Which scenario would violate Section 8 of RESPA regarding unearned fees?

Which scenario would violate Section 8 of RESPA regarding unearned fees?

• A. A broker accepts a loan origination fee
• B. A broker charges $50 for obtaining a $50 credit report
• C. An attorney accepts payment for performing a title search
• D. A title company pays a mortgage broker $100 per client for referrals

Answer: (D)

Section 8 of the Real Estate Settlement Procedures Act (RESPA) addresses the issue of unearned fees and prohibits any person from giving or accepting something of value in exchange for the referral of settlement service business. The correct answer reflects a situation where a mortgage broker receives a payment from a title company specifically for referring clients, which falls under this prohibition. In this scenario, the title company is paying a mortgage broker $100 for each client referred, creating an arrangement that is deemed a referral fee. This practice violates RESPA because it involves compensation for a referral that is not related to actual services rendered. The law seeks to ensure transparency and prevent kickbacks, which could lead to inflated settlement costs for consumers. The other scenarios do not violate Section 8 of RESPA because they involve legitimate fees for services provided. For example, when a broker accepts a loan origination fee or an attorney receives payment for performing a title search, these are typical practices where the fees are tied directly to specific services rendered, and therefore, do not fall under the unearned fee prohibition. Similarly, charging a nominal fee for obtaining a credit report is also acceptable since it reflects payment for a service provided rather than a referral arrangement.

Section 8 of the Real Estate Settlement Procedures Act (RESPA) addresses the issue of unearned fees and prohibits any person from giving or accepting something of value in exchange for the referral of settlement service business. The correct answer reflects a situation where a mortgage broker receives a payment from a title company specifically for referring clients, which falls under this prohibition.

In this scenario, the title company is paying a mortgage broker $100 for each client referred, creating an arrangement that is deemed a referral fee. This practice violates RESPA because it involves compensation for a referral that is not related to actual services rendered. The law seeks to ensure transparency and prevent kickbacks, which could lead to inflated settlement costs for consumers.

The other scenarios do not violate Section 8 of RESPA because they involve legitimate fees for services provided. For example, when a broker accepts a loan origination fee or an attorney receives payment for performing a title search, these are typical practices where the fees are tied directly to specific services rendered, and therefore, do not fall under the unearned fee prohibition. Similarly, charging a nominal fee for obtaining a credit report is also acceptable since it reflects payment for a service provided rather than a referral arrangement.