RESPA Compliance For the Holidays: Don’t Shoot Your Eye Out!

With an eye on RESPA, and an eye out for Florida’s Unlawful Inducements Rule, here’s a reminder on what you can and cannot do for folks that contributed to your success and prosperity in 2018.

Dear Members,

If the movie “Christmas Story” is one of your holiday traditions, you will understand the reference in the subject line of this email.  Your aim may be straight and your target may be true.  But when it comes to RESPA compliance you’ll shoot your eye out if you give a Red Ryder, carbine action, two-hundred shot air rifle to your referral sources.  It’s a “thing of value!”  With an eye on RESPA, and an eye out for Florida’s Unlawful Inducements Rule, here’s a reminder on what you can and cannot do for folks that contributed to your success and prosperity in 2018.

RESPA 8(a) prohibits giving anything of value pursuant to an agreement or understanding for the referral of settlement service business.  In Freeman v. Quicken Loans (566 U.S. 624 (2012)) Justice Scalia opined that “an exchange of valuable tickets to a sporting event in return for a referral of business” would be a violation.    Please.  No jokes about whether tickets to the bowl game to which the Gators may be invited are a “thing of value.”

Regulation X provides a safe harbor for “normal promotional and educational activities…not conditioned on the referral of business and…and not involv(ing) the defraying of expenses that would otherwise be incurred” by the referring party. 

Based upon the foregoing, gifts to only those who referred business to you is a violation unless the gift otherwise falls under the safe harbor for promotional and educational activities.  Note pads, coffee mugs, desk calendars, umbrellas and the like are permitted as long as your company logo is on the gift.  Hosting a holiday party and inviting both those who did and did not refer business to you would also not be a RESPA violation.  But don’t give away party gifts that could be seen as defraying legitimate business expenses (e.g., new fax machine) or extravagant gifts (new Smart TV).  Also be sure your referral sources are not singled out for special treatment or additional swag.  And even if you are not too worried about the “RESPA police” don’t forget that RESPA Section 8(d)(5) authorizes a private cause of action.

Florida’s Unlawful Inducements Rule (69B-186.010) contains many of the same prohibitions as RESPA and also provides a significant number of examples.

What is forbidden:  Cash or cash equivalents such as merchant gift cards; paying membership dues; paying for a referrer’s promotional materials (e.g., bulletins, flyers, post cards, labels) or office equipment; providing or paying the costs of an event which promotes the referrer’s business but not your own.  Under Florida law, some gifts to prospective insureds (i.e., customers) are also forbidden (e.g., offers of employment; gift cards).  Also, waiver of fees, costs or premium for title updates requested after issuance of the title insurance policy are not allowed.  And some prohibitions are limited to real estate brokers and sales associates (e.g., providing virtual reality tours of listed homes; sponsoring and hosting, or paying for sponsoring and hosting, of open houses to promote their listings).

What is allowed: Promotional items with your company logo which do not exceed $25 in value.  (There is no limit on the number of promotional items which can be given.) Educational materials related to title insurance which do not defray expenses the referrer would otherwise incur. And advertising or marketing activities that directly promote your business even where there is joint participation in the activity by referral sources as long as they pay their fair share.

Also allowed are gifts to your employees who may have assisted in your obtaining referrals.  There are no limits on the type or amount, but this exception cannot be used to funnel otherwise illegal gifts to referral sources.  The activities of your employees are the activities of their employer.

Finally, lawyers are reminded that Florida Bar Rule 4-7.17(b) prohibits giving anything of value to another person for recommending the lawyer or for referrals.  Also, be mindful that if an employee is tasked with marketing duties their compensation cannot be based upon the amount of legal fees derived from business brought to the firm by their efforts (Rule 4-5.4(a)(3) and Ethics Opinion 89-4).  Lawyer outreach to referral sources can take the form of event sponsorships, charitable giving, and other promotional activities provided the law firm complies with the advertising rules of The Florida Bar.

Some of this is confusing and sometimes contradictory.  The key is to use common sense and exercise discretion in handing out gifts of appreciation over the holidays.

I hope that this holiday season blesses you and yours and that this reminder does not cause you to look like the Grinch!  Better that than shooting your eye out!

Let me know how we can help you.

Melissa Jay Murphy

Executive Vice President, Chief Legal Officer,
General Counsel and Secretary