Question

Sponsoring broker B owns 51% of a title company. He encourages his agents to use the company for their closings. Are there any disclosure requirements?

a) Yes, any interest of more than 1% must be disclosed.
b) Yes, any interest of 50% or more must be disclosed.
c) No, it is the broker who has the interest, not the agent.
d) No, as long as no fee is paid to the agent.

Answer 1

Under RESPA, any significant ownership interest in a title company must be disclosed by a real estate broker to their clients when recommending that company's services. Broker B's 51% ownership requires an Affiliated Business Arrangement Disclosure to ensure transparency and legality in their recommendations.

Step-by-step explanation:

Under the Real Estate Settlement Procedures Act (RESPA), the fact that Broker B owns a 51% interest in a title company and is encouraging agents to use that company for their closings requires disclosure. This is because RESPA and other real estate regulations often mandate that any business affiliations or arrangements that could affect consumer choice or create a conflict of interest must be disclosed to the consumer. Specifically, RESPA Section 8(a) prohibits kickbacks and unearned fees, and Section 8(b) prohibits fee splitting. While Section 8(c) allows for certain affiliated business arrangements, it still requires that a disclosure of this affiliation is made to the client, which is typically referred to as an Affiliated Business Arrangement (ABA) Disclosure. Therefore, the correct answer to the quiz question is (b) Yes, any interest of 50% or more must be disclosed.