The Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607 (2005), prohibits kickbacks and unearned fees, including any fee, kickback or anything of value being given to or received by anyone in any business that is incident to or part of a settlement service. This includes referral fees and/or fee splitting other than for services actually performed. "Settlement services" includes any service provided in connection with a real estate settlement including, but not limited to, title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or a broker, the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing and closing of settlement. "Thing of value" includes any payment, advance, funds, loan, service or other consideration.
Consequently, it is a federal violation to pay a referral fee to anyone on a mortgage transaction. Any compensation paid from a mortgage loan must be for actual services rendered. Among other things, the referral of business or the taking of an application are not compensable services. Actual cash payment does not need to take place for a violation to occur. Some of the illegal forms of compensation prohibited by RESPA include paying for a referring source' s advertising, reducing transaction costs, or purchasing gifts.
Violations of RESPA are subject to criminal and civil penalties. In a criminal case, a person may be fined up to ten thousand ($10,000.00) dollars and imprisoned for up to one year. In a private lawsuit, a person may be liable to the person charged for the settlement services in an amount equal to three times the amount of the charge paid for the service.
Although state real estate license law might be construed as allowing real estate agents to receive referral fees from mortgage brokers if disclosed, federal law supercedes this state law and clearly prohibits such conduct. Therefore, licensees should understand that they may not solicit or receive any unearned fees.