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socrateaser
socrateaser, Lawyer
Category: Real Estate Law
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Experience:  Attorney and Real Estate broker -- Retired (mostly)
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I own a small title agency. my salesperson has worked on a

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I own a small title agency. my salesperson has worked on a commission basis for 5 years. He wants to get a real estate license and make money on the side as a realtor. He will not receive any compensation for clients/files that he refers to my title agency in his capacity as a realtor. would this violate respa?
Submitted: 11 months ago.
Category: Real Estate Law
Expert:  socrateaser replied 11 months ago.
Hello,

One of the express purposes of RESPA is to prevent steering of clients to particular settlement services in exchange for compensation. 12 U.S.C. 2607(a) provides:

  • No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

 

What your salesperson is suggesting is a flat RESPA violation. In fact, this is the most severe violation possible, carrying with it both civil and criminal penalties.

 

In sum -- bad idea.

 

Please let me know if my answer is helpful or if I can provide further clarification or assistance.

 

And, thanks for using justanswer.com!

Customer: replied 11 months ago.

i realize that is the general rule. however, if he is a bona fide employee (meets IRS factor test) of the title agency wouldn't this be an exception under Section 14(g)(vii).."an employer's payment to its own employees for any referal activities."


 


Keep in mind, he would not make any title agency commission on his own transactions that he has as a realtor. Would your answer be different if he referred all of his realtor work to a different title agency? Under that scenerio, my title agency would not handle any of his transactions where he acted as a realtor.

Expert:  socrateaser replied 11 months ago.

i realize that is the general rule. however, if he is a bona fide employee (meets IRS factor test) of the title agency wouldn't this be an exception under Section 14(g)(vii).."an employer's payment to its own employees for any referral activities."

 

A: The U.S. Supreme Court (Freeman v. Quicken Loans, Inc., 132 S.Ct. 2034, 2041 (2012)) has held that RESPA does not prohibit a person from referring between activities which are owned by a single business entity. Example: If you were a title company and your salesperson, or someone else were the designated responsible broker for a real estate agency, owned by your title company, or visa versa, or where you are both divisions of one business entity, then there is no unlawful referral.


The problem in your contemplated scenario is that the employee is receiving a "thing of value," in my opinion: he/she gets to keep his/her job by referring outside business to your business. The fact that he/she is an employee of your business, while simultaneously engaged in outside business as a real estate salesperson, suggests a conflict of interest with his/her client, for which the salesperson could be sued for breach of fiduciary and loyalty. But, it also suggests that a court could find that the referral is coming from an outside interests, and that the salesperson is getting value for the referral.

 

We're into the "weeds" here. I can't give you a definitive answer, because there's no case law that definitively rules on the transaction you now suggest. In my opinion, the risk is greater than the benefit. But, that's something that you and your salesperson must decide.

 

Keep in mind, he would not make any title agency commission on his own transactions that he has as a realtor. Would your answer be different if he referred all of his realtor work to a different title agency? Under that scenario, my title agency would not handle any of his transactions where he acted as a realtor.

 

A: If the salesperson were referring to a title company where he/she receives no compensation, and where the salesperson is not an employee, then there is no RESPA violation, in my opinion.

 

Hope this helps.

socrateaser, Lawyer
Category: Real Estate Law
Satisfied Customers: 34119
Experience: Attorney and Real Estate broker -- Retired (mostly)
socrateaser and 6 other Real Estate Law Specialists are ready to help you
Customer: replied 11 months ago.

I also own a real estate brokerage company (I'm the 100% owner of the LLC) and I'm the designated responsible broker. This is a new entity which was created last month and is now fully licensed, insured, etc. and ready to operate.


So, to summarize: I own 100% of the title agency LLC AND I own 100% of the real estate brokerage.


 


If my title agency employee also became an independent contractor of my real estate brokerage, would it be your opinion that he could continue working as a sale representative of the title agency AND work for my real estate brokerage as an independent contractor AND we would be under the safe harbor rule explained in Freeman v. Quicken Loans?


 


Or does my title insurance agency have to be the 100% owner of my real estate brokerage? (as opposed to just me as an individual being the 100% owner of both)?

Expert:  socrateaser replied 11 months ago.
Or does my title insurance agency have to be the 100% owner of my real estate brokerage? (as opposed to just me as an individual being the 100% owner of both)?

A: This would be the requirement (or visa versa: real estate owns title company).

Hope this helps.
socrateaser, Lawyer
Category: Real Estate Law
Satisfied Customers: 34119
Experience: Attorney and Real Estate broker -- Retired (mostly)
socrateaser and 6 other Real Estate Law Specialists are ready to help you

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