Affiliates or an affiliate network is group of associated companies that provide complementary products or services. They may offer cross-promotional deals, encouraging clients who have utilized their services to look into the services offered by an affiliate.
In real estate, businesses that provide settlement services are owned by a shared corporate parent in an Affiliated Business Arrangement (ABA). Typically, a real estate agent or broker will refer a client to an affiliate for a settlement service, such as escrow, mortgage, or title. Under the federal Real Estate Settlement and Procedures ACT (RESPA) guidelines, the broker or agent participating in the ABA must have the client sign an affiliate closing disclosure.This form reminds the client that they are not required, with certain exceptions, to use the affiliate and are free to shop for other service providers. The document also requires the client be notified that the broker or agent has a financial interest in the affiliated company.
When an ABA Disclosure is not in compliance with RESPA guidelines, consumers might be entitled to compensatory damages. Not until recently were measures taken place to enforce penalties on those who were in violation of RESPA. In 2010, as part of the Dodd-Frank Wall Street Reform Act, the Consumer Financial Protection Bureau assumed responsibility for enforcement and has since imposed millions of dollars in fines against real estate brokers, agents, and title agencies that have been found to be limiting consumer choice and in violation of RESPA regulations.
In compliance to RESPA guidelines, an affiliate business arrangement disclosure must:
- Distinguish the association between the parties
- Specifically disclose which parties are involved in the association (agent and/or broker)
- Accurately communicate the division of ownership in the ABA
- Clearly state the client has the right to shop for their own service provider
The ABA disclosure cannot contain language that may mislead the consumer to believe:
- Fees charged by the affiliate parties involved are standard or competitive with other title service industry providers
- The client may or may not be able receive these services at a lower rate by selecting a different settlement service provider instead of the one recommended by the affiliates
The National Association of Realtors has shared the dos and dont's for brokers and agents regarding RESPA regulations. Click here to read more about it.