Payments Outside of Closing or "POC" -- What You Should and Should Not Be Paying For

Is a real estate agent allowed to own shares in and be paid dividends from a title company? Is a lender allowed to offer an incentive to a real estate professional for sending business their way?  Is this illegal?  Or is entrepreneurial?

These are all questions that a buyer or seller may encounter during their real estate transcations. Knowing the answers can keep you safe from getting into a legally sticky situation.

A closing on a residential property is memorialized on a settlement statement.  A settlement statement is basically a balance sheet of what is owed by the buyer and seller, payments and charges to and by both parties.

The settlement statement and how it is prepared is governed by the Real Estate Settlement Procedures Act or “RESPA.”

So what happens if the listing or selling agent offers the buyer or seller a payment outside of the closing?

“Every payment in connection with the closing must be on the settlement statement and disclosed to all parties” says Judy Schaffer, Broker-Manager of a Coldwell Banker Res. RE, LLC branch office.

There aren’t any exceptions to this rule, it is a violation of RESPA.  So if approached with this type of scenario, decline to be a party to this type of payment outside of closing or “POC”.  It is normal to see seller concessions or repairs paid for by parties to the transaction but there has to be an invoice to the title company and it must be itemized as a line item.

Often a real estate professional will mention they have an affiliated relationship with a specific title company.  This is legal and very common practice among real estate professionals and title companies.  Basically the real estate professional purchased shares in the title company and, as such, they share in the profits over time.  There are very specific RESPA requirements for these entities to exist and to share quarterly or annual profits in the form of dividends to the share owners.

It is also imperative that the real estate professional provides an affiliated business disclosure to the seller or buyer when they make the recommendation.  Without the title company meeting these very specific requirements and disclosure to the parties, this common practice can go from legal to illegal very quickly. 

What about when a real estate professional sends you to a ‘preferred lender’?  Lenders may not offer incentives to real estate professionals or brokers to send business their way in excess of $25 per year says Sandy Kracov, Regional Production Manager for Hillsborough & Central Florida and Senior Loan Officer for Sunbelt Lending Services, Inc.  This is another clear violation of of RESPA guidelines.  More importantly, you want to make sure the recommendation is to a top notch professional and not to someone who frequently sends a gas or coffee gift card to a specific agent.

So, after all is said and done the perfect rule of thumb is to ‘disclose every payment related to any real estate transaction to all parties and make sure it shows up on the settlement statement’.  If you haven’t done these things you could find yourself in a sticky situation.