NAR: ‘RESPA Guidelines Unclear’

By Deborah Ball Kearns, RE/MAX Times Online Associate Editor

The U.S. Department of Housing and Urban Development recently released its interpretive rule of a RESPA guideline concerning home warranty companies compensating real estate agents for selling home warranties to buyers and sellers.

According to HUD’s updated interpretation, brokers and agents are allowed to be compensated on a per-transaction basis for selling home warranties to their buyer clients.

But the National Association of Realtors has expressed concerns that the RESPA rule isn’t clear on whether real estate agents and brokers can receive flat-fee compensation for marketing home warranty products. Some real estate companies – including RE/MAX – have business agreements with home warranty companies to market such products to buyers and sellers as a risk-management tool in the course of a home sale or purchase.

Here’s an excerpt from a letter NAR sent to HUD on July 22:

“Home warranties are beneficial products for homebuyers, sellers and homeowners, and home warranty companies do not employ independent sales representatives to acquaint consumers with these products. They are not required for a settlement to be successfully concluded and are often not paid for or sold in conjunction with settlement.

Real estate brokers and agents perform important services on behalf of home warranty companies to educate consumers about home warranty products and service customer questions and claims after these products are purchased. These services are actual, necessary and distinct services from those typically performed by real estate brokers and agents, and Section 8(c)(2) of RESPA permits the real estate broker or agent to receive compensation for these services.

We respectfully request the Department to reconsider its characterization of real estate broker or agent direct-to-consumer marketing services as mere referrals and consider clarifying that general marketing services may be compensable services under Section 8(c)(2) of RESPA.

We are concerned that our members do not have clear guidance to assist them in creating RESPA-compliant service arrangements. NAR asks HUD to consider clarifying the facts underlying HUD’s analysis in the interpretive rule, as well as the application of the rule to per-transaction compensation arrangements. It is important for NAR’s members to understand that flat-fee marketing and service arrangements that comply with Section 8(c)(2) of RESPA are not covered by the interpretive rule.”

If you have questions or concerns about RESPA compliance, you should contact NAR, your local real estate board or your own legal counsel for further advice.

© 2010 RE/MAX, LLC. RE/MAX Affiliates may share this article, provided they do not charge for it and this notice is included. All other rights reserved.

Comment on this story
E-mail your comments to editor@remax.net. Please include your full name, RE/MAX office, city and state or province. Comments, slightly edited for length, flow and punctuation, will appear below.

Comments (2)
As usual, the government has given us a yes, no, maybe answer and I, for one, am not surprised. With that said, can we continue to sell the warranty or not. Yes or no would be the preferred answer.
– Linda Greenwell, RE/MAX Alliance, Louisville, Ky.

The warranty company I use offers “with” or “without” administrative fee (fee paid to real estate agent). I always choose “without” the fee. This saves the buyer or seller money (usually about $75) by not paying the administrative fee. I don’t need to take a fee, I’m already making a commission! Offer the savings to the party paying for the warranty – that goes a long way.
– Rachel Reardon, RE/MAX Executive Realty, Charlotte, N.C.

Over the last few months, many Kansas REALTORS® have reported being contacted by a foreign buyer who is interested in purchasing a property with cash.  Following a rapid set of events, the foreign buyer will seek to steal money from the REALTOR®’s escrow or trust account using a fraudulent check or wired funds.  Please briefly review the contents of this notice and closely scrutinize any email communications you receive from buyers that fit the profile discussed in this notice.

The scheme begins with an email message from the foreign buyer explaining that they are interested in permanently relocating to Kansas and would like to purchase property with cash from an investment account.  Following the initial communication, the foreign buyer will mail a check or wire funds from a foreign bank account for the earnest money and a substantial down payment to the REALTOR®.  Unfortunately, the check or the wired funds originate from a bank account that does not exist and the funds are fraudulent.

As soon as the funds are deposited in the broker’s escrow or trust account, the foreign buyer suddenly cancels the transaction and demands the immediate return of the deposited funds.  Once the funds are wired back to the foreign buyer, the domestic bank holding the REALTOR®’s trust account will identify the original check or wired funds as fraudulent and the REALTOR® will be defrauded out of the money that was refunded to the foreign buyer from the escrow or trust account.

In order to avoid becoming a victim of these types of fraudulent schemes, never enter into one of these transactions without consulting your supervising broker and company legal counsel and watch out for the following red flags:

•  Cash offer from a foreign buyer drawn from a foreign bank account;

•  Foreign buyer insists on email communications and will not agree to conduct business over the phone;

•  Provides a passport and account statement as proof that the funds reside in a foreign bank account; and

•  Initial email communication contains typographical errors and poor grammar.

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