In order for a referral to be valid under RESPA, what cannot occur?

A valid referral under the Real Estate Settlement Procedures Act (RESPA) must ensure that certain conditions are met to prevent conflicts of interest and protect consumers. One key factor is that there cannot be a requirement for the use of a specific title agency as a condition for a referral.

When a referral mandates that a consumer must use a particular service provider, like a title agency, it can create undue pressure and influence, undermining the consumer's freedom to shop for services. RESPA seeks to promote transparency and fair competition, which involves allowing consumers to choose their own providers without coercion or restrictions. Therefore, requiring the use of a specific title agency invalidates the referral and could lead to violations of RESPA regulations.

In contrast, the other elements—disclosure of the affiliated business arrangement, receiving a return on ownership interest, and providing written disclosure—are all permissible practices under RESPA, given that they are conducted transparently and appropriately. These practices aim to keep consumers informed, ensuring that any financial interests are disclosed and that consumers are aware of their options.