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APPENDIX B-FACTS AND COMMENTS ON search title and perform related settlement
tion. B and A have an understanding that in
return for the referral of this business A The following illustrations provide addi
will provide legal services to B or B's offitional guidance on the meaning and cover
cers or employees at abnormally low rates age of Section 8 of RESPA. While particular
or for no charge. illustrations may refer to particular provid
Comments. Both A and B are in violation ers of settlement services, such illustrations
of Section 8 of RESPA. are applicable by analogy to providers of
5. Facts. A, A provider of settlement sersettlement services other than those specifi
vices, pays referral fees to persons who refer cally mentioned. It should be noted that
settlement business on commercial real other provisions of Federal or state law may
estate to A. be applicable to the practices and payments
Comments. While commercial transactions discussed in the following illustrations.
are not covered by RESPA, the payment of .. Facts. A, a provider of settlement ser- such referral fees would be a violation of vices, maintain and abnormally large bal
Section 8 if they involve indirect compensaance in a non-interest bearing account with
tion for the referral of settlement business B, a mortgage lender, pursuant to an under
covered by RESPA. standing that B will refer borrowers of Fed
6. Facts. A, a real estate broker, obtains all Erally Related Mortgage Loans to A for the
necessary licenses under state law to act as purchase of settlement services in connec
a title insurance agent. A refers individuals tion with the settlement of such loans.
who are purchasing homes in transactions Comments. Allowing B to use the deposit- in which A participates as a broker to B, a ed funds at no interest appears to be a thing title company, for the purchase of title inof value given by A to B pursuant to an surance services. A fills out a simple form agreement or understanding that business but performs no other services in connecincident to a real estate settlement shall be tion with the issuance of the title insurance referred to A in violation of Section 8 of
policy. B pays A a commission for the transRESPA. The maintenance of any accounts
actions. reasonably needed by A in the normal
Comments. The payment of a commission course of its business would not be a viola
by B to A under circumstances where no tion of Section 8.
substantial services are being provided by A 2. Facts. B, a lender of Federally Related to B is a violation of Section 8 of RESPA. Mortgage Loans, pays A, a real estate agent, 7. Facts. A, a “mortgage originator" or a fee of $25 per transaction purportedly for “mortgage broker”, receives loan applicaservices performed such as arranging for B's tions and refers borrowers to lenders for a appraiser to visit the property. The purport- fee. ed services for which the fee is paid are ser- Comments. If A performs services such as vices that real esstate agents frequently per- obtaining credit and appraisal information form as part of their services and the fee is or preparing an application for mortgage inreally intended to enable B to compensate A surance or guarantee which are of value to for referring potential borrowers to B.
the Lender paying the fee, without referComments. Both A and B are in violation ence to the referral value of such services, of Section 8 of RESPA, since the fee is and the fees paid bear a reasonable relationheing paid in compensation for the referral ship to the value of such services, the payof business rather than for legitimate ser- ment of such a fee would not be in violation vices actually rendered by B on behalf of A. of Section 8 of RESPA.
3. Facts. A, a provider of settlement ser- 8. Facts. A, a title insurance company, provices, provides settlement services at abnor- vides among its other services an “insured mally low rates or at no charge at all to B, a Closing Service Letter”. Under this letter, builder, in connection with a subdivision for which no separate or additional charge being developed by B. B agrees to refer pur- is made, the company agrees to provide inchasers of the completed homes in the sub- demnity against loss due to certain fraududivision to A for the purchase of settlement lent or negligent acts of the company's services in connection with the sale of indi- policy-issuing agents or approved attorneys
in complying with closing instructions and Comments. The rendering of services by A in conducting the closing of any transaction to B at little or no charge constitutes a in connection with which a policy of title inthing of value given by A to B in return for surance is to be issued by A. the referral of settlement business and both
Comments. Where A has provided such an A and B are in violation of Section 8 of Insured Closing Service Letter to a specified
person and the protection afforded thereby 4. Facts. B, a Lender, encourages persons
is effective without regard to whether the who receive Federally Related Mortgage
particular case was referred to A by the Loans from it to employ A, an attorney, to
person receiving protection under such
vidual lots by B.
letter, the provision of the letter would not be pursuant to an agreement or understanding that settlement services be referred, and therefore not in violation of Section 8.
9. Facts. A, a service corporation, is a title insurance agent for B, a title insurance company. The search and examination of title, in connection with applications for title insurance policies prepared by A, are performed by employees of B. Employees of B also make any determinations as to the insurability of title. A issues title insurance policies on behalf of B and receives a commission equal to the amount paid other title insurance agents in the community, includ. ing other agents of B, who perform the title search and examination as well as prepare and issue the title insurance policy.
Comments. While A may be performing some real service for B, the fact that the amount of the commission received by A is equal to the commissions customarily paid to full-service title insurance agents who perform substantially greater and more valuable services indicates that the commission paid by B to A is really intended to compensate A for the referral of business. The amount by which the commission exceeds the reasonable value of the services rendered by A to B would be a referral fee prohibited by Section 8 of RESPA. Section 8 does not prohibit variations in the amount of commissions that may be paid, nor does it require that the quantum of services rendered be identical in all cases, so long as ser
vices significant to the issuance of a title insurance policy are rendered and the amount of the commission bears a reasonable relationship to the services rendered.
10. Facts. A, a real estate broker, refers title business to B, a company that is a licensed title agent for C, a title insurance company. A is part owner of B. B performs the title search and examination, makes de terminations of insurability and issues & policy of title insurance on behalf of C, for which C pays B & commission. B pays annual dividends to its owners, including A, based on the relative amount of business each of its owners refers to B.
Comments. While the payments of a commission by C to B is not a violation of Section 8 of RESPA, if the amount of the commission constitutes reasonable compensation for the services performed by B for C, the payment of a dividend or the giving of any other thing of value by B to A that is based on the amount of business referred to B by A constitutes a violation of Section 8. Similarly, if the amount of stock held by A in B (or, if B were a partr.ership, the distribution of partnership profits by B to A) varied in proportion to the amount of business referred or expected to be referred, or if B retained any funds for subsequent distribution to A where such funds were generally in proportion to the amount of business A referred to B, such arrangements would constitute violations of section 8.
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