A class action lawsuit was recently filed in Maryland against a prominent real estate licensee, who advertises his team #1 in the state, for violations of RESPA. The complaint alleges the Agent received hundreds of thousands of dollars in undisclosed kick-backs for directing transactions to a particular title company over a 13 year period. Section 8 of RESPA 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. Settlement Services” are defined as anything relating to a real estate settlement (close of escrow) including anything relating to title searches, examinations, or insurance, services rendered by an attorney, preparation of documents, credit reports, appraisals, pest control activities, services rendered by a real estate agent or broker, and almost anything having to do with a mortgage loan from a federally insured institution, such as taking the loan application, loan processing, underwriting or funding.
Violations of Section 8’s anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service. In this case, the Defendant maintains that the fees were earned through a marketing agreement and were not an illegal kick-back. However, the Plaintiffs maintain this was a sham arrangement.
MORAL: Real Estate Agents should be extremely careful about these types of arrangements and disclose the issue to your broker for careful consideration. Remember, the trend tends to be that the more exposure these types of lawsuits receive, the more likely we will begin to see them in our jurisdiction.