MSAs are arrangements that commonly involve one or entity agreeing to market or promote the services of another and receiving compensation in return. MSAs usually involve settlement service providers and may also include third parties who are not settlement service providers. For example, an MSA exists when a title company agrees to market or promote the services of a real estate agent in return for compensation.

According to Holly Bunting, partner of the law firm Mayer Brown, the Consumer Financial Protection Bureau (CFPB) has affirmed MSAs are permissible as long as the agreements are carefully structured to meet the requirements of Section 8(c) (2) of RESPA. The CFPB has warned a particular MSA could violate RESPA depending on specific facts and circumstances.

A lawful MSA involves marketing services that are “actual, necessary, and distinct” from the primary services performed by the provider. Payments under the MSA must be reasonably related to the value of the services actually performed and not be a duplicative charge or a fee for referrals.

The CFPB says there would be a RESPA violation if the payment for marketing services was in excess of the reasonable market value for the services performed. The MSA could also be in violation of RESPA if the parties have an agreement to pay for marketing services but either as structured or when implemented, the services are not actually performed, the services are nominal or the payments are duplicative. The agreement can’t be designed or implemented in a way to disguise the payment for kickbacks or split charges.

As an example, assume a title company enters into an MSA with a real estate agent that also makes referrals to the title company. The MSA requires the real estate agent to perform marketing services, including deciding on and coordinating direct mail campaigns and media advertising for the title company. However, the real estate agent either does not actually perform the MSA’s identified marketing services or the real estate agent is paid compensation that is in excess of the reasonable market value of those services.

In this scenario, the title company and real estate agent would not meet the standard in RESPA Section 8(c)(2), because the marketing services are not actually provided, or the payments are not reasonably related to the value of the marketing services provided. This type of violation is covered in the RESPA language under 12 CFR § 1024.14(g)(1)(iv). Further, if in the example the MSA was structured or implemented as a way for the lender to compensate the real estate agent for client referrals to the lender, the MSA would violate RESPA Section 8(a).

An important distinction to know is if you’re paying for a service or a referral. Under a valid MSA, advertisements must be targeted to a wide public audience. Examples of marketing services include placing ads for a settlement service provider in widely circulated media (e.g., newspaper, trade publication, banner ad on a website, brochures, signage or rider signs). “A service that’s directed to the general public is a bona fide service from an advertising perspective,” Bunting said.

According to Bunting, here are some general considerations when structuring a compliant MSA:

• Comply with the Section 8(c)(2) two-part test
• Consider whether a business purpose exists for the agreement
• Cushion between amount paid and fair market value
• Anything exceeding fair market value is considered a referral fee
• Consider whether the agreement is similar to conduct that is the subject of CFPB enforcement actions

Bunting recommends companies get a third-party valuation of MSA-related marketing services to help defend the calculation of fair-market value.

“It’s always helpful to be able to point to an independent third party who has no stake in your arrangement or your business and has looked at the services being performed and arrived at that fairmarket value,” Bunting said.

You should also verify that services are being performed. Bunting said to make sure the real estate or mortgage broker who is advertising your title agency is performing the services before paying them. One best practice would be to request that marketing partners provide monthly evidence of successful ad placement. Another effective strategy is to send an employee to do the verification and gather evidence. If the fees paid under an MSA change, Bunting said title agents will want to make sure they have a legitimate reason. While return on investment is not an acceptable practice, a change in services is a reason to make alterations.

“If you intended for the sign riders to be on 50 for-sale signs, but the brokerage has grown in size and is actually averaging 100 or 200 new listings a month, that’s an increase in service and would be why you could change the marketing fee to reflect that service,” Bunting said.

Finally, disclosure to consumers about the relationship is encouraged based on the 2010 guidance from HUD. The guidance said consumers should know that when they see an advertisement or co-branded signage, that this is due to a paid relationship and not just a referral fee. Bunting said providing a disclosure is a good best practice. This can be achieved with the words “paid advertisement” in the margin of a banner ad on a website. Some real estate brokerages include a paper disclosure as part of the sales contract. The key is that the consumer understands there is a paid relationship, Bunting added.

Co-advertising is another element that often comes up. Some companies may want to co-brand marketing flyers or newspaper, internet, TV or radio advertisements.

Joint advertising is where both parties are on the face of the advertisement and split the cost based on their prominence in the ad. Bunting thinks coadvertising generally doesn’t work in an MSA. Instead, this type of promotion should be considered as a separate arrangement altogether.

By definition and in practice, an MSA is a list of advertising services the real estate or mortgage broker performs for the title company. Co-advertising includes various opportunities that arise where the companies split the cost. This could be a one-off basis or companies may enter into a co-advertising agreement.

“You should think about them differently than an MSA,” Bunting said.