Banking Interpretations

Gen. Regs. of BB Part 38 and Supt.'s Regs Part 410

February 7, 2005

[ ]

Re: Consultants - compensation

Dear [ ]:

Your January 7, 2005 inquiry regarding Section 410.18 of Part 410 of the Superintendent's Regulations regarding compensation to consultants, employees and independent contractors has been referred to me for response.

According to your Ietter, [ ] Agency ("Agency") is licensed in New York State as both a mortgage broker and a real estate broker. In addition, the Agency owns a separate consulting company known as [ ] Consulting Services LLC ("Consultant"). You state that since the Agency was not split into two (2) separate corporate entities, the Agency has difficulties using personnel for both activities.

You ask whether a real estate agent ("Agent") licensed with the Agency could receive a referral fee if he refers a client who has purchased or sold a home through the Agency to the Agency and that client later obtains a mortgage through the Agency and the Agent provides some mortgage related services. Further, you ask whether the Agency can pay referral fees to real estate agents who are 1099 contractors with the Agency through a separate company or, as is now the practice, in the same company.

Section 8 of Real Estate Settlement Procedures Act ("RESPA") prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed. Therefore, referral fees are strictly prohibited under RESPA. However, to the extent an Agent or 1099 contractor actually provides services in relation to the mortgage broker activity, then that person may receive compensation reasonably related to the services provided.

In addition, I would remind you that in all such situations, the Agency must provide the Dual Agency Transaction Disclosure required by Section 38.12 of Part 38 of the General Regulations of the Banking Board.

I trust this is responsive to your inquiry.

Very truly yours,

Alvin A. Narin
First Assistant Counsel

cc: Kenneth Bielemeier