With the labyrinthine regulations surrounding real estate, it’s understandable that agents don’t always know when they’ve crossed a line towards something illegal. It turns out, something as seemingly innocuous as steering clients towards a certain mortgage lender is actually considered a crime under the Real Estate Settlement Procedures Act (RESPA).
The Consumer Financial Protection Bureau (CFPB) regularly fines real estate brokerages and mortgage lenders for engaging in this practice. The purpose of the law is to avoid illegal kickback schemes that encourage real estate agents to push a given mortgage lender on their clients even if it isn’t the best deal.
Not all real estate agents engaging in this practice are being intentionally malicious towards their clients. They may simply be leveraging a relationship with a lender they know and trust. But doing so is a risk.
Recently, the CFPB has leveled major fines on real estate brokerages. Alongside paying back what the law marks as “ill-gotten gains,” successful prosecutions also tend to come with punitive civil penalties (often numbering in the tens of thousands, sometimes in the millions), depending on the severity of the case and the level of open malfeasance involved.
In some cases, the real estate agents themselves aren’t actually beneficiaries of kickbacks personally. The relationship is on a higher institutional level, and the brokerage lets their agents know which lender to steer clients towards.
This is why it’s a good idea to avoid any legal murkiness with mortgage lenders at all. The best way to protect yourself and avoid any unexpected fines is to let clients decide on the best mortgage for their needs. The CFPB are serious about busting illegal kickback schemes, even if the agents themselves weren’t familiar with the laws surrounding the practice.
Contact us for more information on RESPA violations and mortgage lending best practices.