What if I paid you $100 for every referral??

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If I did pay you for your referrals, I would be breaking the law.  I would be in violation of the Real Estate Settlement and Procedures ACT (RESPA), which has the following to say about kickbacks, fee-splitting and unearned fees:

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan.  In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Does this mean that no one gives away gift certificates each time a new client is referred to them?  and that no one gives “marketing” dollars to builders in exchange for referrals?  or title companies to realtors in exchange for closings?  No.  It just means that there are probably [a lot of] people out there breaking the rules . . .  

Now, there is a lot of discussion about the difference between giving someone something of value in exchange for the referral of business and giving someone something of value in appreciation of the referral.  And while some people would take the very hard-line (like the woman that taught a RESPA class I attended), and say that even the exterminator man who brings doughnuts to the Realtor office each month is in violation of RESPA (because he is giving something of value in exchange for the hope of referrals).  I would probably lean more towards the idea that a small thank you (some people use a benchmark of $25) would not likely cause a RESPA-stir . . . not saying that I do that, though.

Other mortgage and real estate professionals lean (or rather run) to the very other side of the spectrum (off the spectrum actually) and flat-out break the rules.  I remember hearing about one mortgage professional who actually grouped his clients in different tiers based on the referrals he received from them and then had a marketing budget directed per tier for dinners, cruises, gift cards, etc.  Not surprising that his business was booming . . . also not surprising that the people pictured above were at the “top of their game” as well.

There is another mix of professionals who have invented and discovered ways to beat-the-system, so to say.  There are joint-ventures of builders and mortgage companies where fee sharing can take place because they “work” for the same company.  There are title companies formed between real estate firms and settlement agents for a similar purpose.  But, by far, the most interesting one that I have seen is the mortgage company who’s website roster of loan officers is almost completely full of Realtors.  I assume that in this scenario, a realtor refers their client to the mortgage company (or legally, they “help” the client get prequalified, complete the loan application, etc) and now the Realtor/Loan Officer can earn a commission for the referral . . . I mean, for their loan closing.

So what can you receive from me in exchange for the referral of business?

How about honest, timely mortgage advice; great, competitive interest rates and closing costs; and outstanding customer service!?!  But, aren’t those things “of value” as well???  : ) 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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