The real estate industry is ever-changing, and Realtors® are always looking for ways to increase revenue. Marketing Service Agreements, or "MSAs," are the newest evolution in Realtors®' efforts to generate income from sources other than buying and selling real estate.

Prosecutions by the Consumer Finance Protection Bureau (CFPB) for RESPA violations have markedly increased, and the trend of CFPB prosecutions suggests that MSAs are now coming into CFPB crosshairs.

Typically, an MSA is a relationship between a real estate brokerage and a title company or mortgage broker (Provider). The real estate office agrees to market the services of the Provider, and the Provider pays the real estate office a "marketing" fee. The agreements, in and of themselves, are permitted under RESPA; however, it is important to make sure that the relationship between the real estate office and the Provider is not tied to sales or productivity. Valuing the marketing services that the real estate office is performing for the Provider is essential to analyzing whether the agreement complies with RESPA. Overvaluation can lead to serious penalties.

If you are a broker and your real estate office has entered into an MSA with a title company, a mortgage broker or any other settlement service provider, you may now be concerned about whether your agreement passes muster under a RESPA-analysis. It is good to be concerned! If you have not had your attorney review the agreement specifically within the context of complying with RESPA's limitations and guidelines, I strongly encourage you to do so at once. It is far better to identify a problem and resolve it before the CFPB gets wind of a potential RESPA violation and begins conducting its own investigation.

What are some of the key points that you need to keep in mind when considering whether to enter into a MSA (or when looking at the agreement you already entered)? Here are some highlights:

  • Limit the services the real estate office is providing to advertising/marketing. The MSA should not identify service or base compensation on business or referrals generated. Essentially, the real estate office is being hired to advertise the services of the other entity; limit your services to advertising.
  • Avoid exclusivity provisions. CFPB investigators typically review "exclusive access provisions" as referral arrangements that are intended to lock-out competitors. Anything that hints at being anti-competitive will raise red flags for an investigator and will suggest a potential RESPA violation. It is also a good idea to avoid agreements that give the Provider exclusive access to your licensees. Attending sales meetings or awards banquets, or otherwise including opportunities for a title officer or mortgage broker to speak about products to real estate agents, will, more often than not, be seen as a referral arrangement that violates RESPA.
  • Lease agreements should be separate from MSAs. The lease agreement should stand separate and distinct from the MSA. Lease agreements are easy to analyze and any investigator will quickly ascertain that your lease agreement does - or does not - charge rent commensurate to the fair market value of the leased space.
  • Value your marketing services objectively. This is probably the most difficult aspect of MSAs. Sharing advertising space and passing along prorated advertising costs to the Provider are aspects of MSAs that are easy to value. However, undertaking email campaigns, either including or on behalf of the Provider, or offering other "generic" marketing services are much more difficult to value. Industry experts suggest hiring an auditing or actuarial company to provide objective analyses and valuations of marketing services.
  • Tracking services. If a real estate office is being paid for services that it is not performing, then the real estate office and the company paying the real estate office are both violating RESPA. It is important to develop a matrix by which services rendered will be measured, objectively, so that both the real estate office and the company paying for the services can track what is being done and whether the services are being performed in accordance with the expectations laid out in the MSA.

This is a lot to consider. The interest the CFPB is showing in MSA potentially takes what was previously accepted as a straightforward relationship between real estate offices and other settlement service providers and imposes a heightened level of awareness about the terms of that relationship. The consequences of entering an MSA that violates RESPA can be severe. The CFPB may fine companies up to $5,000 a day for violating RESPA. If the violation was reckless, those fines can increase to $25,000 per day. In the most extreme circumstances when a company knowingly violates or ignores the provisions of RESPA, the CFPB is authorized to levy fines up to $1,000,000 per day. That is some serious stuff! Other penalties can include "clawing back" profits that an offending company reaped throughout the term of the agreement; and other prohibitions and restrictions that can, effectively, put an offending company out of business. Recently, a Missouri lender's rental agreement with a mortgage broker was found to have violated RESPA. The mortgage company was hit with costs and fines exceeding $81,000! The CFPB does not tread lightly when it undertakes investigations of RESPA violations, and neither should you.

Caldwell & Kearns, which serves as general counsel to PAR. A portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels real estate professionals as one of the voices of the PAR Legal Hotline