Free Virtual Tours Violate RESPA

by Sharon Hassler, President, Go Get Experts

More tips on RESPA law, guidelines and violations for real estate agents and loan originators from former HUD investigator and RESPA expert, Dr. Gary Lacefield.

Dr. Lacefield reviews this HUD case where six title companies in Texas being fined for financing virtual home tour programs to certain real estate agents as an incentive to refer business to them. HUD says the recipients are as guilty as the title companies.

View the RESPANewsUpdate.com video here. This educational video and the RESPANewsUpdate.com website were created by WebCasting.com, based in Dallas, Texas. This video is provided for free, compliments of Premier Mortgage Funding, Inc.

For more about Dr. Lacefield, visit RiskMitigation.net or GoGetRealEstate.com/Get/GLacefield.

“Givers” and “Getters” can be in Violation

Six Texas title companies found this out the hard way after being slapped with a $130,000 fine for financing some real estate companies’ Virtual Home Tour programs. According to one HUD spokesperson, “The companies were offering the tours free to some of their real estate agents and brokers as an incentive to refer business, and, as most in this industry know, providing any thing of value in exchange for business referrals is a violation of RESPA.”

But what many are unaware of is that HUD may be going after those who accepted the freebies as well: the real estate agents and brokers. They, according to RESPA Section 8(a), are just as guilty as the six title companies financing their tours. Specifically, Section 8(a) states: “No person shall give and no person shall accept any fee kickback or thing of value.”

One industry source, who wished to remain anonymous, commented that historically, brokers and agents have felt “untouchable” to state departments who don’t have the money or resources to aggressively go after RESPA violators. “That’s why the Feds are the only ones who would pursue this kind of violations. HUD is treating this much like a drug raid where they go after those demanding the drug as well as those who supply it,” the source said.

HUD agreed to a settlement with the six companies, which were First American, Austin Title, Gracy Title Company, Heritage Title Company, Chicago Title Company, Fidelity National Title Company and Stewart Title of Austin. According to the terms of the agreement, the companies must pay HUD an aggregate amount of $130,000. Further, the companies were ordered to alert real estate agents and brokers that these tours come with no expectations. “They can continue to offer them, but the title company must now charge and collect a fee for any virtual tour that it provides to a real estate agent. Any fee collected that equals or exceeds the cost of producing the tour is considered reasonable,” said the HUD spokesperson.

The case in Texas is the result of a three-month investigation by Fairfax, Va.-based Technical Analysis Center, a public investigation company staffed by several former federal agents from agencies as the Secret Service, FBI, U.S. Customs and the criminal division of the Internal Revenue Service. HUD contracted with TAC in April to aid in the crackdown against RESPA violators. “HUD did an inquiry and we just settled with them,” said Larry Molinare, president of Gracy Title. “I don’t really know how common [offering virtual tours] is in general, but it is very common in Austin, and I’m sure we’re not the only people doing them.”

Molinare said there are a lot of third party technology vendors who offer their services for the title company and for the Realtor, but in Gracy Title’s case, they build the tours in-house and post the tours of the properties that are for sale on their web site. “We would advertise to the public and they would come to our web site, which was good advertising for us. While they were there, there would be a rendition of some of the houses that were for sale. In HUD’s opinion the Realtor was getting something of value and not paying anything for it. They were getting free publicity of their houses would be HUD’s opinion.

Our opinion of the situation was that we were advertising ourselves and the Realtor was also advertising on our web site, but he was also bringing people to our site and people were learning about our company,” said Molinare.

Virtual home tours have quickly become a popular way to market homes without the homebuyer actually seeing the house they can simply point and click and know within a few seconds if they are interested in viewing the property. One of the most compelling advantages of virtual tours is that real estate agents can fit much more into their workday if the only properties they showed buyers were the ones that already interested them. Virtual tours don’t exactly come cheap for title companies either - on average they can cost anywhere from $15 to $125 per home to produce, according to HUD.

Some think that HUD may have tried to make an example out of the six title companies as a way to send a warning to the rest of the real estate industry. As one source pointed out, “This latest settlement is only the tip of the anti-kickback iceberg.” However, one thing is certain: HUD’s commitment to investigating allegations of deceptive trade practices and fraud associated with RESPA is unyielding. Violators beware.