RESPA – The Good, The Bad, and The Ugly. Anti-Kickbacks in Real Estate.

Why RESPA was enacted.    In the 1970’s the title and mortgage industry asked Congress to step in to stop real estate agents from demanding that they be paid kickbacks in exchange for referring homebuyers.  Real estate agents reasoned that referral fees should be permissible because after-all, the customer was only procured through the real estate agent’s hard work and marketing efforts, and it is not generally forbidden in other industries.  However, title companies and mortgage companies made a more compelling argument, arguing kickbacks necessarily result in raising prices, which ultimately are passed on to the consumer.  So, in 1974, Congress passed RESPA (The Real Estate Settlement Procedures Act). [1]

Who Regulates RESPA.  The CFPB is the primary regulator with direct authority over RESPA.[2]

Who does RESPA apply to?  Generally it applies to prohibit conduct by Title Agents, Attorneys; Real Estate Agents, Mortgage Brokers; Banks, Developers, Builders, and Sellers of Real Estate when a Buyer is obtaining a Federally Related Mortgage.

What does RESPA Prohibit?  As it relates to title and mortgage services, RESPA generally prohibits kickbacks, referral fees, unearned fees, splitting fees, and sellers from requiring borrowers to purchase title insurance from companies chosen by sellers.  Of course for every rule however, there are numerous exceptions.[3] 

Why should I care (RESPA Penalties)?  (1) Joint and several liability; (2) Up to $10,000 fine; (2) Imprisonment up to 1 year; (3) Treble (3x) damages; (4) Subject to private causes of action; (5) Reasonable attorney fees awarded to the prevailing party; (6) Injunctions to enjoin violations; and (7) Good likelihood of leading to State investigation, loss of licensure and other penalties.[4] 

Statute of Limitations.  One (1) year from the date of occurrence of the violations, or three (3) years if the action is brought by the government.[5]   However, cases have extended the statute of limitations to file RESPA suits under principals of equitable tolling.[6] 

Sneaky devils.  But as the saying goes, “If you build a better mousetrap, nature will build a better mouse.”[7]  Accordingly, real estate brokers and title companies have tried to figure out ways to evade RESPA by entering into creative or sham arrangements in order to disguise kickbacks. This article explores RESPA and what payments or conduct may or may not be prohibited, and some of the more notable exceptions.



Section 8(a) of RESPA is written a bit more complicated, but to summarize, it generally prohibits a person from: (i) Giving or receiving any thing of value (ii) pursuant to an agreement or understanding to (iii) refer (iv) settlement services, in connection with (v) a federally related mortgage loan.[8]

All five (5) elements must be present; and if any one is missing then there is no RESPA anti-kickback violation.  Broken down the five (5) elements are as follows:

1. Thing of Value.[9]  Broadly defined to be virtually anything one receives in consideration for making a referral:

LoansServicesOther consideration
Duplicate payments of a chargeStocksDividends
Distribution of partnership profitsFranchise royaltiesCredits representing monies that may be paid in the future
Opportunities to participate in a money-making programRetained or increased earningsIncreased equity in entity
Special bank deposit or accountSpecial or unusual banking termsServices of all types at special or free rates
Sales or rentals at special prices or ratesLease or rental payments based in whole or in part on the amount of business referredTrips
Payments of another person’s expensesReduction of credit again an existing obligation 
  1. Agreement or Understanding.[10]  An agreement or understanding for the referral of business incident to or part of a settlement service can be “oral or otherwise”, need not be written or verbalized, but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business. 
  2. Referral.[11]   Any conduct to influence the selection of a particular settlement service provider. 
  3. Settlement Services.[12]  Anything done by Title Agents, Attorneys; Real Estate Agents, Mortgage Brokers; Banks required to get a federally related mortgage to finance the purchase of 1-4 family residential property are settlement services. 

Settlement Services are very broad and include but are not limited to:

  • Title services, title searches, Title examination, Title Insurance,
  • Closings
  • Preparation of documents, including notarization, delivery, and recording.
  • Services rendered by an attorney
  • Preparation of documents,
  • Surveys,
  • Credit Reports
  • Appraisals
  • Rendering of inspections, including inspections required by law, the sales contract, or mortgage
  • Pest and fungus inspections,
  • Services involving mortgage insurance
  • Services involving hazard, flood, or other casualty insurance or homeowner’s warranties.
  • “Services rendered by a real estate agent or broker”
  • Origination of a federally related mortgage loan
  • Taking loan applications
  • Handling of the processing and closing or settlement.
  • Any other services for which a settlement service provider requires a borrower or seller to pay.

Not an Examples:

  • For every buyer you send me I will pay you $500.00 for (Moving expenses, Grass cutting, Pool services).  These activities are not a violation because they are generally not settlement services required to get a mortgage to finance the purchase of 1-4 family residential property.
  • 5. Federally Related Mortgage Loan.[13] A loan secured by a 1st or subordinate lien on a 1-4 family residential property.
RefinancesAll Cash
2nd Or 3rd MortgagesPurchase Money Mortgage (i.e. When buyer gives seller a mortgage on the property as part of deal to buy the property)
ARMsLoan primarily for Business, Commercial  or agricultural purposes.
Reverse MortgagesConstruction Loans[15]
Interest Only MortgagesTemporary Financing
HELOCsVacant land (unless being built in 2 years)



Section 8(b) of RESPA generally prohibits, giving or receiving a portion, split or percentage of a real estate settlement service (in connection with a federally related mortgage) other than for services actually performed.[16] 

In other words, the title company cannot charge for work and then split that fee with someone else like the real estate agent.  Big difference between 8(a) and 8(b) is that in 8(b), a referral to the title company is not required; so even if there is no referral to the title company, the mere splitting of the fees with the real estate agent is itself a violation.  That is unless the title company is paying the fees for “services rendered” by the real estate agent.  Stated another way, if the title company is going to pay the real estate agent money from the closing, then it better be for actual services rendered.  Moreover, “A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.”[17]



RESPA Section 8(c) provides a list of payments (provided or received) and arrangements that are not prohibited under RESPA Section 8(a) or 8(b). The CFPB has issued a FAQ section summarizing the exceptions as:

  1. Fees paid to attorneys for services actually rendered (For example, for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing.). 12 USC § 2607(c)(1)(A), Regulation X, 12 CFR §§ 1024.14(g)(3)(v).
  1. Fees paid by a title company to its duly appointed agent for services actually performed in the issuance of a title insurance policy. 12 USC § 2607(c)(1)(B).
  1. Fees paid by a lender to its duly appointed agent for services actually performed in the making of the loan. 12 USC § 2607(c)(1)(C).
  1. Bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed. 12 USC § 2607(c)(2).
  1. Payments under “cooperative brokerage and referral arrangements or agreements between real estate agents and brokers.” The statutory exemption restated in this paragraph refers only to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and has no applicability to any fee arrangements between real estate brokers and mortgage brokers or between mortgage brokers.) 12 USC § 2607(c)(3), Regulation X, 12 CFR §§ 1024.14(g)(1)(v)..
  1. Affiliated business arrangements, subject to specified conditions. 12 USC § 2607(c)(4).
  1. Other payments and classes of payments adopted by regulation after consultation with other specified federal agencies and officials. 12 USC § 2607(c)(5).
  1. Normal promotional and educational activities, that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto. Regulation X, 12 CFR §§ 1024.14(g)(1)(vi).
  1. An employer’s payments to its own employees for any referral activities. Regulation X, 12 CFR §§ 1024.14(g)(1(vii) [18]


What is an Affiliated Business Arrangement (AfbA).  One popular exception under 8(c) that curries a lot of attention is the Affiliated Business Arrangement.  An Affiliated Business Arrangement is defined as:

(A) a person or their associate[20] who is in a position to refer business (incident to or a part of a real estate settlement service involving a federally related mortgage loan), has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services; and (B) either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.[21]

An affiliated business arrangement is not a violation of section 8 of RESPA if certain conditions are complied with such as:

  • The person making the referral provides a written disclosure on a separate piece of paper.  (see format below which describes: (i) the nature of the relationship; (ii) explains the ownership and financial interests between the one referring and the one providing the service, and (iii) an estimated charge or range of charges made by the provider)[22]
  • The person making the referral does not require any person to use a particular settlement service provider. [23]
  • Dividends and capital or equity distributions related to ownership interests are permitted. [24]
  • Loans, advances, and capital contributions are permitted as long as they are for ordinary business purposes and are not for the referral or unearned fees. [25]
  • Payments based on the amount of actual, estimated, or anticipated referrals are prohibited. [26] and,
  • Whether the investor is actually giving a thing of value will not be based on how the thing of value is labeled, but rather each will be determined by analyzing facts and circumstances on a case-by-case basis. [27]

Affiliated Business Arrangement Disclosure Statement (FORM). The regulations actually provide a form (Found in Appendix D) to be used to disclose an affiliated Business Arrangement, which simply needs to be filled out.[28]

Affiliated Business Arrangement Disclosure Statement Format Notice

To:                   _____

From:             (Entity Making Statement)

Property         _____

Date                _____

This is to give you notice that [referring party] has a business relationship with [settlement services provider(s)]. [Describe the nature of the relationship between the referring party and the provider(s), including percentage of ownership interest, if applicable.] Because of this relationship, this referral may provide [referring party] a financial or other benefit.

Set forth below is the estimated charge or range of charges for the settlement services listed. You are NOT required to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES.

[Provider and settlement service]        _____

[charge or range of charges]        _____


I/we have read this disclosure form, and understand that referring party is referring me/us to purchase the above-described settlement service(s) and may receive a financial or other benefit as the result of this referral.



What could happen if a Real Estate Company and Title Company violate Section 8 of RESPA and do not properly exempt themselves as an Affiliated Business Arrangement (AfbA)?

In In re JRHBW Realty, Inc., d/b/a RealtySouth and TitleSouth LLC a title company and real estate brokerage were owned by the same parent company and had some of the same officers.  The CFPB and entered into a consent order generally addressing the disclosure deficiencies by the Title company and Real estate company.  The CFPB noted that:

  • The Real estate company did not use the format of the Disclosure form found in Appendix D.
  • The form did not use capital letters
  • The form did not highlight the fact that consumers could obtain similar settlement services from other providers and that they were free to shop around for those services  
  • The form was not set apart, but incorporated into the end of a list of descriptions of seven affiliated businesses, and was hidden.
  • The form included marketing statements touting the benefit and value of the affiliated entities. It stated, for example, that “[w]e at RealtySouth believe our affiliates provide superior service, value, and convenience;” “we believe that our affiliates’ charges are reasonable and are competitive with the amounts charged by others for the same services;”
  • The form used by the real estate company did not satisfy the “safe harbor” for affiliated business arrangements.
  • The CFPB concluded that Respondents violated Section 8(a) of RESPA by giving and receiving a thing of value pursuant to an agreement or understanding that the Real Estate Company would refer settlement services to its Title Company.
  • The Title Company and Real Estate company were jointly and severally fined $500,000.00, and ordered to produce all the HUD-1s to ascertain the identities of all the consumers affected. 



Section 9 of RESPA says,

  • No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
  • (b)                Any seller who violates the provisions of subsection (a) shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.[29] 

Sellers cannot require a buyer (who is getting a federally related mortgage) to purchase title insurance from a particular title company; unless, the seller pays for the title insurance policy.  Sellers can recommend a title company, sellers can suggest it, sellers can even give buyers an incentive to buy title insurance from a particular title company; but Sellers cannot require a particular title company.  An economic incentive does not amount to required use. 

Note that Section 9 only really deals with requiring buyers to pay for a “title insurance policy.”   But that is not the only charge a title insurance company charges in a title insurance transaction.  So, what about the closing service fee (i.e. settlement fee) that title companies charge?  A Settlement fee is the fee charged for actually doing the work (i.e. for doing the closing)?  Nothing in Section 9 mandates that a seller (who is insisting that the Buyer use a particular title company) pay for the buyer’s closing service fee (i.e. settlement fee).  In such instances, Section 9 just requires the seller pay for the buyer’s title insurance policy.  So if the seller required a buyer to use a particular title company, and then only paid for the buyer’s title insurance policy, but not the buyer’s settlement fee, it appears there would be no violation of Section 9. 

If a seller violates Section 9, it is liable to the buyer in an amount equal to 3 times all charges paid by the buyer for title insurance.

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author Randy Gilbert, J.D. is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.”

* Additional Resources:

·        CFPB’s Real Estate Settlement Procedures Act FAQs

·        Phillip Schulman, Esq., RESPA Compliance and Survival Guide, 2013

·        Francis Trip Riley, III, Esq. RESPA Compliance: Avoid Pesky Section 8 Violations, 2022

·        Jon P. Klerowski, Esq., Demonstrating Value: How to Avoid Running Afoul of RESPA’s Anti-Kickback Provisions, 2017.

 [1] 12 CFR Part 1024 – Real Estate Settlement Procedures Act (Regulation X)

[2] Prior to the CFPB, HUD used to be the primary regulator of RESPA.


[4] See, 12 USC §2607(d)

[5] See, 12 USC §2614

[6] “[E]quitable tolling permits a plaintiff to sue after the statutory time period for filing a complaint has expired under three circumstances, “(1) the defendant has actively misled the plaintiff respecting the plaintiff’s cause of action, (2) the plaintiff in some extraordinary way has been prevented from asserting his or her rights, or (3) the plaintiff has timely asserted his or her rights mistakenly in the wrong forum.” CONOVER et al v. PATRIOT LAND TRANSFER, LLC et al, No. 1:2017cv04625 – Document 57 (D.N.J. 2019)

[7] By, Lawrence Block

[8] The full text of 12 USC § 2607(a) says, “(a) Business referrals.  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.”  12 CFR Part 1024.14(b) is identical but adds to the end, “Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.  12 CFR Part 1024.14(b) – Real Estate Settlement Procedures Act (Regulation X)

[9] See generally, Definition of “Thing of Value” 12 CFR Part 1024.14(d) – Real Estate Settlement Procedures Act (Regulation X); See also, 12 USC § 2602(2).

[10] See, 12 USC § 2607(a) and 12 CFR Part 1024.14(e) – Real Estate Settlement Procedures Act (Regulation X)

[11] See generally, Definition of Referral  12 CFR Part 1024.14(e) – Real Estate Settlement Procedures Act (Regulation X)

[12] See generally, Definition of “Settlement” and “Settlement Service” 12 CFR Part 1024.2(b) – Real Estate Settlement Procedures Act (Regulation X); See also, 12 USC § 2602(3) definition of Settlement Services  

[13] See generally, Definitions of “Federally Related Mortgage Loan” 12 CFR Part 1024.2(b) – Real Estate Settlement Procedures Act (Regulation X)

[14] See, 12 CFR Part 1024.5 – Real Estate Settlement Procedures Act (Regulation X)

[15] FAQs About RESPA for Industry.  Construction loans are not covered by RESPA unless. “Unless: 1) the loan is used as, or may be converted to permanent financing by the same lender; or 2) the lender issues a commitment for permanent financing; or 3) the loan is used to finance a transfer of title to the first user; or 4) the loan is for a term of two years or more, unless it is to a bona fide builder.”  See also, Regulation X, 12 CFR §§ 1024.5(b)(3).

[16] The full text of 12 USC § 2607(b) says, (b)Splitting charges No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.  12 CFR Part 1024.14(c) is identical but adds to the end, “A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee.”  12 CFR Part 1024.14(c) – Real Estate Settlement Procedures Act (Regulation X).

[17] See,12 CFR Part 1024.14(c) – Real Estate Settlement Procedures Act (Regulation X).

[18] See, Appendix B to Regulation X provides further guidance on these payments and activities.

[19] See,12 USC § 2607(c)(4), Regulation X, 12 CFR §§ 1024.15).

[20] 12 USC §2602(8) the term “associate” means one who has one or more of the following relationships with a person in a position to refer settlement business: (A) a spouse, parent, or child of such person; (B) a corporation or business entity that controls, is controlled by, or is under common control with such person; (C) an employer, officer, director, partner, franchisor, or franchisee of such person; or (D) anyone who has an agreement, arrangement, or understanding, with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from the referrals of such business.”

[21] See, 12 USC § 2602(7).

[22]  See, Regulation X, 12 CFR §§ 1024.15(b)(1).

[23] See, 12 USC § 2607(c)(4), Regulation X, 12 CFR §§ 1024.15(b)(2).  (an exception exists if for a lender, requiring a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender’s interest in a real estate transaction, or except if such person is an attorney or law firm for arranging for issuance of a title insurance policy for a client, directly as agent or through a separate corporate title insurance agency that may be operated as an adjunct to the law practice of the attorney or law firm, as part of representation of that client in a real estate transaction.

[24]  See, Regulation X, 12 CFR §§ 1024.15(b)(3)(i)(A).

[25]  See, Regulation X, 12 CFR §§ 1024.15(b)(3)(i)(B).

[26]  See, Regulation X, 12 CFR §§ 1024.15(b)(3)(ii)(A).

[27]  See, Regulation X, 12 CFR §§ 1024.15(b)(3)(iii).

[28] If the disclosure involves a lender then the form requires a different clause to be substituted.

[29] 12 U.S. Code § 2608, See also, Regulation X, 12 CFR §§ 1024.16