The Real Estate Settlement and Practices Act (RESPA) is by no means a new law to anyone in the real estate arena. However, the implementation of the law might be – and the consequences are having serious implications.
RESPA was historically administered and enforced under the Department of Housing and Urban Development (HUD). Under Title X of the Dodd-Frank Acts, the responsibility went to the Consumer Financial Protection Bureau (CFPB) and the power transition has been taking place over time. As of June 14th, 2014, the responsibilities have been fully moved to the CFPB.
RESPA’s primary goal is to increase the clarity of settlement costs to consumers. This is done by improved disclosure statements that must be provided prior to closing and eliminating kickbacks and other excessive referral fees. The CFPB has been gaining a reputation for being hard-nosed on the enforcement of RESPA. When HUD controlled it, the enforcement was spotty. The CFPB is taking the matter much more seriously. Title Agents should be particularly diligent when considering their compliance to RESPA.
Here are a few recent examples of how the CFPB is enforcing RESPA:
- RealtySouth, an Alabama Real estate firm, has been fined $500,000 for directing their clients to their own title company. Even though disclosures were signed by buyers/sellers, the CFPB said they were buried. RealtySouth did not admit guilt, but were still required to pay the fine.
- Stonebridge, a New Jersey title service company paid $30,000 because of being found guilty of illegal referral kickbacks. The kickbacks were in the form of commission for policies sold. However, the CFPB determined that the commissions were paid to people who were independent contractors rather than employees – making them illegal. Stonebridge explained that they were employees and even issued a W-2 on each person. The CFPB disagreed.
When it comes to protecting your firm against this risk, prudent actions will prevent most violations, but it is important to take the extra step and stay on top of all manifestations of the law. Insurance can also play an important role. Insurance will not cover the fines and penalties assessed for an actual violation of a law, but they can be structured to provide defense costs and money administrative matters when responding to a regulatory investigation. It is important to note that not all title agent professional liability insurance policies provide regulatory coverage for potential RESPA violations. It is important to speak to a knowledgeable insurance broker who can help you understand what your options are when protecting your firm.
Contact us to discuss whether your insurance is right for the risks your firm faces.