Supreme Court Rules: Section 8 Doesn’t Regulate Fee Amounts

 

The United States Supreme Court just made it easier for real estate brokers to charge flat fees and generally test the market with different fees structures. In a unanimous decision in the case of Freeman v. Quicken Loans, Inc., No. 10-1042, slip op. at 1 (May 24, 2012), the U.S. Supreme Court confirmed that Section 8 of RESPA prohibits settlement service providers from: (a) sharing revenue or other benefits with referral sources; and (b) accepting benefits from making referrals to other settlement service providers. Section 8 of RESPA doesn’t regulate fees charged by settlement service providers, and therefore RESPA doesn’t prevent brokers from charging flat fees, on their own, or in addition to percentage commissions.

In order to violate Section 8 of RESPA, there needs to be three parties: (1) a consumer; (2) a settlement service provider; and (3) someone else who receives or sends a spiff for a referral. As long as a settlement service provider, such as a real estate broker, charges a fee and doesn’t tip the referring source, there is no violation of Section 8 of RESPA. (Of course, entrepreneurs get creative trying to disguise broker gratitude-that is another topic.)

Quicken Loans was a mortgage loan case and didn’t address the natural fee splitting that occurs within a real estate office, raising a mere smidgen of uncertainty about how the holding might apply to real estate brokerage firms. “Creative” plaintiffs’ lawyers may argue that Section 8 of RESPA still applies to fees shared among the different stakeholders within a real estate brokerage firm. Regardless, theQuicken Loans holding substantially reduces the risk for brokerage firms who charge flat fees. Essentially, the market place, not RESPA or the courts, is the check on keeping these fees reasonable.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN