A title company gave me gift cards for referring my closings to them. Can I get in trouble for this? Is this legal?

In Florida, a real estate licensee may not receive a referral fee/kickback (or anything of value) for referring buyers to a title company.  There are several national and state laws that prohibit such kickbacks and proscribe hefty civil and criminal penalties for violations.  One of the most prevalent laws is the Real Estate Settlement Procedures Act (RESPA) (codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§2601-2617).

RESPA was enacted in 1974 to provide consumers with disclosures about closing costs and to prohibit kickbacks and referral fees.  RESPA covers transactions involving federally related mortgage loans (e.g., home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, reverse mortgages).  Certain transactions are not covered under RESPA, including: cash sales; sales where the individual home seller takes back the mortgage; and rental property transactions.

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business.  A violation of this section can result in a civil or criminal case being filed against the real estate agent.  In a civil lawsuit, a person who violates Section 8 may be liable to the person charged for the settlement service in an amount equal to three times the amount of the charge paid for the service.  In a criminal case, a person who violates Section 8 may be fined up to $10,000 and imprisoned for up to one year.

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.  Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

In addition to the Federal penalties, Florida law may also penalize real estate agents under these circumstances.  Pursuant to section 475.05, Florida Statutes, the Florida Real Estate Commission has the power to create rules, enact bylaws, and decide questions of practice regarding real estate agents.  One of the regulations enacted by FREC, pertaining to kickbacks, is Fla. Admin. Code R. 61J2-10.028 (2012), which states:

Any real estate licensee who receives, or makes any arrangement or agreement to receive, directly or indirectly, any kickback or rebate, for the placement of, or favor in, any business transaction which forms a part of, or is incident to, any transaction(s) negotiated or handled by said licensee, is a violation of Section 475.25(1)(b) or (d), Florida Statutes…unless prior to the time of the placement of, or favor in, said business transaction, the licensee shall have fully advised the principal if any and all affected parties in the transaction(s), which the licensee is handling, of all facts pertaining to the arrangement of kickbacks or rebates.

A violation of this regulation may result in any one or all of the following punitive measures: license suspension or revocation; probation; a fine of up to $5,000.00 per offense; or reprimand.  §475.25, Fla. Stat. (2012).

Due to the increasing crackdown on questionable real estate practices (especially in the foreclosure arena), real estate licensees and title companies would be well-advised to follow these laws closely.  Otherwise, a $100.00 gift card could result in license revocation, or worse.

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