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(a) General. An
affiliated business arrangement is defined in section 3(7) of RESPA
(12 U.S.C. 2602(7)).
(b) Violation and exemption. An affiliated business arrangement
is not a violation of section 8 of RESPA (12 U.S.C. 2607) and of Sec.
3500.14 if the conditions set forth in this section are satisfied.
Paragraph (b)(1) of this section shall not apply to the extent it is
inconsistent with section 8(c)(4)(A) of RESPA (12 U.S.C.
2607(c)(4)(A)).
(1) The person making each referral has provided to each person
whose business is referred a written disclosure, in the format of the
Affiliated Business Arrangement Disclosure Statement set forth in
appendix D of this part, of the nature of the relationship (explaining
the ownership and financial interest) between the provider of
settlement services (or business incident thereto) and the person
making the referral and of an estimated charge or range of charges
generally made by such provider (which describes the charge using the
same terminology, as far as practical, as section L of the HUD-1
settlement statement). The disclosures must be provided on a separate
piece of paper no later than the time of each referral or, if the
lender requires use of a particular provider, the time of loan
application, except that:
(i) Where a lender makes the referral to a borrower, the
condition contained in paragraph (b)(1) of this section may be
satisfied at the time that the good faith estimate or a statement
under Sec. 3500.7(d) is provided; and
(ii) Whenever an attorney or law firm requires a client to use a
particular title insurance agent, the attorney or law firm shall
provide the disclosures no later than the time the attorney or law
firm is engaged by the client. Failure to comply with the disclosure
requirements of this section may be overcome if the person making a
referral can prove by a preponderance of the evidence that procedures
reasonably adopted to result in compliance with these conditions have
been maintained and that any failure to comply with these conditions
was unintentional and the result of a bona fide error. An error of
legal judgment with respect to a person's obligations under RESPA is
not a bona fide error. Administrative and judicial interpretations of
section 130(c) of the Truth in Lending Act shall not be binding
interpretations of the preceding sentence or section 8(d)(3) of RESPA
(12 U.S.C. 2607(d)(3)).
(2) No person making a referral has required (as defined in Sec.
3500.2, ``required use'') any person to use any particular provider of
settlement services or business incident thereto, except if such
person is a lender, for requiring a buyer, borrower or seller to pay
for the services of an attorney, credit reporting agency, or real
estate appraiser chosen by the lender to represent the lender's
interest in a real estate transaction, or except if such person is an
attorney or law firm for arranging for issuance of a title insurance
policy for a client, directly as agent or through a separate corporate
title insurance agency that may be operated as an adjunct to the law
practice of the attorney or law firm, as part of representation of
that client in a real estate transaction.
(3) The only thing of value that is received from the
arrangement other than payments listed in Sec. 3500.14(g) is a return
on an ownership interest or franchise relationship.
(i) In an affiliated business arrangement:
(A) Bona fide dividends, and capital or equity distributions,
related to ownership interest or franchise relationship, between
entities in an affiliate relationship, are permissible; and
(B) Bona fide business loans, advances, and capital or equity
contributions between entities in an affiliate relationship (in any
direction), are not prohibited--so long as they are for ordinary
business purposes and are not fees for the referral of settlement
service business or unearned fees.
(ii) A return on an ownership interest does not include:
(A) Any payment which has as a basis of calculation no apparent
business motive other than distinguishing among recipients of payments
on the basis of the amount of their actual, estimated or anticipated
referrals;
(B) Any payment which varies according to the relative amount of
referrals by the different recipients of similar payments; or
(C) A payment based on an ownership, partnership or joint
venture share which has been adjusted on the basis of previous
relative referrals by recipients of similar payments.
(iii) Neither the mere labelling of a thing of value, nor the
fact that it may be calculated pursuant to a corporate or partnership
organizational document or a franchise agreement, will determine
whether it is a bona fide return on an ownership interest or franchise
relationship. Whether a thing of value is such a return will be
determined by analyzing facts and circumstances on a case by case
basis.
(iv) A return on franchise relationship may be a payment to or
from a franchisee but it does not include any payment which is not
based on the franchise agreement, nor any payment which varies
according to the number or amount of referrals by the franchisor or
franchisee or which is based on a franchise agreement which has been
adjusted on the basis of a previous number or amount of referrals by
the franchiser or franchisees. A franchise agreement may not be
constructed to insulate against kickbacks or referral fees.
(c) Definitions. As used in this section:
(1) Associate is defined in section 3(8) of RESPA (12 U.S.C.
2602(8)).
(2) Affiliate relationship means the relationship among business
entities where one entity has effective control over the other by
virtue of a partnership or other agreement or is under common control
with the other by a third entity or where an entity is a corporation
related to another corporation as parent to subsidiary by an identity
of stock ownership.
(3) Beneficial ownership means the effective ownership of an
interest in a provider of settlement services or the right to use and
control the ownership interest involved even though legal ownership or
title may be held in another person's name.
(4) Control, as used in the definitions of ``associate'' and
``affiliate relationship,'' means that a person:
(i) Is a general partner, officer, director, or employer of
another person;
(ii) Directly or indirectly or acting in concert with others, or
through one or more subsidiaries, owns, holds with power to vote, or
holds proxies representing, more than 20 percent of the voting
interests of another person;
(iii) Affirmatively influences in any manner the election of a
majority of the directors of another person; or
(iv) Has contributed more than 20 percent of the capital of the
other person.
(5) Direct ownership means the holding of legal title to an
interest in a provider of settlement service except where title is
being held for the beneficial owner.
(6) Franchise is defined in 16 CFR 436.2(a).
(7) Franchisor is defined in 16 CFR 436.2(c).
(8) Franchisee is defined in 16 CFR 436.2(d).
(9) Person who is in a position to refer settlement service
business means any real estate broker or agent, lender, mortgage
broker, builder or developer, attorney, title company, title agent, or
other person deriving a significant portion of his or her gross income
from providing settlement services.
(d) Recordkeeping. Any documents provided pursuant to this
section shall be retained for 5 years after the date of execution.
(e) Appendix B of this part. Illustrations in appendix B of
this part demonstrate some of the requirements of this section.
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