What HUD and RESPA Examine in an AfBA

Section 8 of RESPA, the Real Estate Settlement and Procedures Act, provides for three tests to determine whether an AfBA meets safe harbor rules. Does the Affiliated Business Arrangement:

disclose to the consumer at the time of the referral, and on a separate piece of paper, that there is an affiliated business arrangement;

make it clear to the consumer that they are not required to use the company that is referred;

make any payments as a result of this referral for actual services rendered, or as a legitimate return on ownership of the referred business?

These are very logical and clear instructions. If you are a real estate agent or broker, and you own a part or all of a title company, pay attention to them. You can refer the business, but clearly, on a separate piece of paper, disclose the fact to the consumer. Make sure that they know it is a referral and not a requirement that they use this title company.

Last, make sure that any payments made are reasonable and for actual services performed. On top of that, you can receive dividends or other legal ownership compensation from the title company. Just be sure that they are normal ownership distributions and not based on any reward for volume of referrals.

If you think you're home free from what you just read, there's more to consider. HUD didn't think that RESPA did a good enough job with the basic safe harbor rules. Read about the HUD 10 point Sham Business Test.