On June 25, 2010 an opinion from General Counsel, Helen R. Kanovsky, of the Department of Housing and Urban Development (“HUD”), appeared in the Federal Register (24 CFR Part 3500 [Docket No. FR-5425-1A-01]). This interpretive rule from HUD essentially states that compensation paid to a real estate broker in connection with the broker’s recommendation of a home warranty company (an “HWC”) for a buyer or a seller, constitutes an illegal kickback in violation of Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) and HUD’s regulations.
Ouch!
In 1996, then Secretary of HUD, Nelson A. Diaz, issued a letter stating that:
“A home warranty is a settlement service covered by RESPA. The RESPA regulations do not prohibit a person [e.g., a REALTOR®] from receiving more than one fee in the transaction. However…the payment must be for services that are actual, necessary and distinct from the services provided by such person. Additionally the fee
itself must be reasonably related to services actually performed.”
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