Supreme Court Rules Fee Split Required for RESPA Violation

From NAR Legal Affairs:

Resolving a circuit split in the manner urged by NAR, the Court rules that RESPA requires a fee split of a settlement-service fee for a §2607(b) violation.

In a case involving mortgage lending but which has direct application to real estate brokerage, the Supreme Court of the United States has determined that a violation of §2607(b) of the Real Estate Settlement Procedures Act (“RESPA”) only occurs when a split of a settlement-service fee paid by a consumer to a real estate settlement-service provider is split with a third party.

RESPA §2607(b) states that “[n]o person shall give and no person shall receive any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service [involving] a federally related mortgage loan”. “Real estate settlement services” are defined as covering all services connected to a real estate settlement, including real estate brokerage services.

Three married couples (collectively, “Consumers”) received mortgage loans from Quicken Loans, Inc. (“Lender”). The Consumers filed three separate lawsuits against the Lender, alleging that the Lender had charged fees for which no services were provided and therefore the fees violated RESPA. One such charge was labeled a “loan processing fee”, while another charge was a “loan discount fee”, even though it was alleged the Lender had not provided a discount. The Consumers did not allege that the Lender had split any of these fees with a third party.

The Lender argued that because it had not split its fees with any third parties there was no RESPA violation. The Consumers asserted that a 2001 policy statement issued by the United States Department of Housing and Urban Development (“HUD”) prohibited the collection of unearned fees for real estate settlement services and therefore any of the Lender’s charges where no services were provided violated RESPA. After the lawsuits were consolidated in federal court, the lower courts ruled in favor of the Lender and the Consumers appealed.

The Court affirmed the rulings of the lower court, resolving a split among federal circuit courts of appeal. Previously, some circuits had required a fee split with a third party in order for there to be a §2607(b) violation, while others had followed the HUD policy statement and prohibited unearned fees, even when a settlement-service fee was not split with a third party.

The Court rejected HUD’s policy statement and ruled that a §2607(b) violation requires the payment of a portion of a settlement-service fee by the party collecting the fee to a third party who performed no services in exchange for the fee. Looking at the plain language of §2607(b), the Court found that this section “unambiguously covers a settlement-service provider’s splitting a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.” Further, the Court stated that the language used by Congress in drafting §2607(b) describes two separate exchanges, where one party receives a settlement fee and then pays a portion of the fee to a third party. Without such payment to a third party, the Court determined that there is no violation of §2607(b).

The Court found the Consumer’s arguments unpersuasive. First, the Court declined to defer to HUD’s RESPA policy statement because HUD’s interpretation was inconsistent with the plain language of the statute. The Court also rejected the argument that the consumers were the ones making the prohibited payments when they paid settlement service providers unearned fees, as Congress could not have intended to make consumers potentially criminally liable when it banned both the payment and acceptance of certain types of payments.

Finally, the Court also stated that §2607(a) and §2607(b) contain separate prohibitions, rejecting the Consumers’ argument that the two sections must be read in conjunction with each other to ban unearned fees. Section 2607(a) broadly bans kickback arrangements in exchange for referrals of real estate settlement services, whereas §2607(b) covers arrangements dividing specific settlement service payments between two parties. Thus, the Court affirmed the rulings of the lower courts.

NAR filed an amicus curiae brief, arguing that a violation of §2607(b) occurs only when a real estate settlement service provider pays a portion of a settlement service fee to a third party who performs no services in exchange for the fee.

Freeman v. Quicken Loans, Inc., No. 10-1042 (U.S. May 24, 2012).

What the Freeman decision means for real estate brokerages

Suits alleging a violation of Section 8(b) of RESPA have been brought against real estate brokerages that charge consumers a flat fee in addition to a percentage-based commission. The first such suit, decided in 2009 in the case of Busby v. JRHBW Realty, Inc. d/b/a Realty South, sent shock waves through the brokerage community. In that case the court found that a fully disclosed administrative brokerage commission paid by a buyer violated Section 8(b) of RESPA because it was not sufficiently related to any specific service performed for the buyer’s benefit and could not be justified by the entire array of services provided to the buyer. In essence, the court found that a price increase violated RESPA merely because it was imposed as a flat fee added to a percentage-based commission as opposed to the brokerage simply charging a higher percentage-based commission. In spite of the fact that the ruling defied logic and was contrary to the language of the statute, other cases alleging the same violation soon followed, with equally troubling results. Today, in light of the unanimous Supreme Court ruling, such fees do not violate Section 8(b) of RESPA unless the broker who is paid the fee splits it and pays a portion of it to a third person outside of the brokerage firm who provides no services in exchange for the fee.

Today’s decision has no impact on any state laws that prohibit charging an administrative fee. Likewise, the decision does not in any way alter RESPA’s prohibition against the payment by a broker of anything of value in return for the referral of business to the brokerage.

Short message on the case from NAR President Moe Veissi.

Link to Supreme Court decision.

Link to this summary.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at

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  1. Bob Lamb

    So does this ruling mean that when an agency collects an “administrative fee or commission” in addition to a percentage, then uses that fee to partially or totally reimburse himself for a fee paid to a Franchisor, it is permissible?

  2. Robert Freedman

    Thanks for your note. We’re not in a position to answer that question, but you might put the question to an attorney at your state or local association. Sorry we copuldn’t be of more help.

  3. I’ve always felt that administrative fees – unless disclosed upfront- are no more than money grabs. If your price is higher than you advertise, you ought to say so at the beginning of the event. Imagine going into Safeway or Giant can having an additional price on your bill for “Safeway employees”. Same thing, isn’t it?

  4. Bob L. should understand that administrative fees and commissions collected by a broker (assuming that’s what he means by “an agency”) are eventually deposited into the general checking account where they gently commingle with all the other dollars resting there. Before long, a check drawing upon those commingled funds is mailed to the franchisor for all the month’s transactions. Other checks are drawn to pay the broker’s American Express statement, AT&T, and so on.

    Once such income has been earned and deposited, it is used as needed. That’s how the business works.

    The broker does NOT endorse and then forward to the franchisor any check marked “Administrative Fee” payable to the broker and received at the closing.

    Finally, I assume that Donald S. means rip-offs or scams when he uses the term “money grabs”. Frankly, I thought that — unless we work for zero commissions and no salaries or fees — we are all money-grabbers.

  5. Joe Scovel,

    The fees are UNEARNED ! Whether or not they are “split” with another party is immaterial to the public. It is an other example of a industry that is only in it for themselves. It’s bad enough that the client has to pay 6/7 % for somebody to open a door for a buyer. What if the commission was legislated to be limited to the equity alone? Why do realtors deserve 6% of the loan balance? THEY DON’T.
    Our industry is a money groveling industry. In Utah it takes 90 hours of study to sit for a Real Estate license. It takes 1000 hours to sit for a barber’s license. Get my drift. The NAR is intent with only one thing, COMMISSIONS ! IE their reasoning for the US to return to the VA non-qualifying loans of the past as a solution for the foreclosure mess which we as realtors helped bring about.What a joke! The NAR is unnecessary and wastes the “forced” memberships’ money.

  6. Eric

    If you ask me, brokerages should weight the option to use such “variable” menus of fee levels to cover the costs of advertising a house beyond the MLS, sign in yard and free web sites. Allow the consumer to choose what level of advertising they want to pay for beyond the MLS and the “norm” and charge that separately. This will weed out the listings that cost brokerages money and then expire when much of the extra advertising is often just window dressing anyway regarding the probability that it will increase the success of the marketing effort. But then I’m not a broker so what do I know. For resort or high end properties this would appear to come into play regularly. Frankly, if you want extra advertising above the norm, you should pay for it up front (brokers shouldn’t eat those costs unless the return is good on eating such costs – tough decision I’m sure).

  7. Ronald Hobot, Broker/REALTOR

    Thank you NAR. Now, repeal Dodd-Frank and let’s get our industry going again.

  8. Matthew DesMeules

    To add to Donald’s comment — the Supreme Court also reminded us (on the final page of its decision) that consumers STILL have remedies under state law for fraudulently charged “unearned” fees. While the Quicken Loans case addresses the consequences of “fee-splitting” unearned fees under RESPA, it also stands for the proposition that state courts will still enforce their own statutory consumer protections for “bogus” charges. Think 93A in MA. Brokerages still need to be weary of charging administrative fees with no connection or basis to value/service.

  9. Joe S. makes some interesting comments about both “Administrative Fees” and “Commissions”. I have heard these same comments many times over my 40 years in the real estate business. First, any fee charged by a real estate broker should be justified by that broker as part of his business model. That model might be straight commission, flat fee, or a combination of the two. Second, as far as the education required to get into the real estate industry, I agree that it is low. However, that is the minimum requirement. To be successful in the industry I would note that most agents or brokers would have to spend many more hours on educating themselves to become knowledgeable about the industry and their particular market. I know that the 1,000’s of hours of education that I have received over my career make me much more valuable to my clients than a brand new agent with only 90 hours of education. Much like most professionals, I let my clients know that they are not paying for my time but for my knowledge. As far as the necessity of NAR, I would hate to even contemplate where our industry would be right now without out the National Association of Realtors! Last time I looked there was no “forced” membership in NAR. If it is not valuable to you, you don’t have to be a member. Personally, I have found my membership to be extremely valuable over my career!

  10. Is is a violation of Section 8b of RESPA for the Salesperson to mark up the administrative fee and keep the difference? For example, the Broker charges $395 for an administrative fee, but the Salesperson charges $595 and keeps the extra $200.