On June 25, 2010, we notified you about the National Association of Realtors asking the Department of Housing and Urban Development (HUD) for clarification on an unofficial staff interpretation HUD had issued on February 21, 2008 regarding Home Warranty Companies.
In that interpretation, HUD's Office of General Counsel opined that services performed by real estate brokers and agents on behalf of a home warranty company (HWC) are compensable as additional settlement services if the services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and allowed that the real estate broker or agent may accept a portion of the charge for the homeowner warranty only if the broker or agent provides services that are not nominal and for which there is not a duplicative charge.
HUD's Office of General Counsel published an Interpretive Rule which interprets Section 8 of the Real Estate Settlement Procedures Act (RESPA) and HUD's regulations as they apply to the compensation provided by home warranty companies to real estate brokers and agents. Generally, an interpretive rule is exempt from public comment, but HUD offered a comment period.
After reviewing the comments received, on November 23, 2010 HUD determined that changes are not needed to the interpretative rule.
An interpretive rule does not change existing law. It represents HUD's interpretation of its existing regulations.
Therefore, this interpretive rule does not constitute a change in HUD's interpretation of RESPA or the RESPA regulations, but is an "articulation" of HUD's interpretation of RESPA and the implementing regulations that specifically apply to home warranty company payments to real estate brokers and agents.
1) A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for referral under Section 8 of RESPA.
2) Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge.
3) The amount of compensation from the HWC that is permitted under Section 8 of RESPA for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business.
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HUD: RESPA - Home Warranty Companies' Payments to Real Estate Brokers and Agents, Interpretive Rule: Response to Public Comments, Questions and Answers
November 23, 2010
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