Risky Relationships

Our business relationships are extremely important to us.  From home inspectors to lenders and contractors we routinely interact with people who we’ve come to trust and enjoy working with.

But understanding the special laws related to title insurance companies is a serious responsibility due to the fiduciary obligation we have to our clients.  Violations of these strict requirements can result in big fines and contribute to the increasing costs of obtaining a mortgage.

In 1974 congress passed the Real Estate Settlement Procedures Act (RESPA) to ensure that buyers are provided with sufficient information about the nature and costs of financing and closing escrow on a home.  RESPA is also intended to protect buyers from unnecessarily high close of escrow charges.  The Act requires that buyers receive disclosures at various times that spell out the costs associated with the close of escrow, lender and escrow practices and fees, such as the Loan Estimate.  Section 8 and Section 9 of RESPA have the greatest impact on real estate brokers.

However, there are still numerous examples of someone crossing the line to encourage the use a specific title insurance company.  That’s why it continues to be important for REALTORS® to understand the law and avoid any appearance of impropriety.

Section 8(a) of the law specifically prohibits a person from giving or accepting any “thing of value” for referrals of settlement service business and financial penalties can be severe for violations.

While some elements of the law are clear, its important for us to recognize the difference between legal marketing techniques and illegal kickbacks and referral fees.

For example, can a real estate broker and title company advertise their services on the same brochure?  Can a lender give a real estate broker note pads with the lender’s name on it?   Is it a RESPA violation if the seller requires the buyer to use a specific title company when the seller is paying for the buyer’s title insurance?

Arizona REALTORS® CEO Michelle Lind has written a comprehensive update on RESPA compliance. 👉👉(RESPA REVISITED)👈👈

In addition to a dedicated staff to help members understand RESPA, Arizona REALTORS® can earn c/e credit by attending the rCRMS Federal Legal Issues class.  Learn more about the Certified Risk Management Specialist program by clicking HERE.