The Real Estate Settlement Procedures Act or "RESPA."
A closing on a residential property is memorialized on a settlement statement. A settlement statement is basically a balance sheet of what is owed by the buyer and seller, payments and charges to and by both parties. Every payment in connection with the closing must be on the settlement statement and disclosed to all parties. The settlement statement and how it is prepared is governed by the Real Estate Settlement Procedures Act or "RESPA."
So, what if the listing or selling agent offers the buyer or seller a payment outside of the closing? Don’t do it. There aren't any exceptions to this rule. It is a violation of RESPA. If you are approached with this type of scenario, DECLINE to be a party to this type of payment outside of closing or "POC". It is normal to see seller concessions or repairs paid for by parties to the transaction, but there has to be an invoice to the title company and it must be itemized as a line item.
Affiliated Relationship Disclosures
Real estate professionals often have an affiliated relationship with a specific closing attorney or lender. This is legal and very common practice among real estate professionals and attorneys.
It is also imperative that the real estate professional provides an Affiliated Business Arrangement Disclosure, or ABAD, to the seller or buyer when a brokerage relationship is established. Without the ABAD executed by your client, affiliations can go from legal to illegal and the chance of liability for the agent goes up.
What about when a real estate professional sends you to an affiliated lender? Lenders are restricted from offering incentives to real estate professionals or brokers to send business their way. Unless the relationship is properly disclosed, this is another clear violation of RESPA guidelines. Affiliation relationships with lenders are included in the approved RMAA Affiliated Business Arrangement Disclosure. It can be found in RMAA Resources under Forms and More.
So, after all is said and done the perfect rule of thumb is to disclose every payment related to any real estate transaction to all parties and make sure it shows up on the settlement statement. Second, be certain to always get the approved ABAD signed at the time you enter any brokerage relationship. As always, when in doubt, disclose.
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