The minimum level of service to clients that real estate agents may perform in order to legally accept referral fees from lenders has been tested by a dispute between the Department of Housing and Urban Development and a lender, broker and agents, which may open more scrutiny of one-stop-shopping services offered by real estate professionals.

According to a HUD spokesperson, an Atlanta-based lender, Znet Financial and a real estate broker, ReMax of Atlanta, and certain of their officers and affiliated companies, as well as 14 ReMax real estate agents allegedly violated the anti-kickback and unearned fee provisions of the Real Estate Settlement Procedures Act (RESPA.).

HUD's investigation, said a spokesperson, found that Znet represented the ReMax of Atlanta agents as "employees," paying them $400 for each consumer referred to Znet. However, investigators found the agents performed little or no origination work other than filling out loan application forms, which is not considered by the HUD to be enough work to earn compensation.

Unknown is how the improper referral fees were discovered and whether consumers were told that their real estate agents would be receiving compensation from Znet. It is unknown whether the lender reported the referral fees on HUD-1 statements. If the real estate agents were presented as employees, then it is possible the $400 in loan origination services/earnings were paid by the consumer, possibly without their knowledge. The questions are many -- were the fees disclosed to the consumer as loan origination fees? Did the brokers and agents inform consumers that they would be receiving fees for referring the consumers to Znet? Were the fees left off the settlement documents because the real estate agents were represented as employees?

What is known is that the HUD says that RESPA prohibits kickbacks for the referral of real estate settlement business as well as the giving and receiving of a portion of real estate settlement charges for which no services are performed.

"What defines a compensatory service?" suggests the HUD spokesperson. "It's fact specific to this case, but it is also reasonable to ask -- who are these people? What do they do for a living and in this particular case? The answers should be clear to consumers."

The trend of one-stop-shopping is making the notion of a real estate agent that can also originate loans more attractive to consumers and to their brokers who rely on ancillary services to boost flagging commission rates on resales. In some states, such as California, a license to sell real estate also allows licensees to originate loans. HUD does not require that agents be licensed as mortgage brokers in order to originate loans, because that is a provision of state law, but it can bring actions against companies that violate RESPA rules.

According to RESPA regulations, real estate brokers and agents can collect fees if they perform actual work. The question is -- what is work? How much is too little? Agents must check their own state laws for the answers.

"RESPA is very clear that creating the illusion of employment to mask otherwise illegal referral fees is not permitted," said John C. Weicher, HUD Assistant Secretary for Housing -- Federal Housing Commissioner. "Real estate agents, brokers and lenders should know that they will be held accountable for kickbacks and unearned fees."

While details of the settlement are under nondisclosure, the HUD spokesperson did acknowledge that the case may have been fact-specific, and not necessarily related to a minimum service level that the real estate agents did or not perform.

Znet and the other defendants did not admit to RESPA violations as part of the settlement, but they did agree to pay back the referral fees to consumers, among other restitution including $15,000 to the U.S. Treasury.

It's very simple, says HUD. "We try to match the referral fee with the service being referred. If there was no service, there should be no referral fee."

Published: September 30, 2003

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.