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Will I get in trouble for receiving gifts for referrals?

On Behalf of | Oct 3, 2023 | Real Estate Law

RESPA, or the Real Estate Settlement Procedures Act regulates real estate transactions, particularly those involving mortgages and settlement services. Its significance lies in mandating clear disclosures of costs and prohibiting kickbacks or referral fees that could lead to inflated prices for consumers. Each section deals with specific matters, and Section 8 deals with gifts and promotions.

What does RESPA Section 8(a) say?

Based on RESPA Section 8(a), gifts and promotions can be a problem if they are given or accepted for business referrals related to a mortgage or real estate service.  For example, if a provider offers tickets, meals or sponsorships for referrals, that can be a violation. You do not need a written agreement, even a usual practice count.

Note that RESPA has no exceptions for gift value. Regardless of the gift’s worth, settlement service providers must meticulously assess whether providing such incentives to referral sources could potentially breach the imposed regulations.

Exceptions for “normal promotions”

Gifts for referrals can be okay if they fit the rules in Regulation X as “normal promotions.” These promotions have two conditions that they need to meet:

  1. Promotional activities can’t be tied to referrals. This means that they shouldn’t be given solely because someone sent business their way.
  2. Promotional activities should not cover expenses that the referral source would usually have to pay for themselves.

Whether you get into trouble for receiving goods and promotional items depends on whether the context fits these two conditions or not.

Why RESPA matters?

RESPA matters because it safeguards the interests of homebuyers and borrowers, promoting a more informed and equitable real estate market. It is a way to stop shady deals with gifts for referrals. Providers need to obey it and avoid legal trouble.