Bird Dogs, Referral Fees After Closing, & Legality???

[Keri Eason]

I recently posted the question below on the nwreii yahoogroup and as expected I have received some very differing opinions.

I was hoping you could shed some light on this issue...

I have heard that in some states referral fees or finder's fees paid to someone (ie; Bird Dog, etc) after closing for letting an investor know about a property may or may not be illegal?

The only thing I can find online is related to RESPA at the HUD site...

"Section 8: kickbacks, fee-splitting, unearned fees

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service."

It sounds to me like this wouldn't have anything to do with referral fees an investor may pay to someone as the referral fee an investor pays doesn't have anything to do with a mortgage loan.

However, I have still heard that in some states paying a referral fee or a percentage or something like that to someone for referring a property is against the law.

It has also been mentioned that it may not be against RESPA law but that it may be a Real Estate Licensing violation for the person referring the property to receive a fee as they should be licensed to "bring a buyer and seller together."

I have to say at this point I am thoroughly confused. I want to keep everything legal but I have also seen many investors around the country and in this area advertising that they pay referral fees upon or after closing for a property that is referred to them.

If it is illegal in some way could you please tell me how and exactly what makes it illegal? Also, if it depends on terminology and/or when the fee is paid, etc etc please let me know that as well. And/or if possible could you please direct me to the organization or website that indicates that it is blatantly against the law (if that is the case). I'd like to see it in writing.

I think Bird Dogs are wonderful and would like to be able to work with them as much as possible. I know it is okay to pay on a "per lead" basis so I have done that but I want to be able to give them a bonus after a property closes too (after all, they have earned it).

Please help direct me to a website or organization that clearly states the Oregon and Washington laws about investors paying referral fees after closing and legality.

Any help or info you could provide would be appreciated.

I am not a realtor or mortgage broker. I am an investor.

I just want to make sure I am doing everything legally.

Thanks for your time and help,
Keri

[Eric Foster]

Bird dog… Are you a hunter? Just kidding...

Yea, that is a question worth exploring. There are many laws both state and federal that may come into play... And yes, there is a wide set of opinions on the topic.

When I am unsure of something, and what I would advise you to do that I think is best is have an attorney answer the question for you. That way, should there be trouble in the future you acted on your attorney’s advice.

A couple hours for an attorney would be way less than any fine you may have to pay for breaking a law...

Think of it as "Insurance". It doesn’t hurt as much that way.

I see you are in Vancouver... I am in Portland.

[Account Closed]

Hello Eric..

Great suggestion... However don’t just get the opinion of the Attorney have them memorialize it for you... This way when they are wrong you’ll have grounds to file a claim against their e/o insurance... BTW when you hire an attorney one of the discussions should be is when you want them to memorialize items and when you don’t… These guys and gals will charge you a ton to write down the conversation the two of you had.

Michael Quarles

[Eric Foster]

Originally posted by "Michael Quarles":

Hello Eric..

Great suggestion... However don’t just get the opinion of the Attorney have them memorialize it for you... This way when they are wrong you’ll have grounds to file a claim against their e/o insurance... BTW when you hire an attorney one of the discussions should be is when you want them to memorialize items and when you don’t… These guys and gals will charge you a ton to write down the conversation the two of you had.

Michael Quarles

Hey Michael,

Great tips and ideas... I never thought it through that far before. I will do that in the future...

Take care!