Buying and Selling: June 2010 Archives

RESPA

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.

Let me repeat the important part: no person shall give and no person shall accept any fee, kickback, or thing of value

Is a "business relationship" a thing of value? It seems straightforward enough - I can't find anybody who says "no" - until we're talking about prequalifying my clients with their favorite lender. Then I get all kinds of hemming and hawing about there being "no money involved," as if the relationship itself were not valuable. That lender would now have client information, the ability to contact them per that "business relationship" codified in law, and likely the ability to sell that client's information (amazing how often the ability to opt out isn't offered until after the information has already been sold). Look up the legal definitions of consideration and value: I assure you that those definitions are not restricted to transactions where money is involved.

This pretends, of course, that there might exist such a referral relationship where there's absolutely no element of "You scratch my back - I'll scratch yours" involved. I have yet to find such a relationship. I suspect that even if I were to pull a Diogenes looking for such, I would die unsuccessful. Even when I am referring folks to real estate agents elsewhere, despite the fact that I accept no referral fees, there is some possibility they will eventually refer me some business back. Even if they don't, I still get the knowledge that these folks I dealt with in some way were satisfactorily served by a competent, conscientious provider. All of these things are of value to me, and if you're a professional agent or loan officer, they should be to you, also. And the business relationship is certainly valuable to the receiver. Therefore, all of these things involve both the giving of and the receipt of value.

REALTOR Magazine

Generally, to operate an affiliated business arrangement legally, you need to:

* Disclose to consumers your interest in the affiliated company
* Tell consumers the cost of the service
* Explain there's no required use, i.e., consumers are free to go elsewhere for the service without penalty

And there's the rub. When you require that consumers use a particular service, they are not free to go elsewhere. It doesn't matter if you don't have a financial interest. The only difference if you have no financial interest is that you don't have to disclose that interest.

It is one thing if the consumer asks for a referral. Then you can tell them about any companies, any providers of services you like, so long as you disclose any financial interests you and your company may have. It is a completely different matter to require them to use your favorite loan provider - and illegal. Even "just for prequalification"

Now if you want to argue about "How do I fulfill fiduciary duty to my client by filtering out unqualified buyers rather than wasting months on transactions that will never fly," you simply need a very few pieces of information: Debt to Income Ratio, Loan to Value Ratio (which you should know yourself from the contract) Credit Score, and Cash to Close. I guarantee you this is more information than 99.9 percent of all loan officers investigate when writing a qualification testimonial. Your client is entitled to this information - they are involved in a decision as to whether to grant credit by agreeing to the purchase contract, which will cost them thousands of dollars if unsuccessful. Then take this information to anyone you choose and ask them if they could get a loan done for this borrower. You have absolutely no reason to require any potential buyer patronize any particular loan provider in order to get this information.

(Here's a letter with an example of the information required)

And here's my public service for the day, to inconvenience those ethically challenged individuals that persist in this illegal practice of requiring buyers to pre-qualify with a given lender:

report RESPA violations

You should send a written complaint describing the practice that you believe violates RESPA. The complaint should include the names, addresses and phone numbers of the alleged violators. It is preferred that you include your name and phone number in case an investigator wishes to ask further questions. You may request confidentiality. Send the complaint to:

U.S. Department of HUD
Office of RESPA and Interstate Land Sales
451 7th Street, SW, Room 9154
Washington, DC 20410

Caveat Emptor

Original article here