Bulletin: SLS2010016

Dear Associates:

An "affiliated business arrangement" ("AfBA") is an exception under RESPA to the general prohibition against "referral" fees. (Affiliated business arrangements were previously called "controlled business arrangements." Refer to Bulletin NL000015 for definitions and examples of affiliated business arrangements.) In order to qualify as an AfBA under RESPA certain requirements must be met. One requirement is that a written disclosure of the affiliation must be given to the consumer when the referral is made.

An Order issued June 29, 2010 by the United States District Court for the Northern District of Ohio in Toldy v. Fifth Third Mortgage Company, 2010 U.S. Dist. Lexis 64233, emphasizes that the disclosure requirements need to be strictly followed. In Toldy , Fifth Third Mortgage referred Mr. Toldy to an AfBA title agent named Vista Title. At the time of the referral, Mr. Toldy was given a booklet by the loan officer containing 19 different forms and disclosures. It was undisputed that the AfBA disclosure was included in the booklet and that Mr. Toldy signed a separate acknowledgment that he had received the booklet. The RESPA regulations (24 C.F.R. 3500.15) however require that the disclosure (1) must be on a separate piece of paper and (2) must be in the format found as Appendix D to the regulations which includes the acknowledgment of receipt within the disclosure form itself. Fifth Third argued that these regulatory requirements were "mere technicalities" and that giving its AfBA disclosure as part of the booklet with a separate acknowledgment of receipt was adequate. The Court rejected Fifth Third's argument.

This case illustrates that AfBA disclosures should strictly adhere to the RESPA regulations and the format published as Appendix D. If an AfBA fails to meet all conditions, including giving the proper written disclosure, the AfBA may be open to attack as a violation of RESPA Section 8 which may result in costly litigation and treble damages.

Official AfBA Disclosure Form (Click to View)

Many states have state laws regarding affiliated businesses and consumer notices with which you also must comply. This Bulletin only deals with RESPA.

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