Misunderstanding MSAs could cost you a bunch of money

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This article was  previously published in a November 2015 issue of Texas REALTOR®.

Do you want to avoid $1 million in fines? If you don’t know how to handle a marketing service agreement properly, you could face that kind of expensive penalty. Here’s what you need to know about MSAs before you make a costly mistake.

First, an MSA could be an arrangement between a real estate office and a title company, mortgage broker, or a home warranty company in which the real estate office agrees to market the services of one of those entities for a fee. For example, the company you enter the MSA with pays you, say, $3,000 a month if you include its information in your marketing materials or ads. While payment for services actually rendered is generally permitted under RESPA—the Real Estate Settlement Procedures Act—problems can arise when the payment made is not commensurate with the value of the service received.

Attorneys say it’s imperative to make sure that the relationship between the real estate office and the title company or mortgage lender is not tied to sales or productivity. They say valuing the marketing services that the real estate office is performing is essential to analyzing whether the agreement complies with RESPA. Overvaluation can lead to serious penalties from the Consumer Financial Protection Bureau.

Prosecutions by the CFPB for RESPA violations are on the rise. And the CFPB may fine companies up to $5,000 a day for violating RESPA. If the violation was reckless, those fines can jump to $25,000 a day. And if a company knowingly violates the provisions, the CFPB can levy fines up to $1 million a day. In fact, the CFPB reports that its enforcement actions against companies and individuals for violating RESPA resulted in more than $75 million in penalties as of early October.

If you’re a broker and your real estate office has an MSA, let an attorney look it over to ensure it complies with RESPA. It’s better to spot a problem and fax it before the CFPB gets involved. In the meantime, here are some key points attorneys say to remember about MSAs:

  • Offer only advertising and/or marketing. In an MSA, the real estate office is essentially being hired to advertise the services of the other entity, so limit your services to advertising—nothing else.
  • Value your marketing services objectively. Sharing ad space and passing along prorated advertising costs to a partnering company are aspects of MSAs that are easy to value. But email campaigns or other generic marketing services are tougher to value. Experts say to hire an auditing firm to offer objective values of marketing services.
  • Track services. If a real estate office is being paid for services it’s not performing, that can be a RESPA violation. Create a way to measure services rendered objectively so that both your real estate office and the company paying for the services can track what’s being done.

In October, the Consumer Financial Protection Bureau issued a bulletin about RESPA compliance and marketing service agreements in which it strongly cautioned against the use of MSAs. Read the bulletin at txrealto.rs/cfpbmsabulletin


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