Section 8(b) of the Real Estate Settlement and Procedures Act (RESPA) says this: "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."

Many have understood this to be a provision prohibiting "kickbacks". For example, if I referred someone to a mortgage broker, and the broker gave me 10% of what he earned, even though I performed no services in connection with the loan, that would be a prohibited kickback under RESPA.

Others, however, see 8(b) as a prohibition against more than kickbacks. They also see it as a prohibition against charges for things that do not represent services specifically performed on behalf of the client. Some even take it as a prohibition against overcharging, however that is to be determined.

This latter view was taken by a Federal District Court for the Northern District of Alabama (11th Circuit) in the case of Busby v. JRHBW Realty. The case involved a transaction in which a real estate firm (JRHBW Realty, Inc. doing business as Realty South) had charged its client an Administrative Brokerage Commission fee (the “ABC Fee”) of $149.

As profit margins have continued to shrink, it has become a fairly common (though far from universal) practice for brokerages to add one or more flat-rate fee to the commission charged for brokerage services. Commonly, the broker’s reason for making this a separate fee is so that it will not be subject to the commission “split” due the agent. But, as the court found in the Busby case, often these fees do not represent compensation for a specific service rendered to the principal; they just go to general overhead.

Not every federal court has agreed with the Busby court's interpretation of section 8(b). In 2001 a court in the 7th District (Echevarria v. Chicago Title and Trust) concluded that unearned fees must be shared between two parties in order to constitute a violation of 8(b). More recently, the Court of Appeals for the Fifth Circuit took the position (in Freeman v. Quicken Loans) that, in order to be a violation of 8(b), "the challenged fee [must] be split with another party..."

The issue has been compounded by the fact that HUD, the agency responsible for enforcing RESPA, has taken that position that, not only does RESPA prohibit kickbacks, but also it prohibits mark-ups, unearned fees, and overcharges. However, the court in Freeman, as well as other courts, have disagreed and have noted that's HUD's 2001 statement of policy does not have the force of law.

The HUD position is, essentially, that RESPA is meant to protect consumers from all manner of (what HUD determines to be) overcharging. But the Freeman court emphatically disagrees. It wrote that "By its terms RESPA does not regulate economic outcomes; it only bans certain predatory methods." If Congress had wanted to regulate settlement service charges more broadly, it certainly could have. But it did not.

In October the U.S. Supreme Court agreed to hear the Freeman case. Hopefully, it's decision will bring clarity to the now-murky issue as to the what is or isn't allowed under RESPA.

Bob Hunt is a director of the California Association of Realtors and is the author of Real Estate the Ethical Way. His email address is scbhunt@aol.com.

Published: December 7, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .