Alert July 27, 2010

HUD Publishes Interpretive Rule Concerning Marketing Fees Paid by Home Warranty Companies to Real Estate Brokers and Agents

HUD published an interpretive rule concerning whether transaction-based marketing fees paid by home warranty companies to real estate brokers and agents violates the anti-kickback provisions of Section 8 of the Real Estate Settlement Procedures Act. In the rule, HUD identifies certain arrangements that may indicate such payments are unlawful under RESPA. If the compensation that a real estate broker or agent receives from a home warranty company is contingent on an exclusive arrangement to provide services only to the home warranty company, HUD suggests that this compensation may be a prohibited referral fee. Also, if the home warranty company's payments to the real estate broker or agent are based on, or adjusted according to, the number of home warranties that are purchased as a result of the broker’s or agent’s referrals, this, too, may indicate a violation of RESPA. HUD, however, acknowledges that if payments are made for compensable services and the payments are reasonably related to the value of the services, the arrangement does not violate RESPA. The rule also clarifies HUD’s method of determining whether services are “actually performed” by the real estate broker or agent and whether the compensation is “reasonably related” to the value of the service provided. Click here for the rule.