FINDER’S FEES, YSP’S &
RESPA
●
California Allows Payment of
Referral Fees to Unlicensed Finders
California
has a well-established body of law upholding payment of a finder’s fee by a
real estate broker to a non-licensed individual whose sole participation in the
loan process is finding a borrower. More
recent cases required that the finder’s agreement be in writing. The critical fact that allowed the unlicensed
finder to receive a fee was that the finder did not take part in any
negotiation, which would require a real estate broker’s license.
● RESPA Prohibits
Referral Fees on Certain Loans
RESPA was initially focused on preventing kickbacks by title
companies and other settlement providers.
As RESPA was amended, broadening its scope to include fees paid to
mortgage brokers, the kickback rules banned payment of a referral fee.
(See: 24 C.F.R. § 3500.14(b).) At present, a broker negotiating a “federally
related mortgage loan”
who wishes to legally compensate the person who brought the loan to the
brokerage, needs to demonstrate that the referring party actually provided
goods, services or facilities, and that the payment received was reasonably
related to the goods, services or facilities actually provided. Significant payments to a non-licensed “finder”
would be difficult to justify without including negotiation services requiring
a license, which would invalidate the finder’s fee.
● The Employee
Referral Fee Exception
RESPA permits “An employer’s payment to its own employees
for any referral activities.” (24 C.F.R. § 3500.14(g)(1)(viii).) However, the activities an unlicensed
employee may perform are limited, and such an employee must be subject to tax
withholding, unemployment and worker’s compensation insurance. (See:
10 C.C.R. § 2841.) The limits of
the employer payment exception are uncertain and the exception may not apply to
a licensed salesperson working on commission under the mortgage broker’s
license. Payment of a referral fee to a
salesperson working under another broker’s license is forbidden. (B & P Code § 10137.)
● YSP As A
Referral Fee
Payment of a Yield Spread Premium (YSP) or a servicing
release premium by a lender to a mortgage broker is frequently alleged to be an
illegal referral fee, especially where the YSP amount is calculated from a rate
sheet, rather than a listing of goods, services and facilities provided by the
broker. To be safe, and perhaps in
anticipation of adoption of some of HUD’s proposed RESPA rule changes, brokers
should endeavor to document the goods, services and facilities they provided and
the reduction in closing costs to the borrower which resulted from the interest
rate differential reflected in the YSP.
