March 27th, 2023 at 3:43 pm
Multiple Choice Question: Is this promotion legal? Pick the best answer:
A. Yes.
B. No, it violates the Real Estate Settlement Procedures Act (RESPA).
C. No, it is an illegal lottery.
D. No.
Answer: Answer D is the correct answer. The agent’s promotion is very likely to be a violation of RESPA (as indicated in Answer B). RESPA is a federal law that generally prohibits real estate agents from giving or receiving anything of value in exchange for the referral of business. RESPA only pertains to sales transactions involving one-to-four residential units with a federally-related mortgage loan as specified. RESPA law defines “anything of value” very broadly, and it does include an opportunity to participate in a money-making program.
Aside from RESPA, California law generally prohibits lotteries and raffles (Answer C). An illegal lottery generally involves the payment of something of value for a chance to win a prize. In our situation, the referral is something of value. It would be improper for an agent to require people to give a referral to be entered into a raffle to win a trip to Cabo.
For more information, C.A.R. has a Referral Fee & RESPA Q&A and a Lotteries and Raffles Q&A (both Q&As are password-protected for C.A.R. members only).
-Thank You to Iris Hirsch (Del Mar Office) for suggesting this week’s legal tip!
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