Are Real Estate Brokers Paying Illegal “Referral Fees” To Sub-Servicers In Violation Of The Real Estate Settlement & Procedures Act (RESPA)?
Earlier this month, I attended an Unlawful Detainer action in San Diego where U.S. Bank as Trustee was prosecuting the complaint as the Plaintiff. Objections were vigorously raised as to the lack of verification by U.S. Bank itself, and that it was really the servicer that retained and paid counsel to file the complaint. In spite of these objections, the Court made it clear that all the Plaintiff needed to do in order to prevail was to get the publicly recorded documents and servicing records into evidence, and if so, judgment would be granted to Plaintiff. So, who was going to attest to these records for purposes of getting them admitted into evidence?
In an attempt to expedite the trial, counsel for U.S. Bank (really, the servicer), made an “Offer of Proof” to the court by stating (paraphrasing), “Your Honor, Plaintiff intends to bring forth a witness tomorrow who is the document custodian of records for U.S. Bank right here in San Diego. Her name is Alice Greliak, and she will attest that all of the recorded documents, including the note, were retrieved from U.S. Bank’s records in the normal course of business.”
Upon hearing this, I did a little research on Ms. Greliak and found she was not a document custodian for U.S. Bank, but rather she works for Carrington RealEstate Services which is the listing broker service for the subject property:
Long story short, Greliak wound up high tailing it to Japan the next day and never did testify, nor did any “document custodian for U.S. Bank.” So why did a real estate agent intend to testify in a UD action posing as a document custodian for U.S. Bank? I can only deduce two things – money and greed.
For years now, I’ve suspected that real estate brokers and servicers were profiting handsomely in the foreclosure market, and that seedy back-room deals were being cut. Just how do the servicers go about picking and choosing real estate brokers? Why do some agencies seem to get all the business over others? Logically, there must be some sort of lucrative incentive offerred by the brokers. Whatever it is, it is difficult to prove. Most “under the table” transactions are, as they seldom can be traced without the aid of regulators and/or law enforcement, or the clumsiness of whatever attorney drafted the following MBS Settlement Agreement in the Countrywide / Bank of America debacle back in 2011 involving $8.5B. See:
https://www.sec.gov/Archives/edgar/data/70858/000119312511176452/dex992.htm
At the very bottom of this agreement is “Exhibit E” which provides a list of the following “Incentive Fees” paid to the sub-servicers of the mortgage loans in the 530 Countrywide Trusts:
Appearing in the tiny footnotes is the following language regarding a “referral fee” to be paid by real estate brokers to the sub-servicers:
| 3 | The short sale incentive fee will be reduced if the Subservicer is able to collect a referral or transaction management fee from the listing broker. |
| 4 | The REO incentive fee will be targeted at 1% of REO sale price, but will vary based on time to liquidation and the percent of market value received. Additionally, this fee will be reduced if the Subservicer is able to collect a referral or transaction management fee from the listing broker. |
Whoa Nellie! A “Referral Fee” paid to the sub-servicer by the real estate broker? This not only appears to be illegal under the Real Estate Settlement & Procedures Act (RESPA), it may be a first glimpse into what I suspect is a widespread practice in the industry. Granted, Servicers / sub-servicers are entitled to collect their rightful servicing fees, and the schedule provided above may look harmless. However, the collection of undisclosed fees from outside real estate brokers as a probable incentive to send business their way, or to have the brokers help off-set costs to the investors as a gratuity of sorts, clearly looks like a violation of RESPA.
- 1024.14 Prohibition against kickbacks and unearned fees.
(a) Section 8 violation. Any violation of this section is a violation of section 8 of RESPA (12 U.S.C. 2607).
(b) No referral fees. No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.
RESPA Protection Against Illegal Referral Fees
Penalties. It is a crime for someone to pay or receive an illegal referral fee. The penalty can be a fine, imprisonment or both. You may be entitled to recover three times the amount of the charge for any settlement service by bringing a private lawsuit. If you are successful, the court may also award you court costs and your attorney’s fees.
What is unclear in the Settlement Agreement’s “referral fee” language is just how much money is being kicked back from the brokers?
Example: If a broker charges a 6% fee on a $1,000,000.00 property, that’s $60,000.00 to play with and split with the sub-servicer. According to the fee schedule, the sub-servicer gets “.75%” of the unpaid principal balance for a payment plan or other workout ($7,500.00) and “1.5%” of the unpaid principal balance for a modification ($15,000.00).
I can almost hear the sub-servicer discussion with the broker. “If I modify this loan, I get $15,000.00. Are you willing to top that?” Maybe the reason you were denied that modification or workout was because some real estate broker was competing against you, and not because of any inability to qualify. It’s not that far-fetched. And when the servicer witness states in a deposition that he/she does not know who is entitled to the proceeds of the liquidated property, ask if they are getting any fee from the real estate broker circling like a vulture overhead.
Bill Paatalo Oregon Private Investigator – PSID#49411
BP Investigative Agency, LLC
Office: 1-(888)-582-0961
Leave a Reply