does this statute affect?
RESPA defines “settlement services” as “any service provided in connection with a real estate settlement including, but not limited to, the following:
What were the consumer disclosures required under RESPA?
Much of RESPA concerns certain disclosures that were required to be given to borrowers at specific times during the mortgage transaction. These disclosures let the borrower know what to expect with regard to the terms of the mortgage loan, how the loan will be serviced and associated settlement costs.
The borrower must also be informed that he has the right to shop around for and choose his own settlement service providers, as well as about what, if any, business relationships his settlement service providers may have with each other.
First, there was the Good Faith Estimate of Settlement Costs, or GFE.
This was given to the borrower within three business days of applying for a loan. The GFE explained what settlement service charges the borrower was likely to pay — but those charges were exactly what the form says: A “good-faith estimate” of what the borrower may have to pay, and not a guarantee, as changing market conditions can affect prices.
Next, there was the Servicing Disclosure Statement, in which the lender or mortgage broker informs the borrower whether it expects someone else will be servicing the loan after it closes.
Perhaps the most talked-about RESPA disclosure form was the Affiliated Business Arrangement Disclosure, which reminded borrowers that they were not required (with certain exceptions) to use the affiliates of a lender, real estate agent/broker or other participant in the settlement.
If they did choose to use the providers recommended by their real estate agent/broker or lender, any affiliations between the companies — whether they were owned or controlled by a common corporate parent or simply had some sort of affiliated business arrangement — had to be disclosed, and the borrower acknowledged with his signature that he understood those relationships.
Next was the HUD-1 Settlement Statement, a form that itemized the services provided to the borrower and the actual fees charged to him. This form was required to be delivered or mailed to the borrower one day before settlement.
Finally, there were the Escrow Account Operation & Disclosures forms. The entity servicing the loan was required to give the borrower an initial escrow account statement at settlement or within the next 45 days. This form showed all of the payments that were to be deposited into an escrow account, as well as all of the disbursements that were to be made from the escrow account for the first year.
The lender/servicer also reviewed the escrow account annually and was required to report to the borrower once per year about the prior year’s activity and any adjustments that the borrower may have to make in the next year.
How were these disclosures impacted by the TILA-RESPA Integrated Disclosures (TRID) rule?
In 2010, Congress, through passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, created the CFPB and transferred HUD’s RESPA authority to the bureau. The Dodd-Frank Act mandated that the CFPB propose new rules by 2012 that would combine RESPA’s disclosures with those required under the Truth in Lending Act (TILA) into a single, streamlined disclosure to make the homebuying process easier and simpler for consumers (Click here for our TRID explainer page).
The CFPB’s new rule, TRID, took effect on Oct. 3, 2015, and made significant changes to the disclosures that were formerly required under RESPA. However, it’s important to note that TRID didn’t replace RESPA in its entirety; aside from the changes in required consumer disclosures, the other portions of the statute are still very much in effect.
The first major change is that the GFE and the early Truth in Lending (TIL) statement became the Loan Estimate (LE), which provides a summary of the key loan terms and estimated loan and closing costs. Lenders must provide the LE to consumers within three days after they submit a loan application.
The other major change is that the HUD-1 Settlement was combined with the final TIL statement and became the Closing Disclosure (CD), which provides a detailed accounting of the mortgage loan transaction. Borrowers must receive the CD three business days before closing a loan. Any significant changes to loan terms require the lender to issue a revised CD, triggering a new three-business-day review period.
What industry practices does RESPA prohibit?
Namely, offering kickbacks, referral fees and fee-splitting with other settlement service providers in exchange for the referral of business, and charging consumers fees for services that were not actually rendered. This is the “meat” of RESPA and the portion of the statute that affects the real estate industry the most.
Section 8(a) of RESPA, which pertains to business referrals, states: “No person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”
Put more plainly, Section 8(a) means that no settlement service provider may pay — or receive — fees or other items with the understanding or agreement that business will be sent their way.
Section 8(b), which pertains to splitting charges, states: “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 real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.”
Section 8(b) concerns any splitting or sharing of fees by and between the person who performs the legitimate service, as well as the person who provides the referral.
What is a “referral”?
It’s an agreement, understanding or expectation that you will send business to someone, or they will send it to you. And while referring borrowers to companies you have previous experience with or engaging in affiliated business arrangements and other partnership structures are longstanding, legal business practices in the real estate industry — and have been proven by some studies to have consumer benefits — RESPA prohibits you from doing certain things in connection with referring business or receiving business referrals from others.
What is a “kickback”?
A kickback is an illegal fee or rebate paid to someone in order to gain that person’s decision or recommendation for the award of business.
What is a “markup”?
A markup is an increase in price above a third-party vendor’s normal fee — and the parties that are referring business to each other may split the difference as a reward for the referral.
For example, an appraiser may normally charge a lender $300 for an appraisal, but in a transaction where the lender refers business to the appraiser, the lender may charge the consumer $400 for the appraisal fee — and one of those providers may keep the extra $100, or the two parties may split it.
This obviously flies in the face of what Congress intended to do with RESPA, because it involves charging consumers a higher fee than they would normally pay, with no extraordinary work being performed to justify the price increase, and the providers collecting the profit on the wrongly inflated fee.
What is a “thing of value”?
It may sound like a mere transfer of money, but it actually means any type of consideration made in exchange for the referral of business — and under RESPA, it’s illegal for a real estate agent or broker to give or receive a thing of value contingent on the referral of business, even if the referral agreement is informal and not in writing, and even if it’s disclosed to the consumer.
Examples of “thing of value” include, but are not limited to:
One more important thing to know about a thing of value: RESPA doesn’t place dollar values on things of value, but some states have their own limits on the amounts you can give someone who is in a position to refer business to you.
So while federal regulators may not feel the need to prosecute you for paying for a title agent’s cup of coffee, some states may not allow it, depending on how much you spend.
Wait a second! This makes it sound like I am not allowed to network, work or connect with mortgage, title and other settlement service providers at all. Real estate is a relationship-driven business. Am I really not allowed to give any of these items to settlement service providers? Not even a pen with my company’s name on it?
When enacting RESPA, Congress acknowledged some of the business referrals that occur in the settlement service industry do not harm consumers, and said it’s OK for real estate, mortgage and settlement service providers to pay fair and reasonable fees for normal marketing and advertising efforts.
You don’t have to avoid settlement service providers entirely to comply with RESPA. You can give or receive “things of value” in the course of doing business — you just can’t do it with the expectation of business referrals, and you can’t defray another provider’s expenses if they are in a position to refer business to you.
So you can give a title company some pens with your brokerage’s name inscribed on them, but there must not be an agreement that they will send you business for doing so. And you can’t give the title company pens with their name on them, because you’d be offsetting their expenses.
In another scenario, you can host a “lunch and learn” for a local title agency, but the title company shouldn’t reimburse your firm for the cost of the luncheon. If the title company makes a presentation or markets its services, however, making such payments may be permissible under RESPA, as long as they represent the value of the marketing done by the title company.
And in another scenario, you can rent a desk in your office to a mortgage broker to prequalify mortgage applicants, but you must charge them fair market value for the portion of your office that desk takes up, as well as any supplies they use.
It’s the general market value for a good or service that a non-settlement service provider would pay for that good or service. When demonstrating to attorneys, compliance experts and regulators that you are providing a thing of value at fair market value, you must show that the value of the good or service is commensurate with what anyone would expect to pay for it today.
The whole idea is that providers aren’t paying you a higher or lower rate for goods or services with the expectation that you will be referring business to each other as a reward.
How to calculate fair market value
However, calculating fair market value can sometimes be tricky. If, for example, you are providing office or desk space to another settlement service provider, you could measure what percentage of your total office space is comprised of that area, and calculate what portion of your own rent this may be.
This amount would be what you’d charge anyone — not just a settlement service provider — to rent that space, and what people in your neck of the woods would expect to be charged for renting a similar space.
The amount to be paid must not be tied in any way with the expectation of business referrals, and especially not to a specific number of transactions. Whether that provider brings you two or 20 transactions per month, that provider’s rent payments should always be the same.
Calculating fair market value for other items like marketing services gets a bit hairier. If a real estate brokerage and a title company decide to take out a joint ad in a newspaper, both parties must pay fair market value for the portion of the ad containing their company’s content (such as logo, contact information, etc.)
If your brokerage’s content takes up about 75 percent of the ad’s total space, and the title company’s content takes up about 25 percent of it, you should be paying 75 percent of the cost of that ad, and the title company should pay for 25 percent of it.
You could allow a title company to place a web banner ad on your website, but you should charge that title company a fee that reflects the amount of space the banner takes up on the page, how often it appears, the size of the audience it reaches, etc. — and that amount must be what similar websites would charge for that same kind of banner.
There are three general rules that most compliance experts advise you to keep in mind when calculating fair market value:
The National Association of Realtors (NAR) has issued quite a bit of RESPA compliance guidance to its Realtor members over the years, and here is a short list issued by the association of some common interactions that are legal under RESPA:
We’ve all undoubtedly seen some of these activities at some point, and some of them may have been the subject of lawsuits or regulator penalty. Here are just a few examples of flagrant RESPA fouls:
You may be wondering why some people or companies seem to engage in these practices and fly under the RESPA radar. But don’t fall into the foolish trap of thinking you’ll be able to escape scrutiny, too. Any of these activities warrant a knock on the door from the RESPA police.
RESPA is not black and white; it’s actually pretty gray. There are hundreds, if not thousands, of possible scenarios and business practices that real estate agents and brokers need to make sure are legal under RESPA.
Some of these scenarios may need to be reviewed on a case-by-case basis, and you will most likely need to provide extensive documentation to show that you made every effort to comply with RESPA.
If you aren’t sure if something you are doing can pass the RESPA smell test, you should consult with an attorney, preferably one who specializes in RESPA compliance. And it’s always a good idea to keep up on the latest case law and other legal happenings to see how different courts and regulators are interpreting RESPA and deeming certain activities to be legal or illegal — because since RESPA was enacted, some of those interpretations have conflicted with others, creating confusion about what’s legal and what’s not.
Are there any marketing activities or business relationships that are permissible under RESPA?
Don’t worry; RESPA is not just a list of don’ts. There are some practices and arrangements that are allowed under the statute, which are described in Section 8(c).
This section provides for the following exceptions that allow the real estate, mortgage, title, escrow and settlement services industries to work together in a legally compliant way:
What is an “affiliated business arrangement” (ABA)?
RESPA defines an ABA as an arrangement in which:
A person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; and
Either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.
In an ABA, bona-fide dividends and capital or equity distributions related to ownership interest or a franchise relationship between entities in an affiliate relationship are permissible. Bona-fide business loans, advances and capital or equity contributions between entities in an affiliate relationship are also allowed, as long as they are for ordinary business purposes and are not fees for the referral of settlement service business or unearned fees.
A return on an ownership interest does not include:
All ABAs must demonstrate compliance with the following conditions:
Where a lot of companies run into trouble is assuming that the mere labeling of a thing of value determines whether it is a bona-fide return on an ownership interest or franchise relationship. In reality, a thing of value will be determined by regulatory investigators by analyzing facts and circumstances on a case-by-case basis.
A return on franchise relationship may be a payment to or from a franchisee, but it does not include any payment which is not based on the franchise agreement, nor any payment which varies according to the number or amount of referrals by the franchisor or franchisee, or which is based on a franchise agreement that has been adjusted on the basis of a previous number or amount of referrals by the franchiser or franchisees. A franchise agreement may not be constructed to insulate against kickbacks or referral fees — this is called a “sham” ABA.
What is a “joint venture” (JV)?
A JV is similar to an ABA, but the structure provides for the partnering settlement service providers to pool their resources to accomplish a business activity. A JV must be a standalone, bona-fide business with sufficient capital, employees and separate office space, and must perform core services associated with that industry.
Companies in the real estate, mortgage, title, escrow and settlement services began to establish JVs to enhance their purchase mortgage strategies or to enter a new market that may have historically been difficult for them.
In 1996, HUD issued formal guidance establishing a 10-prong test to determine whether a JV is legal:
What is a “marketing service agreement” (MSA)?
MSAs are the newest type of affiliated relationship, and probably the most controversial activity that falls under the purview of RESPA. To date, no regulator has provided a concrete definition of an MSA, or described what kind of litmus test it will use to determine whether an MSA is RESPA-compliant.
An MSA is a contract by which one settlement service provider agrees to market another provider’s products and services. Generally, a real estate broker, developer, title company or mortgage broker will agree to market the service of another provider in exchange for a marketing fee. That fee is supposed to be based on a fair-market value of the marketing or advertising services to be performed, and must be for a bona-fide service or product, and should not be tied in any way to the referral of business.
Some examples of the types of goods and services provided under an MSA are:
HUD began investigating companies engaged in MSAs in the late 2000s, and the CFPB inherited the department’s unfinished MSA business when it was established in 2011. Much to pretty much everyone’s dismay, the CFPB’s interpretation of RESPA’s application to MSAs has been broad and damning.
In September 2014, the CFPB fined Michigan title company Lighthouse Title Inc., $200,000 for engaging in MSAs with real estate brokers and others that, at least in the CFPB’s view, violated RESPA. Many were stunned when the CFPB took the position that Lighthouse Title’s MSA contract itself, made with the understanding that its partners would refer business to it, was considered a thing of value under RESPA.
“The agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse. However, Lighthouse actually set the fees it would pay under the MSAs, in part, by considering the number of referrals it received or expected to receive from each company. The CFPB’s investigation found that the companies on average referred significantly more business to Lighthouse when they had MSAs than when they did not,” the CFPB stated.
About a year later in October 2015, the CFPB issued a compliance bulletin stating that in its view, MSAs are “typically framed as payments for advertising or promotional services, but in some cases, those payments are actually disguised compensation for referrals.”
“In the bureau’s experience, determining whether an MSA violates RESPA requires a review of the facts and circumstances surrounding the creation of each agreement and its implementation. The nature of this fact-intensive inquiry means that, while some guidance may be found in the bureau’s previous public actions, the outcome of one matter is not necessarily dispositive to the outcome of another. Nevertheless, any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction,” the CFPB stated in the bulletin.
But the CFPB did not provide any specific definitions or explanations of what a legally compliant MSA looks like, and the bureau has been widely criticized for “regulating by enforcement,” reserving its judgment on specific MSAs in its consent orders and other regulatory actions.
Are all ABAs, JVs and MSAs shams? Shouldn’t these arrangements make the mortgage loan transaction easier for consumers?
Some businesses, organizations and individuals have argued that affiliated businesses, in their various forms, are sham entities designed to disguise kickbacks and controlled business in the real estate industry. These parties argue that affiliated businesses exploit consumer naivete about the homebuying process and discourage competition on service and price among settlement service providers.
Proponents of these business relationships argue that their “one-stop shopping” structures offer many consumer benefits, including faster and more efficient service, convenience and a simpler homebuying experience.
These two arguments have been the subject of much debate, countless studies and probes at every level of government for more than two decades —and with both sides offering data, analysis and regulatory interpretation to bolster their positions, the controversy surrounding affiliated business is unlikely to subside, especially because lawmakers and regulators have not been able to come to a consensus.
Section 6: The Qualified Written Request (QWR)
Although RESPA was primarily designed to ensure that consumers receive timely information about the costs of their settlement services, it also imposes certain requirements on mortgage loan servicers, or companies track account balances, manage escrow accounts, handle loss-mitigation and pursue foreclosure in the case of defaulted loans.
Section 6 of the statute sets forth requirements for servicers to correct errors or provide other information to borrowers who request it in the form of a qualified written request (QWR). By making a QWR, a borrower can force a servicer to provide detailed information about his account.
A QWR letter must contain the following:
If any of this information is missing, it may be disqualified as a QWR.
This letter must be sent to the servicer, not the original lender or some other party, and it must not be written on a payment coupon or other materials supplied by the servicer. It is also recommended that borrowers send this letter via certified mail with return receipt requested, to ensure the servicer has received the letter.
The CFPB has provided sample QWR letters here.
Section 6 also prescribes different timeframes for servicers to respond to QWRs, depending on the type of request. If a borrower is simply requesting information, the servicer must acknowledge the QWR within five business days, then send a response within 30 business days.
But if a borrower is alleging that there is an error with his account (such as payments not being applied to his account), the servicer must acknowledge the QWR within five business days. Then it must correct the error, provide the borrower with notice about the correction and provide contact information for the borrower to follow up, if needed, within seven business days. If no error actually occurred, the servicer must inform the borrower of this by those same deadlines.
In the case of a foreclosure proceeding, in which a borrower alleges the servicer has improperly started the foreclosure process during the 120-day pre-foreclosure waiting period required by federal law, the servicer has 30 business days to respond.
The 30-day deadline can be extended for an additional 15 days if the servicer notifies the borrower within that timeframe of the extension, and gives reasons for the delay. This extension does not apply if the borrower’s notice of error concerns a payoff statement request, or certain loss-mitigation and foreclosure errors.
Section 9: Seller-required title insurance
Section 9 of RESPA prohibits a seller from requiring the homebuyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.
Section 10: Limits on escrow accounts
Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance and other charges related to the property. RESPA does not require lenders to impose an escrow account on borrowers; however, certain government loan programs or lenders may require escrow accounts as a condition of the loan.
During the course of the loan, RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year.
The lender must perform an escrow account analysis once during the year and notify borrowers of any shortage. Any excess of $50 or more must be returned to the borrower.
The CFPB’s enforcement authority
As the regulator charged with enforcing RESPA compliance, the CFPB can take action against persons or entities that violate the law. This process usually begins with the bureau issuing a civil investigative demand, or CID, to people and institutions that it suspects may be violating RESPA. A recipient of a CID may challenge a CID by petitioning the CFPB’s director. The director can respond in three ways: he can reaffirm the bureau’s decision to obtain the information, modify the demand or set it aside altogether.
But if the CFPB discovers that RESPA has been violated, it has a few remedies at its disposal:
Most state regulators have similar enforcement powers over violators of RESPA.
Other penalties for violating RESPA?
Regulators aren’t the only parties that can take action if a person or entity violates RESPA. The statute also provides for a private right of action for consumers, who may bring civil lawsuits on behalf of themselves, or class-action lawsuits on behalf of themselves and a certain number of other consumers who may have been similarly affected by an alleged violation.
These are penalties for violating the federal statute; states that have their own RESPA laws on the books may assess their own additional penalties for violations.
What is the statute of limitations for RESPA cases?
Individuals have a limited amount of time to file a RESPA complaint or lawsuit. Depending on the plaintiff’s allegations, the deadlines for filing are:
There is a special exception for the CFPB, state attorneys general and state insurance commissioners, who may bring charges within three years from the date a violation allegedly occurred.
What’s equitable tolling in RESPA cases?
Equitable tolling is a principle of law stating that a statute of limitations shall not bar a claim in cases where the plaintiff, despite use of due diligence, could not or did not discover the injury until after the expiration of the limitations period.
In some RESPA cases, plaintiffs allege illegal conduct that occurred beyond the applicable statute of limitations, but assert that they could not have reasonably known at the time that the conduct was illegal or harmful, often because the defendant deliberately obscured their illegal activity from the plaintiff in some way.
Some defendants will also invoke equitable tolling in an attempt to get a case dismissed.
The principle has been used with some degree of success in RESPA cases by both plaintiffs and defendants.
I’ve heard a lot about RESPA reform. What was that?
The short answer is that it was a prolonged, frustrating effort to make minor changes to RESPA.
Since RESPA became law in 1974, it has only been amended a handful of times to reflect changing business practices and the advent of new technology. But shortly after the start of the new Millennium, HUD began to think about a substantial overhaul of the statute.
In 2002, Mel Martinez, HUD’s secretary under President George W. Bush, announced plans to reform RESPA, with the intention of simplifying the home buying process with enhanced consumer disclosures, emphasis on consumer choice of settlement service providers, curbing excessively high settlement fees, fostering innovation in the real estate marketplace and adding more teeth to enforcement efforts. The department received more than 80,000 public comments on its proposals from participants in the real estate, mortgage and settlement service industries — and the proposed new rule was so controversial that Alphonso Jackson, Martinez’s successor, pulled it in 2004 and said HUD would go back to the drawing board.
A year later in 2005, HUD held a series of roundtable discussions in several cities across the country to collect industry feedback and suggestions, after which it published a draft rule for public comment. This new proposed rule included the following:
Not surprisingly, the affected industries had plenty to say about all of these suggested changes, and the debate waged for more than three years. Finally, in November 2008, HUD published the much-anticipated final rule, which made the following changes:
The new definition of “required use” and some other minor changes took effect in January 2009; the remaining changes took effect in January 2010.
HUD was widely criticized for taking such a long time to make such minor changes that many felt ultimately didn’t simplify the home buying process for consumers, caused compliance headaches for lenders and overlapped and conflicted with consumer disclosures mandated by other federal laws.*Courtesy of Inman
Do you know how the Credit Bureaus handle problems?
Technology is outpacing the needs of consumers. As a consumer, sometimes we need a little face-to-face or individual attention. Unfortunately, the credit bureaus are more focused on their bottom lines, cutting costs, and streamlining processes despite the consequences to consumers.
When consumers have a problem or issue with an account reporting incorrectly, they can file a "dispute" with the credit bureaus.
a quick overview of the dispute process ‘transformation’:
Originally the Credit
Bureaus would send out a letter to have the business or Courthouse verify
the information that they had on file. If they could not provide the correct
documentation, then the item was removed from your report(s). The system was
fair as everything disputed was observed and validated by a person.
Then the Credit
Bureaus went “electronic” and began verifying information through documentation
via email. This system increased the number of errors. The problem was there
was a higher percentage. Simply because it was mostly done via electronics.
Now the Credit Bureaus,
in their continuation of cost reduction and increased revenue, have gone to a
system called e-Oscar. (Online
Solution for Complete and Accurate Reporting)
The new system of verifying people’s disputes
has basically removed humans from the process (except for the people who
program the software)!
something with the three major credit bureaus and provide documentation. e-Oscar
“reads” that dispute and sends it off to the reporting company using a
three digit code. The reporting agency then responds with a three digit code as
to whether it should remain on your credit report or not and what the “status”
No actual person has even looked at your
documentation and verified the information!
How do you like that treatment? Feel like you've been reduced to a number...you have.
Until next time...JJ
Information courtesy of New West Credit Consultants