What Is RESPA? Guide for Agents

Your first deal just closed. The loan officer drops off a $50 gift card with a sticky note: "Thanks! Send more buyers my way." It feels like a nice gesture. Under federal law, it might be a kickback.

The Real Estate Settlement Procedures Act (RESPA) is a federal law, passed in 1974, that governs closings on most home loans. It bans kickbacks and referral fees between settlement service providers, limits how much can be held in escrow, and requires clear cost disclosures. The Consumer Financial Protection Bureau enforces it. Criminal penalties for kickbacks reach $10,000 and 1 year in prison per violation under 12 U.S.C. 2607.

Most agents who break RESPA don't mean to. They just didn't know a small thank-you could count. The USRT RESPA Gut Check below gives you 4 questions to ask before you accept anything from a lender, title company, or other provider.

Common questions about RESPA

What is RESPA and who does it cover?

RESPA controls how the businesses in a home closing get paid and what cost information borrowers see before they sign. It applies whenever the closing involves a federally related mortgage loan.

That phrase sounds narrow. It isn't. A federally related mortgage loan is a first or second mortgage on a 1-to-4-unit home that has a federal tie. That tie can be a federally insured or regulated lender, FHA or VA backing, or a plan to sell the loan to Fannie Mae or Freddie Mac. Lenders that make more than $1 million a year in home loans count too. In practice, that's almost every home loan you'll see.

RESPA was signed in December 1974 and took effect on June 20, 1975, according to the National Association of Realtors. The detailed rules live in a regulation called Regulation X.

A settlement service is any service connected to a real estate closing. That includes loan origination, title and closing services, title insurance, surveys, inspections, appraisals, credit reports, and the work of attorneys, real estate agents, and mortgage brokers. So if you're an agent, RESPA covers you, even though you never touch the loan itself.

The law has 4 main jobs:

1. Ban kickbacks and referral fees between settlement service providers (Section 8).
2. Stop sellers from forcing a title company on buyers. Section 9 bars a seller from requiring the buyer to buy title insurance from a specific company as a condition of the sale. Title insurance covers the buyer if problems with the home's ownership history turn up later.
3. Limit escrow accounts, so lenders can't sit on more of a borrower's money than they need.
4. Require clear cost disclosures before closing.

What does RESPA Section 8 ban?

Section 8 bans giving or taking any fee, kickback, or "thing of value" in exchange for referring settlement service business on a federally related mortgage loan.

A kickback is a payment or perk given in return for sending someone business. And "thing of value" is a wide net. Cash counts. So do gift cards, trips, meals, credits, and free services.

The Consumer Financial Protection Bureau (CFPB) breaks a Section 8(a) violation into 4 parts:

1. A fee, kickback, or thing of value
2. Given under an agreement or understanding
3. In exchange for referrals
4. Tied to a settlement service on a federally related mortgage loan

Part 2 is where agents get caught. The agreement doesn't have to be on paper, or even said out loud. Under Regulation X, a pattern of behavior can be enough to prove one.

Example: A loan officer takes an agent to a steakhouse dinner every time the agent sends over a buyer. Nobody ever says "dinner for deals." But after the fifth referral and the fifth steak, the pattern does the talking.

Section 8(b) covers a different move: splitting a fee with someone who didn't do any work for it. Section 8(a) is about paying for the referral. Section 8(b) is about sharing a fee for nothing.

The CFPB doesn't hedge on the big-ticket perks. Pro sports tickets, trips, restaurant meals, and event sponsorships, or even a chance to win them in a drawing, violate Section 8(a) when they're handed out in exchange for referrals under an agreement.

Is a small gift from a lender OK under RESPA?

Not automatically. The CFPB says there's no small-gift exception. The dollar amount doesn't decide whether a gift is legal. What matters is whether it's tied to referrals or covers a cost you'd otherwise pay.

Lots of new agents believe a $25 gift card or a coffee "doesn't count." The CFPB's RESPA FAQs say otherwise: there is no exception to Section 8 based only on the value of a gift or promotion. A $5 latte and a $2,000 door prize get the same test.

Regulation X does allow normal promotional and educational activities. That's marketing aimed at people who could send business, like agents. It's allowed only when 2 things are true:

• It isn't tied to referrals.
• It doesn't pay for something the agent would otherwise pay for.

The CFPB's examples make this concrete. Office supplies printed with the title company's own name or logo are less likely to cover a cost you'd pay yourself. A free market-update seminar, open to the public and advertised to all local agents, is more likely to qualify. But a title company that waives your continuing education class fee after you send it a set number of deals likely falls outside the exception. Waiving that fee for every agent likely fails too, because it still covers a cost you'd otherwise pay.

How can you tell if a payment breaks RESPA?

Look at what the payment is for. The USRT RESPA Gut Check turns that into 4 quick questions to ask before you say yes to anything:

1. Would I get this if I sent them zero referrals? If not, walk away.
2. Does it pay for something I'd normally pay for myself? Covering your marketing costs, dues, or class fees is a red flag.
3. Did I do real work for this money, at a fair price? Pay for real services at market value is generally allowed. Pay for nothing is not.
4. Would I be fine with my client and broker seeing it? If you'd hide it, don't take it.

If any answer makes you pause, ask your broker first.

What payments are legal under RESPA?

RESPA isn't against agents getting paid. Section 8(c) allows payments for work actually done, pay to real employees, commission splits between agents, and affiliated business arrangements that follow the rules.

1. Pay for real services. A provider can pay you for work you actually do, as long as the pay matches what that work is worth on the market.
2. Employee pay. Salaries and bonuses paid to your own employees are allowed.
3. Co-op commissions. A cooperative brokerage fee, or co-op commission, is a commission split between real estate brokerages, like the listing side sharing with the buyer's side. These splits between real estate agents and brokers are allowed.
4. Affiliated business arrangements. An affiliated business arrangement (ABA) is when a business that refers clients, like a brokerage, also owns more than 1% of, or is affiliated with, another settlement provider, like a title or mortgage company. Under Regulation X, an ABA is legal only if 3 conditions are met:
   
   • The consumer gets a written disclosure of the relationship and estimated charges, on a separate page, no later than the referral.
   • The consumer isn't required to use the affiliate.
   • The owner earns only a return on their ownership, not payments that rise with how many referrals they send.

Example: Your brokerage owns part of a title company. You can still mention it to your buyer. Just hand over the disclosure when you make the referral, and make sure the buyer knows they're free to pick another title company.

What are the penalties for violating RESPA?

They're steep, and they hit both sides of the deal. A Section 8 kickback can bring a criminal fine up to $10,000 and up to 1 year in prison per violation, plus civil damages of 3 times the settlement charge.

Here's how the main penalties stack up.

The law says no person shall give a kickback and no person shall accept one. So the agent who took the gift card is on the hook, not only the lender who handed it out.

Example: A buyer pays $1,200 for title insurance. Later it turns out the title company was paying the buyer's agent for referrals. In a civil suit, the buyer can recover 3 times that charge, or $3,600.

State license laws can add more. In Texas, for example, the Texas Real Estate Commission can suspend or revoke the license of an agent who accepts, receives, or charges an undisclosed commission, rebate, or direct profit on money spent for a client.

How does RESPA limit escrow accounts?

An escrow account is money held by the loan servicer, the company that collects the monthly loan payments, to pay a homeowner's property taxes and insurance.

Servicers like to keep a little extra in that account in case a bill comes in higher than expected. That extra is the escrow cushion. Under Regulation X (12 CFR 1024.17), the cushion can't be more than 1/6 of the year's total escrow payments. That works out to about 2 months' worth.

Example: A homeowner's taxes and insurance add up to $6,000 a year. One-sixth of that is $1,000, so $1,000 is the most cushion the servicer can hold.

For a refresher on how escrow works during a deal, see our guide to what escrow is in real estate.

What disclosures does RESPA require at closing?

Two forms: a Loan Estimate within 3 business days after the loan application, and a Closing Disclosure at least 3 business days before closing. RESPA and the Truth in Lending Act require them together.

The rule behind both forms is the TILA-RESPA Integrated Disclosure rule, or TRID. For most mortgage applications taken on or after October 3, 2015, the Loan Estimate replaced the old Good Faith Estimate and the initial Truth-in-Lending disclosure. The Closing Disclosure replaced the HUD-1 settlement statement and the final Truth-in-Lending disclosure.

That 3-day rule matters for your timeline. If the Closing Disclosure goes out late, closing can slip, even if your buyer's movers are already booked. Our breakdown of closing costs vs. down payment shows what buyers will see on those forms.

What do you need to know about RESPA for the real estate exam?

Know 5 facts: what the acronym stands for, that it bans kickbacks and referral fees, that co-op commissions are allowed, the escrow cushion limit, and the 3-business-day disclosure timeline.

Add RESPA to your list of acronyms to know for the real estate exam, and see how it fits with other rules in our guide to real estate law.

Memory tricks

• Loan Estimate vs. Closing Disclosure: 3 after you apply, 3 before you close. The Loan Estimate comes early. The Closing Disclosure comes right before closing day.
• Escrow cushion: 1/6 of a year is 2 months. (12 months divided by 6 is 2.)
• Section 8 vs. Section 9: 8 is the kickback rule. 9 is the title insurance rule. Kickbacks come first, then the title company.

Try a sample question

A mortgage lender gives a real estate agent $200 for each buyer the agent refers. This payment is best described as:

• A. A cooperative brokerage fee
• B. A normal promotional activity
• C. A kickback prohibited by RESPA
• D. A fair marketing fee

Answer: C. The payment is tied to each referral, so it's a kickback under Section 8.

On the real exam, watch for trap answers like "fair compensation" or "marketing fee." If the money follows the referrals, it's a kickback.

The rule to remember

Paid for your work: fine. Paid for your referrals: kickback. Run the Gut Check every time someone offers you something, from a latte to a ski trip.

Want RESPA questions to feel easy on exam day? RESPA is one of several federal laws on the exam, and its questions love a "marketing fee" trap. Mix up a kickback and a legal payment, and it can cost you a question or two. The USRT Exam Prep package gives you unlimited practice exams, vocabulary flashcards, and video explainers so you can spot the kickback question in seconds. Start the Exam Prep package today.