Rebate schemes subject to RESPA scrutiny

Sometimes you just can't predict human nature.

My article on the "rebate" scheme that's going on through Fidelity’s TransactionPoint drew lots of comments. But here's the shocker: Many of these industry professionals seemed more upset over not being invited to participate in this scheme than the fact that this latest kickback arrangement is being looked at as a RESPA violation! Go figure.

Make no mistake - this investigation is deadly serious. In fact, it will likely result in all "reimbursements" being forfeited, along with hefty fines and lots of bad publicity about the offending brokerages. I can only conclude that there's a general lack of knowledge about how these investigations work. The prevailing attitude is that HUD cannot possibly have the time or personnel to investigate every brokerage in the state of California for RESPA violations regarding kickbacks.

That would be correct if this was how the investigations work. But they don't work that way.

Here's the way it really goes: Investigators visit the handful of settlement service providers that participate in these “reimbursement” schemes, then they go through their records to make a list of every brokerage that has received payments from these providers. Presto! HUD now has a list of all the brokerages that have participated in the scheme. Then they can go directly to the offending brokerages and spend months combing through all their records.

Needless to say, this process is unsettling. No one enjoys having every aspect of their business scrutinized by a government agency.

So those of you who haven't tapped into this kind of kickback arrangement should feel lucky. You won't have to give up your reimbursements, pay significant penalties and fork over hefty attorney fees. Perhaps most importantly, you won't be held up in the media as yet another example of a real estate company that's operating outside of acceptable practices.

Stay tuned for my next article which will discuss the options you may have if you are unfortunate enough to be involved in one of these schemes.