Nobody can be paid to send you to me

A mortgage involves a lot of people recommending each other. Your agent suggests a lender. The lender suggests a title company. The builder has someone in-house for everything.

It is reasonable to wonder how much of that is genuine recommendation and how much is an arrangement. There is a federal law on exactly this point, and knowing three things about it changes what you should expect — and gives you one useful question to ask.

The rule

The Real Estate Settlement Procedures Act, Section 8, says two things plainly.

Nobody may be paid for referring you. In the statute's words: "No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."

Nobody may take a cut of a fee they did not earn. No splitting a charge "other than for services actually performed."

So an agent cannot be paid by a lender for sending you. A lender cannot pay a builder for steering you. A title company cannot slip anyone a percentage for the introduction.

"Thing of value" is much broader than cash

This is the part that surprises people, including some in the industry. The regulation defines it expansively, and the list of examples is worth reading:

monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person's expenses, or reduction in credit against an existing obligation.

Below-market office rent. A free service. A trip. An unusually good deal on something unrelated. If it flows in exchange for referrals, it is covered.

There is a second half to this that closes the obvious defence. An "agreement or understanding" does not have to be a contract — the regulation says it "need not be written or verbalized but may be established by a practice, pattern or course of conduct." Nobody has to have signed anything, or even said it out loud.

What is allowed

Section 8 is not a ban on people doing business together. The exemptions matter:

• Payment for services actually performed, at a rate bearing a reasonable relationship to their market value. Real work, real pay.
• Affiliated business arrangements — a company referring you to one it owns — provided you get a written disclosure of the relationship, you are not required to use them, and the only money flowing back is a return on ownership rather than a per-referral payment.
• Cooperative brokerage between real estate agents, which is why a listing agent and a buyer's agent splitting a commission is ordinary.
• A lender giving you an incentive. This is the distinction people most often miss: Section 8 governs payments between providers for referrals. It does not stop a lender offering you a credit, a discount or a gift for doing business with them. Money moving toward the consumer is a different question from money moving between the people arranging the deal.

What it means for you, practically

A recommendation should be a recommendation. If your agent suggests a lender, that suggestion is supposed to reflect their judgement, not a payment. There are circumstances in which it reflects ownership instead — which is legal, but you are entitled to know.

You will receive an Affiliated Business Arrangement disclosure if you are referred to a company under common ownership. It has to tell you the nature of the relationship and that you are not required to use them. It is a real document with real content, not a formality.

You are almost never required to use anyone. Narrow exceptions exist — a lender may require a particular appraiser or attorney to represent the lender's own interests — but the default is that you may shop every service in the transaction.

The one question worth asking: "Do you have any financial relationship with the company you're recommending?" It is a fair question, the answer is disclosable, and how somebody responds to being asked tells you something regardless of the answer.

What it costs to get this wrong

Violations carry a fine of up to $10,000, up to a year in prison, or both.

And there is a provision that concerns you directly rather than the regulators: anyone who violates Section 8 is jointly and severally liable to the person charged for the settlement service in an amount equal to three times the charge paid. Treble damages, payable to you.

Why I am telling you this

Because it explains something about how I work that would otherwise sound like a boast.

When I recommend a title company, an agent, or an inspector, I am not paid for it and I am not permitted to be. When somebody sends a client to me, they receive nothing and may not. That is not a policy I adopted to seem trustworthy — it is the law, it applies to everyone, and anyone in this transaction telling you otherwise has a problem larger than your file.

What it does mean is that the recommendations you get are worth exactly what the person's judgement is worth. That is the right amount of weight to give them. Ask the question, read the disclosure, and shop the pieces you care about.

Related: the builder's lender question covers the same law from the other direction — when an incentive tied to using a particular lender is lawful, and the one line in the regulation that tells you what to check.

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This explains a consumer protection statute in general terms. It is not legal advice, and whether a particular arrangement complies with Section 8 is fact-specific. If you believe something in your transaction is improper, the CFPB takes complaints directly.

Sources: 12 U.S.C. § 2607 — Prohibition against kickbacks and unearned fees · Regulation X, 12 CFR § 1024.14 · 12 CFR § 1024.15 — affiliated business arrangements