“Eat the jumbo shrimp,” a nationally recognized expert on the Real Estate Settlement Procedures Act said during a Webcast seminar Thursday, “but don’t let an affiliated company pay for your holiday party.”

The advice was part of a Webcast by the National Association of Realtors Thursday on the do’s and don’t’s of RESPA, which governs kickbacks and referrals in the real estate industry, among other things.

Realtors had the opportunity to ask questions about what is acceptable business practice under RESPA’s rules when dealing with affiliated companies such as mortgage lenders and title insurers. Fees or gifts in exchange for referral business are violations of RESPA.

Kickbacks in the real estate industry have taken center stage this year, sparked by a Colorado inquiry into title insurance practices. Just last week, Prudential Locations LLC agreed to pay $48,000 to settle a U.S. Department of Housing and Urban Development investigation into alleged kickbacks.

With such developments in mind, the online seminar was presented to help Realtors understand what the law requires and how to comply. More than 100 Realtors sent questions to presenters Michael Theil, NAR’s associate counsel, and Phillip Schulman, a partner with Kirkpatrick & Lockhart LLP and a recognized RESPA expert.

Schulman’s comment about shrimp was in response to a question from a Realtor about whether it’s legal under RESPA to accept an invitation to a lavish holiday party given by a title company with whom the Realtor does business.

“A lavish party, even with platefuls of jumbo shrimp, is not a violation. On the other hand, if the title company paid for the real estate company’s holiday party, that’s quite another matter,” Schulman said.

Simply attending a party thrown by a business associate does not constitute a RESPA violation, the attorney said, though the HUD case against Prudential Locations LLC did have to do with a party.

“The real estate brokerage got in trouble for throwing a party, which HUD said gave agents a chance at winning a three-year lease of a Mercedes and also provided real estate agents at the party trips to San Francisco and even Thailand,” Schulman said.

With regard to that party, Brian Montgomery, HUD’s assistant secretary for Housing-Federal Housing Commissioner, has said, “When real estate companies tie gifts and other benefits based on the referral to affiliated businesses, that’s a kickback and that’s against the law.”

Another question for the attorneys at the NAR seminar was, “Does anyone ever go to jail for RESPA violations?”

Schulman responded, “Not really. RESPA does have criminal penalties, $10,000 and a year in prison for each violation. But the truth is that prosecutors have decided to seek civil penalties rather than criminal. Given the bad publicity and the fine, that should be enough incentive to comply.”

Another caller asked, “I know a national real estate company that offers rebate cards to customers who use their agents. Is that legal? Can I use similar incentives to get my customers to use a specific moving company?”

In response to the first question, Theil said it is “clearly permitted by RESPA” for a national brokerage to offer consumers rebate cards for using the services of agents affiliated with the brokerage.

Responding to the second question, Schulman said, “The question referred to incentives to use a moving company. RESPA applies to things of value in connection with settlement services. Moving companies are not settlement services and would not be covered by RESPA.”

Giving a general overview of RESPA, Schulman commented that the statute, enacted in 1974, “defies business logic. If it benefits commerce, business partners and consumers, it probably violates RESPA.” The heart and soul of the act, he said, is the ant-kickback portion.

As a guideline for Realtors, Schulman said, there are five elements of RESPA to watch out for. If any one of them is missing, he said, “it’s probably not a violation.

“It’s illegal to (1) give or receive a thing of value pursuant to (2) an agreement or understanding (3) to refer (4) settlement services in connection with (5) a federally related mortgage loan,” Schulman explained.

The online seminar was one of a number of efforts NAR has made to educate members about RESPA. In November 2004, the association released two white papers on the subject, and a wealth of information is available on the trade group’s Web site at http://www.realtor.org/RESPA.


Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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