Why Corporate Affiliations Can Legally Trade Services in Real Estate

by Isaac Benmergui, Esq on January 30, 2014

If you were to take a look at the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2607(a), you’d find that no title services company can pay a real estate agent or agency a fee in exchange for a referral. Trading services = bad. Good business ethics = well, good. It’s all in common English in the RESPA literature, really. Why is that? Simply put, all those undisclosed kickback costs would inflate expenses for real estate transactions, costing prospective buyers more money out of their pockets, more than they’re already shelling out for a 3-bedroom or 4-bedroom home, for example. It just doesn’treal estate agent seem right. However….

Read further in RESPA, and you’ll find that there’s one particular exemption related to this post: affiliated business arrangements. This is key, particularly in this case between Carter and Welles-Bowen Realty, Inc. A case was brought to the attention of the district court, needless to say, where the home buyer Carter saw that while it was stated that Welles-Bowen satisfied three prerequisites for the exemption due to the title company and real estate agency essentially being “related,” the defendants however didn’t fall under the safe harbor’s coverage and fourth condition within the Department of Housing and Urban Development policy.

The district court, however, saw no relevancy in that. There was no entitlement to deference in the matter, nor did it supplement the conditions related to the Act’s current safe-harbor conditions.

Furthemore, the Sixth Circuit confirmed that decision even after Carter approached for an appeal. The final opinion was published, stating that Welles-Bowen Realty, Inc. did indeed quality under that exemption, allowing them to exchange fees for referrals regularly. Case closed.

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