Real estate practitioners entering into marketing service agreements with lenders, title companies, and other settlement service providers is a well-established practice, but a recent court decision shows why you have to structure these agreements the right way.
An appellate court just ruled that it’s okay for a mortgage lender to refer business to mortgage insurers who are buying reinsurance from an affiliate of the lender, because the reinsurance is a bona fide service and the insurers are paying fair market rates for it. In other words, the arrangement doesn’t amount to a kickback.
Although the case involves a lender, insurance companies, and a reinsurer, the structure of the agreement is something that applies to the kind of marketing service agreements you might be involved in as an agent or broker. Any agreement you enter into with a lender or title company must be for actual services rendered and priced at fair market rates and not simply an arrangement for referrals.
How do you ensure a marketing agreement is appropriate under federal anti-kickback rules? The most important thing is to have it looked at by an attorney who’s familiar with the Real Estate Settlement Procedures Act, or RESPA. For a general idea, though, there are two tests you can apply:
1.Is the marketing fee you receive based on the number of referrals you make to the company, whether it’s a title company, a lender, or another service provider? If the fee corresponds to the number of referrals, you could be inviting a close look by the Consumer Financial Protection Bureau (CFPB), which is the federal agency that enforces RESPA.
2. If you have an arrangement to split costs on a joint project, like a newspaper ad, is the split reflective of what each of you get in return? For example, if you and the title company are splitting the cost of the ad down the middle, then half the ad should go to the title company and half should go to you. If the title company is covering 75 percent of the cost of the ad but only taking up 25 percent of the space, that split makes it look like the company is subsidizing 50 percent of the ad cost. Again, you could be inviting a close look by the CFPB.
Learn more about the recent court decision in the latest Voice for Real Estate news video from NAR. The video also looks at what was in the budget agreement enacted into law about two weeks ago. Among other things, the new law extends the tax deduction for mortgage insurance premiums and retains the prohibition on taxing forgiven mortgage debt as income. It also looks at why a recent Supreme Court decision on the regulation of bodies of water is important to your inbdustry.