A mortgage service provider has agreed to settle allegations of illegal mortgage referrals — costing it tens of thousands of dollars.
Section 8 of the Real Estate Settlement Procedures Act prohibits kickbacks and payment of unearned fees in residential real estate transactions.
Excluded from this RESPA prohibition are commissions paid to bona fide employees of the company that is making the payment.
On Thursday, the Consumer Financial Protection Bureau said it has charged Stonebridge Title Services Inc. with violating RESPA’s referral-fee prohibition and fee-splitting prohibition.
According to the bureau, the Parsippany, N.J.-based company solicited referrals for its title insurance business — offering commissions of up to 40 percent of the premiums.
As a result, more than 20 independent salespeople referred title insurance business to Stonebridge without actually performing any title services or providing any non-referral service for Stonebridge.
The CFPB noted that even though the referral fees were reported on W-2 forms, the recipients were not “employees” because Stonebridge did not have the right or power to control the manner and means by which they performed their duties.
Instead, according to the regulator, they were just independent contractors.
“These independent salespeople had or developed relationships with entities, typically law firms, and referred these entities to Stonebridge for title insurance and related services on behalf of consumers,” a CFPB order said.
Once the illegal payments were discovered, the Department of Housing and Urban Development referred the case to the CFPB.
Stonebridge, which is owned by Bruce Dostal and Cesare Stefanelli, agreed to a June 5 CFPB consent order. It didn’t, however, admit or deny any of the CFPB’s findings.
In addition to requiring that such illegal payments cease and desist, the consent order imposes a $30,000 civil money penalty. The amount was determined by the title agency’s ability to repay. Stonebridge cannot write off the penalty or seek reimbursement or indemnification for it.
“Kickbacks drive up the costs of getting a mortgage and put law-abiding companies at a disadvantage,” CFPB Director Richard Cordray stated in the announcement. “The Consumer Bureau will continue to take action against companies that seek to attract consumers through illegal schemes.”
