Academic journal article ABA Banking Journal

Can Brokers Just Say No?

Academic journal article ABA Banking Journal

Can Brokers Just Say No?

Article excerpt

Q. Under the Real Estate Settlement Procedures Act, can a non-lender provider of settlement services require a home purchaser to purchase services from a specific provider or prohibit purchasing services from a provider? For example, a real estate broker that requires a buyer to purchase title insurance from a specific title agency. Underlying this scenario is the assumption that there are no direct or indirect referral fees provided by the title agency to the broker. If this were true, questions would be raised as to violations of Section 8 of RESPA. -- SW., Mich.

A. ABA's John Rasmus, in consultation with representatives of the RESPA and Enforcement Divisions at the Department of Housing and Urban Development, says it is important to note that RESPA's Section 9 prohibits sellers of RESPA-covered real estate from requiring--directly or indirectly--as a condition of selling the property that the buyer purchase title insurance from any particular title company. This would appear to apply directly to the situation described in the question, assuming that the buyer pays the cost of the title insurance.

Also, it would appear that the real estate broker, in most cases, is acting as the agent of the seller, and therefore, would be subject to this specific prohibition.

Generally speaking, HUD believes that regardless of Section 9's impact, the scenario outlined in the question would not create a RESPA violation. RESPA would only come into play if there were an affiliation arrangement between the broker and the title agency or if there were any form of referral fee paid. This would also include situations in which the referral fee to the broker is not paid by the title agency, but paid by another party down the settlement service line from the real estate broker and the' title agency. …

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