We have been told by an outside consultant that the following situation requires an Affiliated Business Arrangement disclosure:

1. Lender refers or the borrower chooses Attorney A to provide settlement services on a federally related real estate loan.

2. Attorney A is a member of the Board of Directors of the bank and has .16% ownership in the bank.

3. None of the fee is retained by the bank.

The question ...is the bank required to provide an affiliated business arrangement disclosure in this situation? Based on my interpretation of RESPA and Reg X I don't think so ...but I could be wrong.

§ 3500.15 Affiliated business arrangements.

(a) General. An affiliated business arrangement is defined in section 3(7) of RESPA (12 U.S.C. 2602(7)).

RESPA Section 3(7)
SEC. 3. For purposes of this Act--

(7) the term "affiliated business arrangement" means an arrangement in which (A) a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; and (B) either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider;

Any help or opinion would be appreciated,

I agree with your consultant on this. The director has more then 1% ownership of the settlement service provider, and as a member of the board has the ability (or I should say perceived ability) to "indirectly" cause business to be referred to him/her.

Thank you ...but the Board member only has 0.16% ownership in the bank.

I don't mind complying and have generated the proper disclosure ...just felt it was a little much.

I also agree with Dan and your consultant. Your director, by definition ( see HUD's Reg X 3500.15(c)(4)(i)) has "control"; therefore, any business referred by the bank to the director or by the director to the bank would require the AfBA disclosure.

I would like to dredge up this post to put a twist on the issue...If the director of the bank were the CEO of the settlement service provider, but did not have an ownership interest of more than 1% in the settlement service provider, would this still be considered an AfBA? Would this fall under the "affiliate relationship" clause, and therefore be an AfBA?