Law & Ethics Knowledgebase

The Law & Ethics Knowledgebase is intended to provide our members with the resources and answers they need to conduct their business. No information provided herein constitutes legal advice, and NVAR encourages everyone to consult their own attorney.

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Frequently Asked Questions

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QUESTION: Let’s now turn our attention to pictures. It has become standard for MLS listings to include photos of the advertised property. How do you select your pictures, can you alter them, and what are the consequences of posting pictures on your MLS listing?

ANSWER: First, let’s address the issues surrounding the choice of pictures. If the pictures of the house reveal some of the problems with the property, is it permissible to “clean them up?” I believe that any time you make a material change to a photo that alters the physical condition of the property; you may be violating Article 12 of the Code of Ethics. Article 12 requires that Realtors® present a true picture in their advertising and real estate communications. As always, some scenarios will be clear code violations and others would get different results from different panels. An example of a clear violation would be to erase a visible crack in the foundation, or fill in a hole in the roof. But what about removing the dandelions in the grass, or removing a cloud in the sky? For these I would say that reasonable people could disagree.

Once the photos have been selected and you are about to post them on MRIS, other rules come into play. MRIS has a “Photo Upload Terms of Use” that you agree to every time you post a picture. Here is a summary of their rules:
(1) Photos and images are uploaded on a per listing basis and are not transferable to another listing.
(2) The photos and images are copyrighted by MRIS.
(3) You assert that you will not submit an image or photo that you do not have the right to assign to MRIS.

Finally, other articles, such as Article 2 (misrepresentation or concealment of pertinent facts about a property) and 10 (prohibits discrimination based on race, color, religion, sex, handicap, familial status or national origin), also impact how social media can be used by Realtors®. Agents should also familiarize themselves with those Articles.

Editor’s Note: Michelle Yam of MRIS provided the summary of the Photo Upload Terms of Use.

QUESTION: Can I enter a listing in the Metropolitan Regional Information Systems, Inc. (MRIS) that offers zero compensation to cooperating brokers?

ANSWER: MRIS is a regional multiple listing system. The distinguishing characteristic of a multiple listing system is that it serves as a marketplace for competing real estate brokers to offer cooperative compensation to their competitors if those brokers are able to procure a buyer for the listing. Without the offer of cooperative compensation between competing brokers you lose the distinguishing feature that differentiates an advertising mechanism like a postcard mailing, classified advertisement in a newspaper, or a FSBO Web site from a multiple listing system.
MRIS will only accept three types of listings as eligible for inclusion in their system. All three types involve listings in which the seller has authorized the listing broker to offer cooperation and compensation to other competing brokers. While the seller must authorize the offer of compensation, it is the broker entering the listing in MRIS who ultimately is held responsible for paying the cooperating broker who procures the buyer. When a listing agent enters zero compensation in the listing, he or she is using the MLS in a way that defeats its purpose. In other words, if you offer zero you are really offering nothing.

The language in “Listings Accepted” and “Definitions” presumes that the listing company is offering something of value in order to be eligible for inclusion in MRIS.

There is nothing wrong with taking a listing that offers zero compensation to cooperative brokers. A seller is under no obligation to authorize a listing broker to pay cooperative compensation to other brokers. Such listings are often referred to as private exclusives or office exclusives.

However, MRIS does not accept such listings because they are in the business of helping brokers extend offers of cooperation and compensation to competing brokers. This is reflected in Article XI, Section 4 Exempted and Office Exclusive Listings B where it states “Office Exclusive Listing - Listing where the offer of cooperation and compensation is not made to other brokers. These listings may not be entered into MRIS.”

If a specific listing is not offering compensation, it can be advertised through other means (newspaper advertisements, flyers, Web sites, etc.) but does not fulfill the criteria for listings that MRIS agrees to accept.


Under what circumstances is a manufactured [mobile] home a “vehicle” versus “real estate?” When may it be listed for sale or lease in the MLS?


If a manufactured [mobile] home has wheels and/or other equipment used for mobility, it is considered to be a vehicle, and therefore personal property, and should accordingly be titled through the Virginia Department of Motor Vehicles. A Virginia real estate license does not authorize the licensee to assist clients in buying/selling/leasing manufactured [mobile] homes as personal property.

A manufactured [mobile] home is considered to be real estate if: (i) its wheels and/or other equipment used for mobility have been removed; (ii) it has been attached to real estate; and (iii) the vehicle title has been cancelled via surrender to the Virginia Department of Motor Vehicles. See DMV Guidelines: Pursuant to Virginia Code §46.2-653, once the manufactured [mobile] home has been converted to real estate, then it can only be sold as real estate is sold. As Virginia real estate agents are licensed to assist clients in buying/selling/leasing real estate, they are therefore able to assist clients with buying/selling/leasing manufactured [mobile] homes that have effectively been converted from personal property to real property.

In addition to determining whether the structure is a vehicle or real estate, it is also important for the agent to determine if the underlying land is owned by the owner of the manufactured [mobile] home, or if it is leased from the landowner. If the owner of a manufactured [mobile] home which has been effectively converted to real estate also owns the underlying land, then that owner may list the land and improvements for lease/sale just as they would any other improved real estate. If the owner of a manufactured [mobile] home which has been effectively converted to real estate does not own the underlying land, then that owner only has the right to sell the structure, and would only be able to negotiate a transfer of the lease of the underlying land as allowed by the home owner’s specific lease agreement.

Accordingly, if a manufactured [mobile] home is a vehicle with wheels and/or other equipment used for mobility intact, it may be transferred only as a vehicle, which is personal property, and which may not be listed for sale/lease through the MLS. If a manufactured [mobile] home has been effectively converted to real property, it may be listed for sale/lease through the MLS. Note that the listing agent will need to be clear in the listing whether the underlying land is included in the sale/lease.


Editor’s Note: This information was provided with input from NVAR’s Attorney Roundtable, a group of NVAR attorney members who meet bimonthly to discuss legal issues that affect Realtors®. For more information, contact NVAR General Counsel, Sarah Louppe Petcher at This email address is being protected from spambots. You need JavaScript enabled to view it. .


Myth: It is illegal to rebate your commission.
Fact: There are some limited legal ways to rebate a portion of your commission.

By Marcus Simon, attorney

Many buyer agents have begun to offer to credit a portion of the real estate commission to their clients. It is not illegal for an agent to offer to pay money to a purchaser as an inducement to have them sign an exclusive agency agreement. However, this practice can lead to other problems for both purchasers and their agents further down the road, particularly at settlement.

Anytime a purchaser expects to receive a cash credit at closing, it is essential that they make their lender aware of the amount and nature of the credit as soon as possible. The lender will need to adjust the financing appropriately. Failure to do so can easily result in the lender disallowing the payment to the purchaser and possibly causing the entire transaction to unravel.

Commission credits can be accounted for correctly in a number of the ways on the HUD-1 settlement statement:

1) The seller may give the purchaser a credit at closing and reduce the commission paid by that same amount. The listing broker and/or agent must agree to this, however, as the broker is party to the listing agreement, which is a contractual arrangement between the seller and the broker. The seller may not be able to alter the commission amount or split on his or her own initiative.

2) If the listing broker or agent objects to a reduction in the commission paid, the selling agent may collect the full commission on page two of the settlement statement, then show it as a credit to the seller on page one. The seller then credits the same amount to the buyer.

3) A third method, which doesn't involve the seller at all, is to simply show a credit from the selling agent to the buyer on the buyer's side of the settlement statement.

Solutions two and three are problematic as they may create an issue under Virginia's Wet Settlements Act. Virginia law requires that all funds be received by the settlement company prior to recordation, and that no funds, including commissions, be disbursed until after the title documents have been recorded. If a commission credit is being used as part of the down payment, then arguably not all of the funds required to settle are available until the commission is actually disbursed.

The biggest problem with all three of these scenarios, however, is that the lender often is not willing to allow cash credits at closing. Most lenders will not allow any escrows, and may limit cash credits to the amount of closing costs actually incurred. Some loan programs do not allow for any closing cost credit. Third party credits, which include a credit from the real estate agent at closing, are often forbidden as well. Underwriters may treat the credit to the purchaser as a reduction in the sales price, affecting the loan to value ratios. Lenders have strict requirements regarding the source of funds of the down payment and the purchaser cash contribution at closing.

In order to make clients happy and "save" the transaction, there may be pressure brought on the settlement agent or the real estate agents to manipulate the numbers on the HUD-1. A real estate agent should be very wary of these schemes and avoid being made a party to loan fraud. It is important that the HUD-1 settlement statement accurately reflect the entire transaction.

KICKBACK: An offer to pay a third party to win a client's business.
Example: A lender pays $1 to an agent in exchange for the agent referring the buyer to the lender.

Is it legal? A kickback is viewed as increasing the costs to consumers without providing anything of value. In certain circumstances, such as those covered under the Real Estate Settlement Protection Act, a kickback may be illegal.

REBATE: An offer to return part of a payment to a client to induce the client to use the firm's services.
Example: A real estate firm offers to give back $1 of its commission to a client in exchange for the client using the firm's services to purchase a property.

Is it legal? The offering of a rebate is generally viewed as a legal and ethical part of negotiating compensation. State and Federal regulators have taken the position that such rebates ultimately reduce the cost to consumers. Any attempt to prohibit, restrict or discourage the negotiation of commission is considered an illegal restraint of trade under established antitrust law.

By Lawrence E. "Lem" Marshall, Esq., Counsel to Virginia Association of REALTORS®

Most REALTORS® are aware of the anti-kickback provisions of the Real Estate Settlement Procedures Act. "No man shall giveth, Yea, neither shall he receiveth, any thing of value pursuant to any covenant under the heavens that calleth for referrals of settlement services." Book of RESPA 8:4.
This well-known proverb articulates the received wisdom of Congress that referral fees unnecessarily add to the cost of settlements, and thus make housing less affordable for everyone.

The essence of Section 8 of RESPA seems to be that while the business expense of a targeted and highly effective referral fee paid by a lender to a referral source must be recovered by the lender in the form of higher loan costs, the highly inefficient advertising that replaces the referral source does not. However, we have to live with the RESPA prohibition against paid referrals as valueless acts that serve only to drive up costs.

Paying for Services (other than referrals)
RESPA acknowledges that it is legal to be paid for services actually performed, up to the value of the services, if the services are not referrals (which by definition have no value).

Because RESPA permits service providers to pay for service actually performed, some have tried - with varying degrees of success - to skirt RESPA by paying more than the service is worth, or for duplicative efforts, or even for only nominal - or no - service. These "disguised" referral fees are illegal and much despised by HUD.

Joint Ventures
It is legal to refer business to an entity of which you are an owner, as long as your compensation is based on your profit from the entity and not linked to the referral per se. And thereon hangs an interesting tale.

Lenders and other settlement service providers long ago discovered that offering a piece of the pie to sources of referrals made good business sense. Thus we have seen a proliferation of real estate broker-lender, lender-title company, broker-settlement agency joint ventures over the years. These couplings make great sense and afford the participants incentives to refer business to the joint venture partner. This type of relationship does not violate RESPA if the benefit accruing to the referral source is strictly according to ownership interest in the benefited entity, and the consumer to whom a referral is made is given the RESPA Miranda warning - basically that the person making the referral may benefit from it, that the service will cost a certain amount, and that the consumer might find the service cheaper elsewhere. These relationships are legal and ethical and can be quite beneficial.

Hiring Referral Sources as Employees
That brings us to a more recent phenomenon, the efforts of some mortgage brokers and lenders to avoid the strictures of RESPA by hiring referral sources as employees and paying them for work they do as employees. Of course, much or all of that work will be for clients referred by the employee, but if the employer/employee relationship is bona fide, and the salary is for - and commensurate with - services actually performed, the relationship can be legal. It's likely that HUD will apply something like the IRS test to determine whether the employee really is an employee, and virtually everyone acknowledges that merely giving the "employee" a W-2 and calling her an employee will not be enough.

Virginia Law
We also need to be aware of another limitation imposed by Virginia law even when the labyrinth of RESPA has been negotiated. The Virginia Mortgage Lender and Broker Act provides in Section 6.1-422 that a person may not receive a fee as a mortgage broker and a real estate broker for services performed in the same transaction unless the person was licensed and regularly engaged in mortgage brokerage in Virginia as of February 1989. This resolution of a turf battle between mortgage and real estate brokers was weakened by a provision permitting real estate brokers (but not salespersons) who are owners of a real estate firm to own an interest in a mortgage brokerage and to profit from such investment and be compensated for services actually performed for those entities. But the prohibition on dual brokerage fees to non-grandfathered persons persists.

In Summary...
These are only a few examples from the veritable patchwork quilt of efforts to overcome RESPA's prohibition on referral fees. Perhaps what REALTORS®need most to be aware of is that HUD approaches what it sees as RESPA violations with a fervent zeal displayed few other places. If you are looking for a way to receive a fee for referring settlement business, look for another way to make a buck. If you're willing to work legitimately for a service provider and get paid for the value of what you do - and no more - there are opportunities out there awaiting you. Be wary of the "easy" ways around RESPA, and don't forget the limitations on real estate brokers and salespersons imposed by the Mortgage Lender and Broker Act.

And blest be he who maketh not the unclean referral, for he shall know salvation, even though he profiteth not, and loseth his shirt, and his donkey.

Part 2 of 2

In our last Reality Check quiz, we looked at the general provisions of RESPA, the Real Estate Settlement Procedures Act. You now know that RESPA rules cover residential transactions and settlement services that occur prior to closing.

With that under your belt, we'll now turn to RESPA's Section 8, which covers in-house settlement services and referrals. Confusion over this section results in a majority of RESPA violations, so choose your answers carefully!

QUESTION: Two companies that provide settlement services and have some degree of common ownership are considered affiliated businesses under RESPA. When there is a referral from one of these companies to the other, RESPA requires that the customer receive an affiliated business disclosure that contains specific information, including:
A. A statement that use of referred service is not required
B. Names of other providers of the same service
C. A statement that the property is pest-free
D. The commission is being paid by the property seller.

ANSWER: (A.) A statement that use of referred service is not required

The disclosure must state the existence of an affiliated business arrangement between you and the company to which you are referring your clients. As part of the disclosure, your clients must be provided a written estimate of the charge or range of charges made by the company to which the clients are being referred and information that makes clear that your clients are not required to use that company.

QUESTION: The affiliated business provision, which is an exception to the general RESPA rule regarding compensation for referrals, allows:
A. The real estate professional making the referral to receive a small referral fee
B. The party making the referral to receive a return on its ownership interest in the company receiving the referral
C. The buyer to avoid having to pay real property transfer tax
D. The seller to require buyers to use the seller's attorney.

ANSWER: (B.) The party making the referral to receive a return on its ownership interest in the company receiving the referral

The only thing of value that can be received from an affiliated business arrangement, other than the payments permitted under other subsections of Section 8 of the Act, is a return on the ownership interest. These payments cannot vary based on the volume of referrals to the joint venture company.

The affiliated business must be a bona fide, stand alone business with sufficient capital, employees, and separate office space, and must perform core services associated with that industry.

QUESTION: To combat higher costs in real estate transactions, Section 8 of RESPA makes it a criminal act for settlement service providers to pay fees for the referral of business. One exception to this rule allows a real estate professional to pay a referral fee to:
A. A mortgage broker who refers a buyer who has been pre-approved
B. A previous customer who refers a neighbor
C. Another licensed real estate broker who refers a buyer from another part of the country
D. A relative who overhears a customer saying he or she is moving.

ANSWER: (C.) Another licensed real estate broker who refers a buyer from another part of the country

Section 8(c) of RESPA includes an exception to the general prohibition on the payment of referral fees for payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate salespeople and brokers.

QUESTION: Another exception to the RESPA rules contained in Section 8 allows real estate professionals to receive compensation for:
A. Filling out a mortgage application
B. Telling the home inspector the address of the property to be inspected
C. The reasonable value of goods and services actually provided or performed
D. Doing the same thing they have been paid to do as a real estate professional.

ANSWER: (C.) The reasonable value of goods and services actually provided or performed

Section 8(c) of RESPA states that nothing in the section prohibiting the payment of referral fees shall be construed as prohibiting the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed. Payments may not be tied to the success of the real estate broker/agent's efforts (transactionally based), but must be a flat fee that represents fair market value.

The amount paid to a real estate broker or agent must be commensurate with the value of those goods and services. If the payment exceeds market value, the excess will be considered a kickback and violates RESPA.

The state of Virginia imposes an additional limitation on the receipt of transaction fees. Under the Virginia Mortgage Lender and Broker Act, a person may not receive a fee as both a mortgage broker and a real estate broker in the same transaction unless that person was licensed and regularly engaged as a mortgage broker in the state prior to February 1989.

QUESTION: RESPA allows title companies to provide real estate professionals:

  1. $50 for every client referred to the title company by the real estate professional
  2. An entry in a contest to win a car for every $1,000 in premiums paid by the real estate professional's clients
  3. Tickets to a baseball game once a week for the entire season.
  4. Notepads that have been imprinted with the title company's name and phone number.

ANSWER: (#4 is the correct answer!) Notepads that have been imprinted with the title company's name and phone number
The RESPA provision prohibiting the payment of a referral fee does not include normal educational and marketing activities that are not contingent on the referral of business. These activities must not defray the expenses that the real estate broker/agent otherwise would have had to pay and cannot be in exchange for or tied in any way to referrals.

Since the notepads were not contingent on the referral of business and are typical marketing materials for a title company, they are not prohibited.

Remember, HUD is stepping up its RESPA enforcement, and has made it clear that ignorance of the law will not be a defense. The anti-kick-back provisions in section 8 of RESPA may result in a fine of up to $10,000, up to one year in prison, or both. REALTORS®should speak with an attorney familiar with RESPA to ensure that their activities comply not only with federal regulations, but also with applicable state and local settlement laws.

For more information on RESPA compliance, please contact Mike Thiel in NAR's Legal Department at 312-329-8373 or MThiel@Realtors®.org.

Most people, including REALTORS®, would jump at the chance for free sporting event tickets or a restaurant gift certificate. But if those items are from a settlement service provider, agents must be careful in accepting the gift.

The reason lies in the Real Estate Settlement Procedures Act (RESPA). Passed in 1974, the Act sought to address abusive practices, such as referral fees between settlement service providers, that increased costs to homebuyers.

Recently, HUD has stepped up its RESPA enforcement, and has made it clear that ignorance of the law is not a defense for committing a violation. Such violations should be taken seriously by REALTORS®¨: the anti-kick-back provisions in section 8 of RESPA may result in both criminal and substantial civil penalties.

Even though the law has been in place for 30 years, there still is a great deal of uncertainty over which fees are permitted and which are prohibited. To ensure that you are complying with the provisions of the Act, take the following RESPA Reality Check quiz to test your knowledge on settlements and fees.

QUESTION: Which of the following is NOT a settlement service that is covered by RESPA?
A. Mortgage loan origination
B. Furniture moving
C. Real estate brokerage services
D. Lender's credit report

ANSWER: (B.) Furniture moving

"Settlement services" relate to the federally-related mortgages covered under RESPA. Services that occur at or prior to the purchase of a home are typically considered settlement services. These services include title insurance, mortgage loans, appraisals, abstracts, and home inspections. Services that occur after closing, such as moving, generally are not considered settlement services.

QUESTION: Under RESPA, what may a real estate professional give to a colleague who refers real estate settlement service business?
A. A thank you
B. A thing of value
C. A kickback
D. A fee

ANSWER: (A.) A thank you

RESPA prohibits any person from giving or receiving a fee, kickback, or "a thing of value" for referring business to a settlement service provider, or SSP, such as a mortgage banker, mortgage broker, title company, or title agent. Saying thank you is not considered a thing of value for purposes of the Act.

QUESTION: RESPA rules do NOT cover this type of transaction:
A. Purchase of a small warehouse financed with a Small Business Administration loan
B. Purchase of a condominium with a Federal Housing Administration mortgage
C. Purchase of a single-family home with a Veteran's Administration loan
D. Purchase of a two-flat that the owners plan to live in and rent out the other unit financed with a conventional loan

ANSWER: (A.) Purchase of a small warehouse financed with a Small Business Administration loan

RESPA's coverage is limited to transactions involving a federally-related mortgage with a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of one to four families. This includes any loan that is used to prepay or pay off an existing loan secured by the same property. Properties used for business purposes are not covered by RESPA.

QUESTION: The penalty for illegally giving or receiving a kickback, which is covered in Section 8 of RESPA, is:
A. Up to 90 hours of community service
B. Loss of real estate license
C. Requirement to attend a RESPA education program
D. A fine of up to $10,000 or up to one year in prison, or both

ANSWER: (D.) A fine of up to $10,000 or up to one year in prison, or both.

Before undertaking any activity with a settlement service provider or accepting any payments, goods, or services from a provider, NAR recommends speaking with an attorney familiar with RESPA and making sure that the activity complies with state and local laws. Some of these laws prohibit activities that are otherwise permissible under RESPA.

When are perks and gifts considered kickbacks? What about the in-house settlement services that my brokerage provides? We'll dive into RESPA's Section 8 in our second half of the RESPA Reality Check. Look for part two in our next issue of Update.

For more information on RESPA compliance, please contact Mike Thiel in NAR's Legal Department at 312/329-8373 or MThiel@REALTORS®.org.

Question: I represent the buyer in a transaction. The preliminary HUD sheet indicates a lower amount of commission than what I had calculated based on the gross sales price of the house. I call the settlement agent who informs me that the commission is to be paid on the net sales price. I review the short listing in the MLS and find no indication that commission is to be paid on the net sales price. What is a net sales price? Where is it indicated on the MLS listing?

Answer: The MRIS rules and regulations state in Section X:

“Sec.2. Compensation specified on listings filed in the service shall appear in one of three forms:
a) by showing a percentage of gross selling price
b) by showing a definite dollar amount
c) commission may be paid on Net Sales price (Sales Price minus seller concessions) or on base price in new construction if specified in the system.”

MRIS allows commissions to be paid on the net sale price, which it defines as sale price minus seller concessions. What does that mean? The net sale price is the gross sale price less any closing costs normally paid by the buyer, which in this transaction are paid by the seller. Costs to be deducted can include the home warranty, any inspection (home inspection, termite, radon), and all other closing costs paid by the seller.

Where should Realtors® look to find whether their commission is based on the gross sale price or the net sale price? This information is included under the “legal” category of the long version of the listing

What can Realtors® do to address this? For most transactions, the difference in the commission paid based on the net sale price and the gross sale price is generally a small portion of the total commission. However, to ensure that payment is based on the gross sale price, Realtors® should make sure to discuss this with their buyer clients and modify the buyer broker agreement to reflect that compensation will be based on the gross sale price of the property and that if commission is paid by the cooperating broker based on the net sale price, the client will make up the difference.

Question: In reviewing the MLS comment field, I find a lot of information that should not be there. Can you give us guidance about what information does not belong in the comment section?

Answer: The increase in listings of bank-owned properties in the MLS has led to an increase in improper listings. Many bank-owned listings include the name and phone number of the bank that owns the property. Telephone numbers should never be included in the comment section of the MLS. MRIS is currently auditing all listings to identify those that list the bank’s telephone number in the comment section.

Another common problem found in listings of bank-owned properties are words to the effect of: “you must use Lender X” or “you must use settlement agent X.” Both of these statements raise the specter of a potential RESPA violation. The legislature in Virginia was clear in its last session that such language constitutes a potential violation of CRESPA (the state equivalent of RESPA). Indeed, new legislation required an amendment to our Virginia Jurisdictional Addendum to include the following language:
“Variation by agreement: The provisions of the Consumer Real Estate Settlement Protection Act may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.”

Q: I heard about a ruling stating that RESPA prohibits agents from charging administrative fees separate from commission based on a percentage of the sales price. What can we do to avoid having our fees invalidated?

The case in question was decided in April 2009. As you know, RESPA allows compensation to be paid in cash amounts and percentages of a sales price. In this case, the brokerage charged both an administrative fee and a commission based on a percentage of the gross sales price. Upon reviewing the administrative fee, the court found that the brokerage could not justify the charge of an administrative fee above and beyond the commission. The court’s statement was broad and went against other rulings by other courts on the same issue.

In light of this decision, NVAR has amended its listing forms. All of the language that identified an “Administrative Fee” has been removed. However, this does not mean you cannot charge such a fee, just that it must be done differently. Here are some tips on how you can achieve the same result without running into the same problem as the brokerage in question:

• Label the fee differently than the commission so that it follows as a separate service.
• Disclose the broker compensation in different sections of the listing agreement or on different lines of the HUD sheet.

Disclose that all payments, the commission-based and the flat fee components, represent payment for services rendered by the brokerage.

Q. I am a broker with many licenses hanging in my office. I reviewed them the other day and discovered that a large number of the licensees were no longer current. What am I supposed to do?

As a broker, it is your responsibility to ensure that agents who are practicing real estate under your brokerage all have active licenses. (18VAC135-20-330)

If one of your agent’s licenses has expired, please send the license back to DPOR. The Code states that when a salesperson or broker’s license is no longer active, it is the duty of the principal broker to return the license by certified mail to DPOR so that it is received within 10 calendar days of the date of termination or status change. The principal broker must indicate on the license the date of termination, and sign the license before returning it. (18VAC135-20-170)

Any real estate activity conducted subsequent to the expiration date of a license may constitute unlicensed activity and be subject to prosecution. (18VAC135-20-140)

What does it mean for your office? You should set up a system by which someone checks the status of licenses once a month. If a license is about to expire or if an agent whose license hangs with your brokerage is no longer practicing, then inform the agent. Give the agent a reasonable number of days to remedy the problem.

If the agent does not renew or no longer wishes to practice real estate, send the license back to DPOR. The Code will only impose liability on brokers who knew or should have known of a problem and failed to take adequate measures to remedy the problem. By instituting such a system, you will ensure that all agents who work for the brokerage have active licenses. This will avoid problems associated with agents who continue to practice with expired licenses, or whose licenses are registered with you but do not practice real estate.

The U.S. Department of Housing and Urban Development has received a number of questions concerning whether all payments made to subordinate lien holders to release liens must be disclosed on the HUD 1/1A Settlement Statement.

The September, 2010 RESPA Roundup publication states:
In summary, yes, all payments made in connection with a RESPA-covered transaction must be disclosed on the HUD-1/1A Settlement Statement.

This answer is based on a number of provisions in the statute and regulations, including Section 4 of RESPA which requires the use of a standard form for the statement of settlement costs. This form, the HUD-1/1A, must “conspicuously and clearly itemize all charges imposed” upon the borrower and the seller “in connection with the settlement….” 12 USC § 2603.

Further, the regulations, at 24 CFR § 3500.8, require the use of the HUD-1/1A settlement statement in RESPA-covered transactions. Section 3500.8(b) requires that “each third-party charge paid by the borrower and seller” must be itemized on the HUD-1/1A and that the HUD-1/1A must be completed in accordance with the instructions in Appendix A of the regulations. Both § 3500.8(b) and Appendix A require that the “actual charges paid by the borrower and the seller” be shown on the HUD-1/1A.

The instructions for particular lines on the HUD-1 provide additional guidance about how to disclose payments to subordinate lien holders.

• Lines 504 and 505 are to be used for the amount of any first or second loans which will be paid as part of the settlement. Accordingly, the instructions are explicit that the payoff for the second loan is to appear as an item on Line 505 on the HUD-1.
• For payments to the subordinate lien holder, any amounts paid must appear inside the column on line 505, and other amounts paid by or on behalf of the seller must appear as P.O.C. outside of the column, either on Line 505 or on Lines 506-509.
• Finally, with respect to the buyer, Lines 204-209 are to be used for items, except for earnest money, that are paid by the buyer for financing arrangements other than new or assumed mortgages. For payments to the subordinate lien holder by or on behalf of the buyer, Lines 204-209 may be used to disclose, outside of the column, any amounts paid outside of closing in connection with the second mortgage payoff. The instructions also provide that such amounts entered on Lines 204-209 should also be entered (outside of the columns) on Lines 506-509.

To contact HUD representatives with questions on RESPA, send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. or call 202.708.0502.

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703.207.3228  Herndon Center

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8:30 a.m. to 5 p.m.
Monday through Friday

Questions? - Contact Us