December 15, 2010
The FHA requires those who do business with it to follow guidelines and regulations that protect both buyer and lender from unscrupulous practices. But FHA rules aren’t all. Congress passed the Real Estate Settlement Procedures Act to prevent the practice of kickbacks and unethical referrals.
According to the FHA official site, “RESPA was enacted because Congress felt that consumers needed protection from ‘… unnecessarily high settlement charges caused by certain abusive practices that have developed”…in some areas of the country.”
After RESPA passed in the 1970s, it became a crime for anyone to get compensation for referring business to a specific company or individual. But that’s not all–it’s also a crime to pay someone for services that haven’t actually been rendered.
But RESPA doesn’t forbid payments for services; any legitimate service which requires a fee is permitted under federal law. Those services can include property appraisal and inspections, attorney fees, contract work and Federal Express deliveries. The key in all cases is that money paid must result in services rendered.
The FHA advises consumers to act if someone is being paid if services are paid for but not being rendered. The legal consequences of violating RESPA laws in this area include fines and/or imprisonment. FHA guidance on this issue includes the following: “If a participant in your settlement appears to be taking a fee without having done any work, you should advise that person or company of the RESPA referral fee prohibitions. You may also speak with your attorney or complain to a regulator…you may be entitled to recover three times the amount of the charge for any settlement service by bringing a private lawsuit.”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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