If you are considering a Marketing Service Agreement (MSA) or a joint venture, you need to be aware of one important factor and that is compliance. You must iron this out prior to proceeding into any partnership. RESPA violations can be costly to both companies, impacting both your finances and your reputation, so it is vital to have the proper foundation before signing any agreements. MSA or joint venture agreements and rolling documentation protect both partners and their new organization. Each type of partnership will have its pros and its cons, but as mentioned, compliance is the one thing they have in common, so let’s take a deeper dive into both.

In an MSA agreement, the lender can only be paid for services rendered, not for any referrals. Rather than paying for access or opportunities, the brokerage can pay for general advertising. There must be a written agreement between the real estate brokerage and the lender with a third-party valuation done to protect both parties. A monthly validation of services must be documented to meet compliance guidelines. This documentation process is thorough to protect both partners and their organization.  

With a joint venture, licenses for the new joint venture must be obtained in all states where the joint venture will be operating, and the business must also be registered with each state’s secretary of state. There must be a written document of the separation of duties to ensure each entity is fulfilling their expected roles. Compared to an MSA, there will also be more costs associated with starting and operating a joint venture, but with an ownership stake, it can bring higher returns.

Whether you are choosing an MSA or a joint venture for your forthcoming partnership, RESPA compliance is the responsibility of both the brokerage and the lender. To ensure your new entity is compliant, both the brokerage and the lender should have on-site visits from compliance officers. 

Some best practices you should follow to maintain compliance for your MSA or joint venture:

• Show regulators you have a successful Compliance Management System (CMS). Leverage your new lender partner to use their existing CMS or choose a new system together.
• Monitor policies and procedures. Appoint a compliance officer specific to your joint venture or use your lender’s existing compliance team when possible. 
• Reasonable procedure to calculate marketing services. Use a third-party whenever possible.
• Document your calculations and make sure it is consistent with all CMS policies. 
• Document services you are paying for and document that they were completed. This mostly applies to an MSA but can be a good practice for a joint venture as well.
• Monthly invoices, certifications and audits to serve as proof that services paid for were rendered.
• Archive proof of advertising for reference in case of audit.
• Never pay for access, for example paying to attend real estate agent events.
• No exclusive advertising relationships. Limiting the relationships could be a compliance violation. 
• Agreements should not be short-term. An MSA agreement should be a minimum of six months to avoid a perception of paying for production.

One of the most important reasons to use an MSA or form a joint venture is to operate compliantly, long-term, with your mortgage partner.

For more information, please visit cmgfi.com.

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