Co-Marketing Tips for Following RESPA Rules

Have you given or accepted gifts from mortgage lenders, title companies, closing attorneys, or other settlement service providers? If those gifts are in exchange for referrals, then you’re breaking the law.

by Erica Christoffer

What’s a settlement service provider? What constitutes something of value? Does it count as a referral if it’s only done in writing?

A settlement service is a closing attorney, title company, real estate broker, or mortgage broker; that something of value could be money, discounts, catering, advertising, tips, and lease payments; and a transaction can be considered a referral even if it’s not in writing.

Loretta Salzano, founding partner of the Atlanta-based Franzen and Salzano law firm offers compliance tips on the Real Estate Settlement and Procedures Act (RESPA), specifically when it comes to co-marketing and advertising.

Section 8(c)(2) of RESPA includes an anti-kickback and referral fee prohibition, and if it’s violated, it’s considered a federal crime. “Of course, you can refer as long as it’s free, and you’re doing it because you think that person will do a bang-up job,” she says. “You can pay your own employees for referrals all day long.”

But if a settlement service provider gives you something of value, even as minimal as a cup of coffee, Salzano says, it should in no way be tied to a referral. “Don’t get cute and think because you don’t have a marketing service agreement, it’s OK. All you have to do is follow the money, so do it right,” she says. The same applies to social media—likes and testimonials could be considered things of value.

Real estate professionals can be paid for goods, facilities, or services provided as long as the price is reasonable and not based on referral business. You have to monitor whether the services are actually being performed. For example, if you’re being paid to put yard signs out for a fellow settlement provider, you must able to verify that the work is actually being done.

Tread carefully when an industry cohort asks for your endorsement or you list preferred partners or providers on your website, Salzano says. “Someone might dig into that to see what you’re getting from having that on your site.”

It’s permissible for settlement service providers to participate in your regular promotional events and educational activities, such as lunch and learns, education sessions, or trainings, as long as it’s not based or conditioned on referrals.

When it comes to joint advertising with a fellow settlement service provider, it’s allowed as long as each party pays its pro-rata share. A simple example would be a post card with each party’s information side by side, the cost of which would be split 50-50. But co-marketing online is trickier, Salzano says. If two parties have an ad on the same webpage, you have to come up with a sensible metric for those ad campaigns. “As long as you’re both displayed equally, even in an online video,” she says. “You have to be able to look a regulator in the face and explain this is what you’re doing and how you came up with that arrangement.”

Lastly, if you’re going to lease space in your office to a settlement service provider, make sure it’s actual space with finished floors, walls, desks, etc., and that it’s being used, Salzano says. Get comparables to ensure the rent you’re charging is fair market value, then put your documentation in a file. “If you own the building, you have to come up with the fair market rent. When a lender is paying you money as the building owner, you don’t want it to look like it’s them giving you money for referrals,” she says.