How to Host a Realtor Party (and be RESPA Compliant)?
Here's what you need to know about hosting/sponsoring an event for real estate agents and how to avoid violating RESPA Section 8's prohibition on kickbacks.
Everybody's taking a close look at anything they pay to referral partners (realtors, builders, perhaps a bank that's not competitive in the mortgage space) to make sure they're not violating RESPA Section 8's prohibition on kickbacks. The CFPB has been very active here, see, for example, one case where the CFPB fined a lender $80,000 where it was paying too much for rental space to a bank that was referring the lender business (they were paying $1,350 for space where the market rent was $600-900). The CFPB found this inflated rental payment was a disguised payment for referrals of mortgage business.
RESPA Section 8 prohibits giving any "thing of value" (does not have to be cold hard cash) in exchange for the referral of mortgage-related business (this agreement can be express or implied).
So what if I want to host an event for a group of real estate agents? If this benefits them, does this mean I'm in trouble? No. If you're in the mortgage business, you can- and probably should- be hosting events for realtors. But here are some thoughts on how to do that safely and protect yourself and your employer.
Let's Have a Party!
Here's the situation. July 4th is coming up, and you want to have a party to build goodwill and celebrate the fact that this year hasn't been as bad as last. Naturally, you're going to invite realtors, perhaps title partners, and other people you do business with. There will be food, drinks, a raffle, music, etc. You are considering holding it at a restaurant with a view of the fireworks display over the bay.
The problem is that you also invited your compliance guy, from Spillane Consulting, and he's bringing along his buddy - a CFPB enforcement attorney.
Now you're thinking ... is this okay?? Well ... it depends. It can be! But you're definitely providing "things of value" to people you refer your mortgage business, so we at least have to think about how we're going to do this.
Two Ways to be Safe Here
In our July 4th example, there are two ways that this is going to be absolutely safe for you. If you can show either of these two situations, there won't be any RESPA Section 8 concerns.
1."Normal Promotional Activities"
The first way to be safe here is if you can classify this event as a "normal promotional activity" that does "not involve the defray of expenses that otherwise would be incurred by" attendees. This is an exception to the general rule. Despite the fact that you're giving "things of value" to referral partners, you're safe if this just counts as "normal promotional activities."
So at this party you should be giving out informational brochures, holding a presentation explaining your services, things like that. Sounds normal. And you're promoting yourself.
If you take a real estate agent out to lunch to introduce yourself and explain some of your product offerings, that likely falls into this safe category. But if instead you pay for a real estate agent to go out to dinner with her husband (without you!), that will not--how can you promote yourself without even being in the room?
Now let's say you have live music at the July 4th party. That's probably fine. But what if you offer Realtor CE credits from an instructor that you pay to attend the event? That's a different story because that defrays an expense your realtor attendees would otherwise have to incur! They don't need to pay for live music, but they do need CE training.
2.No Agreement (Implied or Express)
Even if your party isn't safe under #1 (above- as a normal promotional activity), your July 4 party can still be safe if you show that all "things of value" given (entertainment, food, etc.) were not given as part of an agreement for attendees to provide referrals.
Importantly, we're not talking about a signed and written contract for attendees to give you business in exchange for shrimp cocktails--you're going to have to prove that there was no implied agreement. Try explaining to a regulator that you gave a realtor Superbowl tickets and covered airfare because "we're just friends, it's got nothing to do with all the loans she refers to me."
So thinking about this for our July 4th party ...
If you only invite real estate agents that have referred you loans this year, that starts to look like an implied agreement. And if this was a "normal promotional activity" wouldn't you want to invite, say all real estate agents within a certain geographic area to meet new people? So you can make this a safer party simply by inviting more people: invite your compliance people, co- workers, and other people who don't actually refer you mortgage business! To get a feel for this, you're going to be in trouble if the invitation says "To anyone who has referred at least 5 loans to me so far in 2015."
This is not meant to deter anyone from these types of activities ... just to help share some information on how to work within the rules.
In other news:
"Loan Officer From Future Warns: "Stop Mortgaging Your Home at Only 1.65% of the Prime Rate!" - The Onion.
How to handle TRID? Title companies are encouraging their attorneys to sign up with Closing Insight, which has been opened up for registration, here is the press release
"This is the day... I take my life back." Rebekah Gregory, before going on to complete the 2015 Boston marathon two years after losing her leg in the 2013 bombings. Here's a nice write up on this inspiring woman.
Looks like the CFPB will continue to harp on mortgage lender advertising requirements ...
When working on a big project or facing an important decision, we spend time making plans, gathering information, getting opinions, and preparing. However, sometimes we spend so much time getting ready that when it comes time to make a decision, we are too hesitant to pull the trigger. Because we care about our reputation; we care about how we are viewed; we care so much we don't want to make the wrong decision so instead of taking action, we put it off. This avoidance can cause even bigger issues, after all what if you applied that philosophy to your personal life. Ray Davis compares avoiding a difficult decision to ignoring a leak in your roof in his book Leading
Through Uncertainty. If you noticed a leak before a week-long vacation, you could spend a couple of hours getting it fixed or you could decide to wait, go on vacation, and come home to extensive and very expensive water damage. Avoiding problems and decisions does not make them go away, in fact it often increases their magnitude. Sometimes we make the right decision and sometimes we make a blunder, but a decision is always better than avoidance. As Davis says, "I would rather our associates make an honest mistake they can learn a lesson from than delay, or entirely put off, making a decision because they're afraid that they might fail."
"Be willing to make decisions. That's the most important quality in a good leader. Don't fall victim to what I call the ready-aim-aim-aim- aim syndrome. You must be willing to fire."
- T. Boone Pickens (American Businessman)
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