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March 22, 2010 / vancouverrealestateconnection

RESPA – The Watch Dog for All of Us


So what is all this RESPA stuff about?

If you don’t already know, RESPA is an acronym for the Real Estate Settlement Procedure Act, it is a consumer protection statute, passed in 1974.

 The purposes of RESPA are

  1. to help consumers become better shoppers for settlement services and
  2. to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

To break it down, RESPA is a consumer watch dog, requiring that borrowers are given disclosure in various situations and prohibits practices that increase the end cost of services…RESPA keeps the honest man honest which is good for all of us…but…the inevitable but…this watchful eye also has compromised how real estate agents go about referring their clients to lenders.

 

Section 8 of RESPA, is one of these sticky wickets that has given pause to how we provide resources for our valued clients.

Section 8, prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

So this is good right, keep people honest, right? Okay, so the fee splitting and unearned fees…you can keep people honest in that regard for the most part…

Kickbacks or Exchange for Referrals…not as easy

Referrals are extremely valuable, The Goff Team we take the time to provide quality services and to make sure we are giving our clients the best information and resources possible, but RESPA now has made us a little nervous…

We have found that our clients like to know that the lender we are referring them to has a good track record and has proven ability to give excellent service…so we have relationships with lenders who we know will do just that…with RESPA we now give a double take to make sure that we do not appear to be in alliance with anyone specific.

Our problem…well it follows that a real estate agent expecting a lender to give them referrals in exchange for the agent referring clients to the lender is a direct violation of Section 8? Really it is not different than if the real estate agent was recommending the lender and being paid a “finder’s fee” in cash. A referral to us can be worth thousands of dollars and that is a big finder’s fee. As far as we can see it is prohibited.

Okay, we have to admit that we are pretty neurotic about RESPA, to the point where we insist on paying for all lunches with lenders. Still, it seems that even raising the issue of reciprocal referrals is not worth the risk even if lenders did have a significant amount of business to refer to an agent.

Therefore, instead of quid-pro-quo here is what we expect my lenders to provide in return (the same standard of service that we hold our team to):

  • Be Smart
  • Be Helpful
  • Attention to Details
  • No Surprises
  • Great Value to Client (I didn’t say cheapest)
  • Excellent Communication and Responsiveness

In the absurd you could argue that these things have value to us and are themselves a potential RESPA issue but again, that would be absurd. Looking at a quid-pro-quo arrangement of exchanging referrals as an exchange of “something of value” is not absurd.

But all this absurdity aside…ultimately Section 8 of RESAP comes down to the integrity…In order to keep this integrity, The Goff Team devised a plan to search out several lenders with the most variety of services and give our clients a well-rounded list of people that they can choose from…if they ask for suggestions, we give them.

However, we do always appreciate referrals…we don’t expect them, but if we get them we won’t complain 🙂

Thanks for reading the Vancouver Real Estate Connection Blog!
Posted By: Howard Goff – Team Leader – The Goff Team
The Goff Team of Keller Williams Realty Premier Partners
specializing in Vancouver and Clark County Homes

EmailUs@TheGoffTeam.com

6 Comments

Leave a Comment
  1. how to sing / Mar 23 2010 2:36 pm

    I really can’t understand some points of this article, but I guess I only need to learn a bit more about this, because it definitely sounds interesting and kind of though-proviking! By the way, how did you first get become interested with this?

    • vancouverrealestateconnection / Mar 24 2010 3:53 pm

      Added some more to this post to give it more substance

  2. Oren Broyles / Jun 2 2010 5:52 pm

    I agree with much of what peoples comments are that I am reading here. I just wish there were a magic bullet for this.

    • vancouverrealestateconnection / Jun 4 2010 11:16 am

      We wish there was a magic bullet as well – at this point just have to take every measure to make sure that we play by the book

  3. Louie / Jun 4 2010 2:01 pm

    Do you believe the housing crisis is over and we have entered a post boom real estate industry? I believe the economy requirements to fully recover prior to we have sufficient men and women confident enought to buy new homes. In this marketplace its hard to make a long term investment and burden oneself with a lot more debt with as a lot uncertainty is in the air.

  4. Mickfxboy / Jun 6 2010 9:14 pm

    you are very talented.

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