By Vicki Trapp, AHWD, ASP, CRS, GRI, SRES, SRS, President
Greater Chattanooga Association of REALTORS®
The topic of referral fees often comes up during a real estate transaction. Consumers should be aware there are laws regarding referral fees, specifically Tennessee Real Estate License Law and the Real Estate Settlement Procedures Act (RESPA). The following explanations are based on information provided by the Tennessee Association of REALTORS® and the U.S. Department of Housing and Urban Development (HUD).
Tennessee Real Estate License Law prohibits a licensee from paying a referral fee to a non-licensee. Consumers sometimes request a fee for referring a prospect to a licensee or for finding available property. Such requests are commonly referred to as birddog fees or finders fees, and these fees are illegal.
RESPA is a consumer protection statute that helps consumers become better shoppers for settlement services and helps eliminate referral fees that unnecessarily increase the cost of certain settlement services. RESPA requires that borrowers receive timely disclosures designed to spell out the costs associated with the closing, outline the servicing and escrow account practices and describe business relationships between settlement service providers.
RESPA prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business to service providers (lenders, title companies, closing attorneys, appraisers, etc.) in conjunction with a federally related mortgage loan.
It is a RESPA violation for someone to receive money or a thing of value solely for sending someone settlement service business. Consumers should consider the following tips:
- Compare the costs (fees, interest rate, points, etc.) of settlement service providers before agreeing to use one to whom you were referred.
- Ask for a Good Faith Estimate (GFE) before you agreeing to the loan and paying any fees.
- Ask the builder whether you are required to use a certain service providers in order to get special concessions.
- Ask your REALTOR® to verify the validity of fees being charged.
- Ask to see the HUD-1 Settlement Statement before going to closing. Compare the charges with the Good Faith Estimate and ask about any charges that have changed or that you do not understand.
- Forward any tax or insurance bills you receive, immediately to your lender (if the lender is supposed to pay the bill).
- Check your annual escrow account statement for mistakes.
- Make a “qualified written request” when asking your lender for information or making a complaint.
- Make your mortgage payment on time, even if you have sent a complaint to your lender.
- Read the FAQs about Escrow Accounts on www.hud.gov before filing an escrow complaint with a banking or government regulator.
Buying and selling property is complicated. Refer to these FAQs About RESPA and rely on a REALTOR® to answer your questions and guide you through the process.