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Referral Fees and Fee Splitting

Jonathan Foxx
Dec 30, 2015

Question: We have heard a lot recently about the prohibition against referral fees. Another subject that has come up also is how fee splitting is a violation, too. Please let us know the distinction between referral fees and fee splitting?

Both prohibitions against referral fees and fee splitting are set forth in Section 8(a) and Section 8(b), respectively, of the Real Estate Settlement Procedures Act (RESPA).

Let us define what a “referral” is in the context of RESPA. A referral includes any oral or written action directed to a person that has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for the settlement service or business incident thereto or pay a charge attributable in whole or in part to the settlement service or business.

A referral also occurs when a person paying for a settlement service or a business incident thereto is required to use a particular provider of a settlement service or business incident thereto. [24 CFR § 3500.14(f)]

RESPA provides that no person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. [24 CFR § 3500.14(b)] A referral of a settlement service is not a compensable service, except as provided in certain exemptions to Section 8.

With respect to fee splitting, RESPA provides that no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. [24 CFR § 3500.14(c)]

A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates the fee splitting provision. [24 CFR § 3500.14(c)]

To clarify further, the fee splittg prohibition bars all unearned fees, including, but not limited to, cases in which:

►Two or more persons split a finee for settlement services, any portion of which is unearned;

One settlement services provider marks up the cost of the services performed or goods provided by another settlement service provider without providing additional actual, necessary, and distinct services, goods, or facilities to justify the additional charge; or
One service provider charges the consumer a fee where no, nominal, or duplicative work is done, or the fee is in excess of the reasonable value of goods or facilities provided of the services actually performed [Statement of Policy 2001-1, Department of Housing and Urban Development, 66 FR 53052, 53059 (2001)] 

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, by e-mail at [email protected] or visit


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