Legal


MAR Legal Staff, 3/3/2016

Michael McDonagh, MAR General Counsel
Ashley Stolba, MAR Associate Counsel   
Justin Davidson, MAR Legislative & Regulatory Counsel

 

What are marketing services agreements (“MSAs”), and do they violate the Real Estate Settlements Procedures Act (RESPA)?

MSAs are formal relationships between settlement service providers in which the partners cross-market or co-market each other’s services. An example of an MSA is when a real estate company agrees to market the services of a particular mortgage company.  Not all MSAs are illegal; RESPA permits the marketing of other settlement services by another settlement service provider if it meets certain requirements. That said, in October 2015, the Consumer Financial Protection Bureau (CFPB), which has been active in initiating enforcement actions in this area, announced that they are, “deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks” and that, “any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.” The full text of their guidance can be found here: http://www.consumerfinance.gov/newsroom/cfpb-provides-guidance-about-marketing-services-agreements/.  Therefore, these agreements are going to almost always be an improper referral fee, so anyone entering into a MSA will need to be exercise extreme caution. All MSAs should be carefully drafted by an attorney specializing in such agreements.

 

Are there any tips for brokerages considering entering into an MSA?

Although MSAs may be lawful under RESPA if carefully structured to comply
with the Act, violators of RESPA are subject to harsh penalties, including triple damages, fines, and even imprisonment. As such, the National Association of REALTORS® has compiled a list of the following “do’s and “don’ts”:
 

DO:

• Be aware that RESPA permits payments for services performed by a broker or agent only if actual services are performed and the fee is fair market value for the services performed.
• Memorialize an MSA in a written agreement that states in detail the marketing and advertising services to be performed and the fee to be paid in return for such services.
• Ensure that marketing and advertising services identified in a written MSA are, in fact, performed.
• Consider including a reporting and/or audit obligation in a written MSA that requires the service provider to document or otherwise provide evidence that services were performed.
• Provide a disclosure to consumers notifying them of the MSA relationship.
• Document how the parties arrived at the amount of the marketing fee and the determination of fair market value.
• Consider engaging an independent third party to establish the fair market value of the marketing and advertising services.
• Modify the amount of the marketing fee under an MSA only when objective changes are made to the services performed and/or other terms of the agreement. Verify the basis for the increase or decrease in fee amount and document the objective reason(s) for the change.

DON’T:

• Do not include “services” in the MSA that require a broker or agent to market a lender or title company directly to a consumer, like a sales pitch to a consumer, or distributing lender or title company brochures or other materials directly to a consumer.
• Do not designate a settlement service provider as the broker’s or agent’s “preferred” company as part of the MSA.
• Do not enter into exclusive MSAs such that the broker agrees to perform marketing and advertising services for only one lender or title company.
• Do not accept fees that are in excess of the fair market value of the marketing services actually performed.
• Do not base the amount of marketing fees on the volume of referrals or success of the referrals.
• Do not accept fees under an MSA for allowing access to sales meetings, conducting customer surveys or creating monthly reports.
• Do not make frequent changes to the fees paid under an MSA based on the volume or success of referrals or any other nonobjective criteria.
• Do not enter into an MSA with a company that is an affiliate of the broker or agent.
• Do not enter into an MSA with a month-to-month term.

 

Disclaimer: The DO’s and DON’Ts listed here are not all-inclusive and small variations in the facts can lead to different outcomes. Speak with a RESPA attorney to make sure you comply with all applicable laws. For more information on MSAs, please visit: http://www.realtor.org/topics/real-estate-settlement-procedures-act-respa