Real Estate Settlement Procedures Act

Key Takeaways

• The Real Estate Settlement Procedures Act is a federal consumer protection law codified at 12 USC 2601 and implemented by Regulation X at 12 CFR Part 1024, which the Consumer Financial Protection Bureau administers.
• Section 8(a) bars giving or accepting any fee, kickback, or thing of value under an agreement or understanding to refer settlement service business on a federally related mortgage loan.
• Section 8(b) bars splitting a settlement service charge with anyone who did not perform the work, which is the unearned fee prohibition.
• A Section 8 violation carries a fine of up to $10,000, imprisonment of up to one year, or both, plus civil liability equal to three times the charge paid for the settlement service.

What It Means

The Real Estate Settlement Procedures Act, known as RESPA, is the 1974 federal law governing how costs are disclosed and how money moves at a residential mortgage closing. It applies to federally related mortgage loans, which covers nearly every ordinary home loan. The Consumer Financial Protection Bureau writes and enforces the implementing rule, Regulation X, at 12 CFR Part 1024.

RESPA does two separate jobs. The first is disclosure. Borrowers must receive estimates of their settlement costs and information about who will service the loan, so they can see what they are paying and to whom. For ordinary loans the Loan Estimate and the Closing Disclosure now carry most of that load.

The second job is the one that reaches real estate licensees directly. Section 8 prohibits any Kickback and any unearned fee. A licensee cannot accept anything of value for steering a client to a particular lender, escrow company, or title insurer, and cannot take a share of a settlement charge for work the licensee did not perform. Regulation X defines a thing of value broadly, reaching discounts, salaries, commissions, duplicate payments, and franchise royalties, not just cash.

How It Works in Washington

Washington enforces the same principle through its own license law, and in places the state version bites harder than the federal one. RCW 18.85.361 lists the grounds for disciplinary action against a broker or managing broker. Subsection (20) makes it a violation to direct a transaction involving the licensee's principal to any lending institution for financing, or to any escrow company, in expectation of receiving a kickback or rebate, without first disclosing that expectation to the principal. Subsection (11) covers accepting any undisclosed commission, rebate, or direct profit on expenditures made for the principal. Subsection (10) covers charging or accepting compensation from more than one party in a transaction without first making full written disclosure to all interested parties.

Subsection (19) adds a structural rule that catches licensees who move here from other states. A Washington broker or managing broker may accept a commission or other valuable consideration for licensed activity only from the licensed real estate firm the broker is licensed with. A thank you check written directly to a broker by a lender or a title representative is a Washington license law problem before anyone reaches the federal analysis, and the two sets of consequences stack.

Example

Tessa is a broker in Vancouver, Washington. A loan officer at a local lender offers her $300 for every buyer she sends who closes a loan, paid to her directly by check. Over one year she refers nine buyers, seven of them close, and the lender writes her $2,100.

That arrangement violates RESPA Section 8(a), because the payments are a thing of value given under an understanding that settlement service business will be referred. Under 12 USC 2607(d), Tessa and the loan officer each face a fine of up to $10,000, imprisonment of up to one year, or both, and each buyer can recover three times the charge paid for the referred settlement service. The same facts break Washington law twice over: RCW 18.85.361(19), because Tessa took compensation for licensed activity from someone other than her firm, and RCW 18.85.361(20), because she steered clients to a lender expecting a rebate without telling them.

Change one fact and the analysis changes. If the lender instead paid Tessa $2,100 to build and staff a booth at a homebuyer fair, that would be payment for goods or facilities actually furnished or services actually performed, which 12 USC 2607(c)(2) expressly permits.

Common Mistakes and Exam Traps

• RESPA is not a disclosure statute only. The Section 8 ban on kickbacks and unearned fees is the part that disciplines real estate licensees, and it applies whether or not any disclosure was given.
• Disclosure does not cure a Section 8 problem. The payments 12 USC 2607(c) permits turn on whether goods or facilities were actually furnished or services actually performed, not on whether the arrangement was announced to anyone.
• RESPA is implemented by Regulation X. The Truth in Lending Act is implemented by Regulation Z. Swapping the two is the most common distractor on financing questions.
• Section 8 reaches referrals of settlement service business involving a federally related mortgage loan, so a true all cash purchase with no loan falls outside it. Washington license law under RCW 18.85.361 still applies to that transaction.