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Affiliated Business Arrangement Exemption

Jonathan Foxx
Dec 22, 2014

Question: We are a builder that owns a mortgage company and a title company.Recently, we were told that we are exempt from the RESPA section 8 requirements. I do not want to violate RESPA and I would like a better understanding. Are relationships such as ours subject to being an affiliated business arrangement?

Answer: Actually, the relationship you describe is a classic case of an affiliated business arrangement, known by its most common acronym “ABA”. If you do not conform to the applicable RESPA guidelines for ABAs, your firm would be in violation of section 8. There are exemptions, but your ownership of a mortgage company and a title company does mandate compliance with the ABA requirements.

Specifically, there are three conditions for satisfying an exemption, if and only if certain requirements are implemented.

I will summarize these three conditions, cautioning you to consult with a regulatory compliance professional for guidance in satisfying all the requirements of these conditions. 

The following three conditions pertain to exemptions, such that, if implemented, the relationship between the parties to an ABA would not be viewed as violating RESPA:
►Disclosure: The person making each referral has provided to each person whose business is referred a written disclosure, in the format of the Affiliated Business Arrangement Disclosure Statement, which outlines the nature of the relationship (i.e., explaining the ownership and financial interest) between the provider of settlement services (or business incident thereto) and the person making the referral and of an estimated charge or range of charges generally made by such provider. The disclosures must be provided on a separate piece of paper no later than the time of each referral or, if the lender requires use of a particular provider, the time of the loan application.

Choice of Provider: No person making a referral has required any person to use any particular provider of settlement services (or business incident thereto), except if such person is a lender, for requiring a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest in a real estate transaction, or except if such person is an attorney or law firm for arranging for issuance of a title insurance policy for a client, directly as agent or through a separate corporate title insurance agency that may be operated as an adjunct to the law practice of the attorney or law firm, as part of representation of that client in a real estate transaction.

Thing of Value: The only thing of value that is received from the arrangement - other than payments specifically exempted in RESPA and Regulation X - is a return on an ownership interest or franchise relationship. [24 CFR § 3500.15(b)]

Jonathan Foxx is president and managing director of Lenders Compliance Group, Brokers Compliance Group, Servicers Compliance Group and Vendors Compliance Group, national companies devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted by phone at (516) 442-3456 or e-mail at [email protected]

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