Settlement services, RESPA's prohibitions and limits, and its exemptions

Settlement services and Section 8

Settlement services include loan origination, processing, appraisals, title work, and closing services. For a federally related mortgage loan, RESPA Section 8 prohibits giving or accepting a thing of value under an agreement or understanding to refer settlement business. The agreement can be inferred from a pattern; it need not be written. Money, trips, discounts, and payment of another person's expenses can all be things of value. Section 8 also prohibits splitting settlement charges except for services actually performed. These are distinct prohibitions: a paid referral and an unearned fee split are separate problems. See 12 U.S.C. § 2607(a)–(b) and 12 C.F.R. § 1024.14(b)–(f).

Permitted payments are tied to substance

Bona fide compensation for goods or facilities actually furnished or services actually performed is permitted. A referral itself does not become a service by calling its payment a consulting fee. Additional services must be actual, necessary, and distinct from the person's primary services. Excess compensation can indicate a disguised referral payment; high prices alone do not prove a violation. Normal promotional or educational activities must neither be conditioned on referrals nor defray expenses otherwise incurred by people positioned to refer business. An employer may pay its own employees for referral activities. The cooperative brokerage exception concerns real estate brokerage arrangements, not arrangements between mortgage brokers. See 12 C.F.R. § 1024.14(g).

An affiliated business arrangement can qualify for protection when the relationship and estimated charges are disclosed as required, the consumer is not required to use the provider, and the only value received from the arrangement, beyond otherwise permitted payments, is a return on ownership or a franchise relationship. Disclosure alone does not cure a referral fee. Section 2607(c)(4) also recognizes specified lender-selected attorney, credit reporting, and appraisal services and certain attorney title arrangements as exceptions to its no-required-use condition.

Coverage and limits

Regulation X generally covers federally related mortgage loans. Under 12 C.F.R. § 1024.5(b), exemptions include primarily business, commercial, or agricultural credit; qualifying temporary financing; qualifying vacant-land loans; assumptions without an express lender approval right; and conversions consistent with the original instrument that require no new note. A conversion fee does not by itself remove the exemption.

Construction financing is not exempt merely because it is called temporary. Same-lender permanent financing or conversion, financing transfer to the first user, and a permanent-financing commitment can defeat the exemption. Construction loans for new or rehabilitated one-to-four-family property lasting at least two years are covered unless made to a bona fide builder. Bridge or swing loans described by the regulation are exempt. Vacant land loses its exemption when loan proceeds will fund a structure or manufactured home within two years. An assumption requiring and receiving lender permission is covered even without a fee.

A bona fide secondary-market transfer is generally exempt, with a servicing exception; table-funded mortgage broker transactions are not secondary-market transactions. TRID-related partial exemptions remove specified provisions, not all RESPA protections.

Title choice and consequences

Under 12 U.S.C. § 2608, a seller cannot condition a covered sale on the buyer purchasing title insurance from a particular company. Liability is three times all charges for that title insurance. Section 8 provides criminal penalties of up to $10,000, one year of imprisonment, or both, and joint and several civil liability for three times the charge paid for the settlement service involved. Greater consumer protections under applicable state law can still apply.