Home Warranty Referral Fees under RESPA
On Friday, June 25th, HUD published in the Federal Register an Interpretive Rule under RESPA addressing services provided by real estate brokers and agents on behalf of home warranty companies. This Interpretive Rule is an extension of an unofficial staff interpretation letter on this issue that HUD’s Office of General Counsel issued on February 21, 2008. The Interpretive Rule discusses the application of the prohibition in RESPA Section 8(a) on referral fees paid by home warranty companies to real estate brokers or agents.
The Interpretive Rule concludes that:
(1) A payment by a home warranty company for marketing services performed by real estate brokers or agents on behalf of the home warranty company that are direct to particular homebuyers or sellers is an illegal kickback for a referral under Section 8. HUD bases this conclusion on the fact that a real estate agent is in a unique position to refer settlement service business and, as they hold a position of influence, can affirmatively influence a homebuyer’s or seller’s section of a home warranty company.
(2) Depending on the facts of a particular case, a home warranty company may compensate a real estate broker or agent for services when those services are actual, necessary, and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge. The Interpretive Rule lists examples of such additional services, which include, among others: (a) conducting annual inspections of the items to be covered by the warranty to identify pre-existing conditions that could affect home warranty coverage; and (b) recording serial numbers of the items to be covered. HUD also provides guidance on the types of evidence that would support a determination that compensable services have been performed by the real estate broker or agent, for example, that the services to be performed are specified in a contract between the home warranty company and the real estate broker or agent, and the home warranty company assumes responsibility for any representations made by the broker or agent about the warranty product.
(3) The amount of the compensation from a home warranty company that is permitted under Section 8 for the additional services must be reasonably related to the value of those services and does not include compensation for referrals of business.
HUD is accepting comments on this Interpretive Rule, which must be provided within 30 days from the publication. The text of the Interpretive Rule may be found at:
http://edocket.access.gpo.gov/2010/pdf/2010-15355.pdf