You might be aware that some real estate companies are involved in the mortgage loan business. This is not a hobby for them, so how are they legally being paid? The ones who are doing it correctly have done extensive homework and planning. They also stick strictly to what they are allowed to do. This is not a guide on how to do it. This is just for your information. The Commission's only business in this area is to make sure you are being legally paid; i.e., you are not receiving rebates, kickbacks or unearned fees. If you are considering getting into this business, you should first check with the Alabama State Department of Banking to see if your activities will require you to become licensed as a mortgage broker. The next thing you should do is check with your errors and omissions insurance carrier. They must be fully informed about what you are doing. Make sure they have you covered.

The question of how a real estate licensee may be compensated for activities in making mortgage loans is a complex subject, and not easily researched or explained. I am not going to attempt to explain every aspect of this subject, but hopefully can help you with a basic understanding of the law. Let us begin with an editorial comment. It is exceedingly difficult to be a really good real estate broker or salesperson.  “It is exceedingly difficult to be a really good real estate broker or salesperson. It is also difficult to stay on top of the details of the ever-changing financing options available to purchasers of real estate.”

The idea that you can make money on both ends at the same time might sound good. I would advise you to think long and hard about whether doing both is good for you and the consumer. So-called “one stop shopping” is becoming reality, though. Many people believe the time will come when a consumer buying real estate will be able to get real estate services, financing, property inspection, pest inspection, title insurance, and all other related services in one place. This is the idea behind one stop shopping.

The Alabama Real Estate Commission does not regulate the mortgage lending business in any way. We leave that to the State Department of Banking, and to federal law regulating mortgage lenders. The only reason we become involved is in cases where a real estate licensee intends to be paid for activities in making a mortgage loan. The license law does not allow a real estate licensee to receive a rebate in a real estate transaction (§34-27-36(a)(12) Ala. Code.) Federal law, specifically RESPA (Real Estate Settlement Procedures Act) similarly prohibits the paying or receiving of kickbacks and unearned fees in connection with a federally related mortgage loan. This means, for example, that state and federal law do not allow a real estate licensee to be paid for referring business to a mortgage lender.  The law does not allow you to be compensated for any activity, unless it is authorized by law and you actually provide something of value. The effect of Alabama Real Estate Commission rulings is that state law allows what federal law allows, and state law prohibits what federal law prohibits.  There is no danger that you can be in compliance with federal law, and at the same time be in trouble with the Commission.

Here is where legal compensation comes in. A real estate licensee may be paid for originating a mortgage loan, provided the licensee actually does the work providing services of value in the mortgage origination. HUD (U S Department of Housing and Urban Development) enforces RESPA. HUD has guidelines on what services provide something of value. This means you may be paid your real estate commission, and be paid for mortgage origination in the same transaction. Federal law also requires that your activities as a mortgage originator must be fully disclosed. These disclosures are more complex if the mortgage lender and your real estate company are considered an “affiliated business arrangement.” There are federal regulations on the form of disclosures required.  The Commission cannot provide you with these disclosure forms, because it is not the license law that requires them.

I get lots of calls asking about all of this.  This subject is far more complicated than I have taken the time to convey to you. It is also more complicated than I can take time to explain in a telephone call. I will leave you with one more caution. If you are approached by a mortgage broker or lender seeking to get you into this business, you need to thoroughly check them out. The State Department of Banking is the place to start. Use your business judgment.  If, for example, you are approached by someone who does not know exactly how to go about what you are being asked to do, this should tell you something.  Again, this article is not intended as advice on how to get into the mortgage business. We cannot give that advice.

Again, it should be noted that the information presented in the preceding article relates ONLY to people buying & selling houses in the state of ALABAMA and their agents.