(a) General. An affiliated business arrangement is defined in section
3(7) of RESPA (12 U.S.C. 2602(7)).
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(b) Violation and exemption. An affiliated
business arrangement is not a violation of section 8 of RESPA (12
U.S.C. 2607) and of section 1024.14 if the conditions set forth in
this section are satisfied. Paragraph (b)(1) of this section shall
not apply to the extent it is inconsistent with section 8(c)(4)(A)
of RESPA (12 U.S.C. 2607(c)(4)(A)).
(1) 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
set forth in Appendix D of this part, of the nature of the relationship
(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 (which describes the charge using
the same terminology, as far as practical, as section L of the HUD-1
settlement statement). 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 loan application,
except that:
(i) Where a lender makes the referral
to a borrower, the condition contained in paragraph (b)(1) of this
section may be satisfied at the time that the good faith estimate
or a statement under section 1024.7(d) is provided; and
(ii) Whenever an attorney
or law firm requires a client to use a particular title insurance
agent, the attorney or law firm shall provide the disclosures no later
than the time the attorney or law firm is engaged by the client.
(iii) Failure to comply
with the disclosure requirements of this section may be overcome if
the person making a referral can prove by a preponderance of the evidence
that procedures reasonably adopted to result in compliance with these
conditions have been maintained and that any failure to comply with
these conditions was unintentional and the result of a bona fide error. An error of legal judgment with respect to a person’s obligations
under RESPA is not a bona fide error. Administrative and judicial
interpretations of section 130(c) of the Truth in Lending Act shall
not be binding interpretations of the preceding sentence or section
8(d)(3) of RESPA (12 U.S.C. 2607(d)(3)).
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(2) No person making a referral has required
(as defined in section 1024.2, “required use”) 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.
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(3) The only thing of value that is received
from the arrangement other than payments listed in section 1024.14(g)
is a return on an ownership interest or franchise relationship.
(i) In an affiliated business arrangement:
(A) Bona fide dividends, and capital or equity distributions, related to ownership
interest or franchise relationship, between entities in an affiliate
relationship, are permissible; and
(B) Bona fide business loans, advances,
and capital or equity contributions between entities in an affiliate
relationship (in any direction), are not prohibited—so long as they
are for ordinary business purposes and are not fees for the referral
of settlement service business or unearned fees.
(ii) A return on an
ownership interest does not include:
(A) Any payment which has
as a basis of calculation no apparent business motive other than distinguishing
among recipients of payments on the basis of the amount of their actual,
estimated or anticipated referrals;
(B) Any payment which varies according to
the relative amount of referrals by the different recipients of similar
payments; or
(C) A payment
based on an ownership, partnership or joint venture share which has
been adjusted on the basis of previous relative referrals by recipients
of similar payments.
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(iii) Neither the mere labeling of a thing of value, nor the fact
that it may be calculated pursuant to a corporate or partnership organizational
document or a franchise agreement, will determine whether it is a bona fide return on an ownership interest or franchise relationship.
Whether a thing of value is such a return will be determined by analyzing
facts and circumstances on a case by case basis.
(iv) A return on franchise relationship may be a payment to or from
a franchisee but it does not include any payment which is not based
on the franchise agreement, nor any payment which varies according
to the number or amount of referrals by the franchisor or franchisee
or which is based on a franchise agreement which has been adjusted
on the basis of a previous number or amount of referrals by the franchiser
or franchisees. A franchise agreement may not be constructed to insulate
against kickbacks or referral fees.
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(c) Definitions. As used in this section:
Associate is defined in section 3(8) of RESPA
(12 U.S.C. 2602(8)).
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Affiliate relationship means
the relationship among business entities where one entity has effective
control over the other by virtue of a partnership or other agreement
or is under common control with the other by a third entity or where
an entity is a corporation related to another corporation as parent
to subsidiary by an identity of stock ownership.
Beneficial ownership means the effective ownership
of an interest in a provider of settlement services or the right to
use and control the ownership interest involved even though legal
ownership or title may be held in another person’s name.
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Control, as used in the definitions of “associate” and “affiliate
relationship,” means that a person:
(i) Is a general partner, officer, director,
or employer of another person;
(ii) Directly or indirectly or acting in
concert with others, or through one or more subsidiaries, owns, holds
with power to vote, or holds proxies representing, more than 20 percent
of the voting interests of another person;
(iii) Affirmatively influences in any manner
the election of a majority of the directors of another person; or
(iv) Has contributed
more than 20 percent of the capital of the other person.
Direct ownership means the
holding of legal title to an interest in a provider of settlement
service except where title is being held for the beneficial owner.
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Franchise is defined in FTC regulation 16 CFR
436.1(h).
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Franchisor is defined in FTC regulation 16
CFR 436.1(k).
Franchisee is defined in
FTC regulation 16 CFR 436.1(i).
FTC means the Federal Trade Commission.
Person who is in a position to refer settlement service
business means any real estate broker or agent, lender, mortgage
broker, builder or developer, attorney, title company, title agent,
or other person deriving a significant portion of his or her gross
income from providing settlement services.
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(d) Recordkeeping. Any documents provided
pursuant to this section shall be retained for 5 years after the date
of execution.
(e) Appendix
B of this part. Illustrations in Appendix B of this part demonstrate
some of the requirements of this section.
