Another Brokers Worst Nightmare: Home Warranty Company Kickbacks May Violate RESPA

On Nov. 23, HUD General Counsel Helen Kanovsky announced HUD’s response to public comments regarding HUD’s interpretive rule directed to home warranty companies (HWC) and real estate brokers and agents. HUD’s response reiterates the Department’s unequivocal position that when HWC’s pay real estate brokers or agents for work performed on behalf of the HWC, and such work is directed toward a particular buyer or seller, then the payment is an illegal kickback for a referral in direct violation of RESPA. (RESPA News RESPA Archives, Posted On: 11/29/2010)

RESPA experts agree that HUD’s interpretive rule, intended to apply to HWC’s, could apply as well to others in the real estate, mortgage and settlement services industries.

HUD’s interpretation of Section 8 as it applies to HWC’s and the Realtor community is defined as the following:

A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under Section 8.
So what does all this mean to us? It seems to us that if you really want to avoid litigation or worse, you should just assume that referral fees based on orders in escrow are going to be risky. Just ask yourself, is a referral fee now, worth the possible headache and financial pain of a legal action later?