The federal Real Estate Settlement Procedures Act (RESPA) includes an exception authorizing title company affiliated business and other joint venture arrangements, despite its prohibition on referral fee arrangements.

By sharing in profits from, and steering clients to, title companies in which they had ownership interest asjoint ventures, agents were in violation of this clause.

(a) Section 8 violation. Any violation of this section is a violation of section 8 of RESPA (12 U.S.C. 2607).

(b) No referral fees. No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.

(c) No split of charges except for actual services performed. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee.

(d) Thing of value. This term is broadly defined in section 3(2) of RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses, or reduction in credit against an existing obligation. The term “payment” is used throughout §§ 1024.14 and 1024.15 as synonymous with the giving or receiving of any “thing of value” and does not require transfer of money.

(e) Agreement or understanding. An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business.

Section 9 of the Real Estate Settlement and Procedures Act (RESPA) prohibits sellers from requiring buyers to use a specific title company as a condition of sale. This applies to all sellers, including private individuals, home builders, and lenders with REO properties. As Christopher Cook wrote in 2017 for Hawley Troxell;

“Section 9 prohibits a seller from both “directly or indirectly” conditioning the sale on buyer’s purchase of title insurance from a specific company. Sellers have tried to play the system by forcing the use of a particular title insurance company by claiming to pay for the insurance but then charging the buyer later in the transaction. “Directly or Indirectly” means transactions which result in the seller recovering the cost for the title insurance through some otherwise seemingly unrelated fee or charge risk violating Section 9. Keep in mind that although the buyer is essentially paying for everything as a result of purchasing the property, this alone is not generally recognized as enough to violate Section 9. As a rule of thumb, be cautious of transactions that appear to give with one hand and take away with the other.”

There are conditions under which sellers can dictate the use of title company, for instance a seller may, in most situations, condition the sale of property on the use of a particular title insurance company if the seller purchases and pays for the entire cost of title insurance (owner’s and lender’s policies).

In order for Section 9 to apply, the use of a particular title insurance company must be a true condition of sale. For example, as long as the seller does not say to the buyer, “you, buyer, must purchase title insurance from Company A or I will not sell you the property” there is unlikely a violation of Section 9. The fact that the buyer may be rewarded by using seller’s preferred title company, or penalized for not using seller’s preferred title company should not, in and of itself, violate Section 9. Several courts support this conclusion and have rejected certain arguments by buyers claiming “economic coercion.”

Ultimately, these situations can be fact specific requiring a case by case review.  

Sellers who expressly violate Section 9 are liable to buyers for three times the amount paid for title insurance. There is no way to ‘contract out’ of a RESPA Section 9 violation. Buyers who believe they have been the victim of a RESPA Section 9 violation can file a complaint with the U.S. Department of Housing and Urban Development.

We became aware of these joint venture schemes during a transaction in 2023, questioned their legality, and voiced concerns about conflicts of interest to our broker. We were told that as long as the arrangement was disclosed, it was apparently legal. Since that time, we have noticed an increase in agents steering buyers to preferred title companies in MLS agent remarks and offer instructions, which we believe is a RESPA violation.

The Isaacs Team LLC has included KVS Title on its list of suggested title companies since 2019 because of its outstanding service and quality product. While we have, at times, been able to negotiate discounts on title services for some transactions on behalf of our clients, we have never requested, or been recipients of profitsharing, kickbacks or other incentives for ourselves. We are not agent participants in any joint ventures with title companies, lenders or other service providers.

Our affiliated brokerage, Compass, Inc., acquired KVS Title for $78.6 million on February 24, 2021. The consideration included $52.2 million in cash and up to an additional $26.4 million of cash in connection with certain contingencies and compensation related arrangements.

Compass discloses its affiliated business relationship to all clients. Compass agents are not required to refer clients to KVS Title, nor is there any incentive provided by the brokerage to do so to our knowledge.

Compass is the #1 real estate brokerage in the nation and a leader in real estate technology.