Services Agreements Used by Real Estate Agents

On August 13, 2009, the National Association of Realtors (NAR) requested a meeting with HUD officials to discuss appropriate guidance from HUD on two important issues that continue to cause confusion for consumers, real estate brokers and real estate agents. The first issue concerns administrative fees and their proper structure and use under Section 8 of the Real Estate Settlement Procedures Act (RESPA). The second issue concerns RESPA-compliant compensation of real estate brokers and agents by home warranty companies in marketing and sale of home warranty products.

HUD Published an Unofficial Staff Interpretation on “Marketing/Administrative Services Agreements Used by Real Estate Agents in February of 2008..

HUD Unofficial Staff Interpretation Letter - Feb. 21, 2008 (pdf)

Based on HUD’s initial response, dated February 21, 2008, It appears that NAR’s characterization of the of the purpose of the fee is HUD’s problem in recognizing the fee as a RESPA compliant fee. HUD’s 2008 letter states as follows:

“characterizing such arrangements as a ”marketing’ or “administrative” agreements does not render the underlying conduct legal.” See 2nd to last paragraph of HUD’s Interpretation Letter - Feb. 21, 2008.

The 4th to last paragraph of HUDs interpretation letter, however, indicates that:

“HUDs regulation permit a settlement service provider who is in a position to refer settlement service business, to receive additional compensation for providing additional settlement services, that are actual necessary, and distinct from the primary services provided by that person in a transaction. (24 CFR 3500.14(g)(3)).”

Unofficial interpretations are issued by HUD in response to requests for interpretation of matters “not adequately covered … by an official interpretation…. Such interpretations provide no protection under … RESPA.” 24 CFR Sec. 3500.4(b)

§ 3500.14(g)(3) Prohibition against kickbacks and unearned fees.

(g)  Fees, salaries, compensation, or other payments. (1) Section 8 of RESPA permits:

(3)  Multiple services. When a person in a position to refer settlement service business, such as an attorney, mortgage lender, real estate broker or agent, or developer or builder, receives a payment for providing additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person. For example, for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing.

[Codified to 24 C.F.R. § 3500.14]

[Section 3500.14 amended at 61 Fed. Reg. 13233, March 26, 1996, effective April 25, 1996; 61 Fed. Reg. 29252, June 7, 1996, effective October 7, 1996; 61 Fed. Reg. 58476, November 15, 1996, effective January 14, 1997]