Another Brokers Worst Nightmare: Home Warranty Company Kickbacks May Violate RESPA

On Nov. 23, HUD General Counsel Helen Kanovsky announced HUD’s response to public comments regarding HUD’s interpretive rule directed to home warranty companies (HWC) and real estate brokers and agents. HUD’s response reiterates the Department’s unequivocal position that when HWC’s pay real estate brokers or agents for work performed on behalf of the HWC, and such work is directed toward a particular buyer or seller, then the payment is an illegal kickback for a referral in direct violation of RESPA. (RESPA News RESPA Archives, Posted On: 11/29/2010)

RESPA experts agree that HUD’s interpretive rule, intended to apply to HWC’s, could apply as well to others in the real estate, mortgage and settlement services industries.

HUD’s interpretation of Section 8 as it applies to HWC’s and the Realtor community is defined as the following:

A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under Section 8.
So what does all this mean to us? It seems to us that if you really want to avoid litigation or worse, you should just assume that referral fees based on orders in escrow are going to be risky. Just ask yourself, is a referral fee now, worth the possible headache and financial pain of a legal action later?

Is TransactionPoint a Broker’s Worst Nightmare: Part II

We just learned that Terry Tucker, an executive with Keller Williams Realty in Danville, CA sent an email to potential vendors alerting that the vendors would need to pay or their services may not be used. His office is transitioning to TransactionPoint and the only vendors that will be named as preferred providers are those vendors that agree to pay a fee for orders placed through TransactionPoint.

He writes, “Please be aware that our agents will be highly motivated to order within Transaction Point, as the only other option would be for them to pay for it out of their own pockets.”

Despite numerous calls to Mr. Tucker we haven’t received a call back. Please read the entire email here.

At a time when many federal agencies and every state attorney general are looking into the misconduct of companies in their foreclosure processes, we want to ask if the action by Keller Williams Realty described in Mr. Tucker’s e-mail would be permissible under RESPA. We wonder what HUD would think of this program if implemented at Mr. Tucker’s office?

In PART III, our next post, we’ll examine HUD’s latest ruling on illegal kickbacks under RESPA from Home Warranty Companies to real estate brokers or agents.

We are grateful for your insights and suggestions.

Reader Mail

Thanks for all the comments! We got some really good responses. Here is a sample of a few:

RB said (In reference to FATCO):

Oh yes, and they closed our office completely with one days notice. Eight employees and families on the street. They acted like no big deal, sorry! Well now I take time everyday and educate realtors and others that these companies outsource jobs. We should stop giving business to those who don’t give us jobs period…..Please pass this on and on or were doomed!

ksonti said:

Hi:
Regarding out-sourcing jobs to India – keep real estate jobs in California

I agree we should keep California jobs in California – What will happen to our economy and people who depend on these jobs. I use American Home Shield for my Home Warranty Yes Stewart Title – & Of course Property I.D.

What do people in India know about California Real Estate?

We have outsourced jobs to Bangalore, India – Who will take care of us if we don’t take care of our own Californians? We should hold on to our jobs – No more outsourcing –

I Would like to have a Merry Christmas & Happy New Year – be able to feed my family and keep my home – for which I‘ve worked all my life. Keep California Working…… This goes to the reset of my fellow Californians. Love you all.

Alex Villa said:

Provident Title is holding the line for CA jobs!

Larry Wims said:

Please give Realtors information on all companies in our industry sending jobs offshore.

Keep sending them in, we love to hear your thoughts!

Where Have all the Home Buyers Gone?

It’s been a rotten fall season for home sales in California. Where have all the home buyers gone? Where have all your clients gone?

Yes, the pundits seem to offer loads of reasons why sales are down. But no one is talking about the obvious. People without jobs can’t buy homes.

Have you asked yourself, what are you doing to help keep jobs and home buyers in California? No real estate professional probably thinks of themselves as part of the problem. No one says,”I’m the guy who sent jobs to India.” But maybe you are sending your business to companies that are sending the jobs overseas? Companies like First American which proudly boasts that they have moved more than 4,000 jobs to India alone?

Fidelity expects to create and hire 1,800 jobs in India next year according to Inman News.

Are you aware which companies are controlled and/or related to First American and Fidelity? Here’s a few:

• First American Title
• First American Home Warranty
• FANHD
• JCP
• LGS
• PDS

• Fidelity National Title
• Fidelity Home Warranty
• disclosureSource

Next time you buy a real estate product; why not invest with companies whose workforce and products are made entirely here in the U.S.? Companies like American Home Shield, Stewart Title. Home Warranty of America, Property I.D. or Hearst Disclosures come to mind.

Do you have an American company to suggest? We’d like to hear from you.