Disclosure of Mortgage Loan Originator Fees — By a Sales Transaction Broker — RPI Form 119-1

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This form is used by a seller’s agent when employed by a property owner as their sole agent for a fixed period of time, to list the property for sale, locate a buyer and sell the property.

Your use of RPI Form 119-1

Disclosure of second fees

A broker initially representing a buyer or seller as a transaction agent in a sale occasionally further expects to also receive a mortgage broker fee for originating a mortgage called for in the sales transaction. Here, the broker uses a Disclosure of Mortgage Loan Originator Fee form to inform all interested participants in the transaction of the additional fee arrangements. [See RPI Form 119-1]

Consider a broker and their agent representing a buyer in a sales transaction. In addition to performing agency duties owed to the buyer, the agent intends to receive an additional fee in connection with the mortgage the buyer takes out to fund the purchase price.

To concurrently act as a sales transaction agent and mortgage loan originator (MLO) in expectation of two fees — each for different services — the broker and their agent need to comply with two tiers of law.

The first tier is the federal Real Estate Settlement Procedures Act (RESPA), also known as Regulation X. These federal regs are concerned only with consumer-purpose mortgages, not business purpose mortgages which are exempt as funding an investment, agriculture or business purpose.

RESPA imposes a no-service, no second-fee restriction on real estate brokers and agents who are already acting on behalf of a homebuyer-occupant or home seller (to a buyer-occupant) in a one-to-four unit residential real estate sales transaction. For transaction agents, a referral fee is unlawful activity in the context of consumer purpose mortgages.

When a broker is to receive a fee as a transaction agent, the broker may only receive a fee on the mortgage origination transaction when the broker (or their agents) performs significant services as an MLO endorsed DRE licensee. Thus, the brokerage office needs to perform meaningful activities required of an MLO in packaging the mortgage for funding.

Thus, a broker in a homebuyer transaction may only receive a second fee, in addition to their sales transaction fee, when they or their agents render significant mortgage origination services which otherwise are performed by an MLO or the lender.

A lender or transactional broker is compliant with the no-service, no-second-fee rule when the earnings the broker receives for the second service as an MLO are due for MLO services the broker or their agent rendered. [12 United States Code §2607(c)]

Second, state agency law requires the sales transaction broker receiving a fee in a transaction for any type of property or purpose who additionally receives an MLO fee to disclose to their client all forms of compensation they are to receive which flow from the transaction. Information disclosed includes the total dollar amount of the fees or other consideration and the source of the compensation. [See RPI Form 119]

However, when a broker acts as the buyer’s MLO, agency law requires the second fee to be acknowledged by all participants to the sale and mortgage transactions, including the buyer, seller and lender. [See RPI Form 119-1]

Brokers or their agents have 24 hours after undertaking the mortgage related activity, when performed in expectation of a second fee, to disclose the second fee arrangement and obtain the consent of all participants. Consent precedes any further representation of the client. [See RPI Form 119-1]

Analyzing the disclosure of mortgage loan originator fees

An agent uses the Disclosure of Mortgage Loan Originator Fees; By a Sales Transaction Broker published by RPI when acting as a transaction agent in a sale of property and receiving an additional fee for arranging a mortgage related to the transaction. The form allows the agent to disclose to all parties the receipt of a mortgage-related fee in addition to a sales fee on the transaction. [See RPI Form 119-1]

The Disclosure of Mortgage Loan Originator Fees; By a Sales Transaction Broker contains:

- Facts: the type of transaction, date of the agreement, relevant real estate, and identities of the buyer, seller and lender [See RPI Form 119-1 §§1 and 2];
- Mortgage transaction related to the sale: the purpose and principal amount of the mortgage [See RPI Form 119-1 §3];
- Disclosure of mortgage loan originator compensation: the source, form and amount of the broker’s additional MLO fee [See RPI Form 119-1 §§4 and 5]; and
- Signatures of the broker, buyer, seller and lender. [See RPI Form 119-1 §§7 through 10]