by NAR First Vice President Steve Brown

Taking action that could benefit small businesses and real estate professionals, the House recently passed the Real Estate Settlement Procedures (RESPA) Home Warranty Clarification Act of 2011. If the measure clears the Senate and is signed into law, real estate professionals could again market home warranties more easily to consumers.

In 2010, a ruling reversed decades of common understanding of RESPA. Previously, it was common practice for real estate professional and home warranty companies to partner in providing home warranties to consumers. For nearly two decades, the industry carried on this practice. Then in 2008, HUD called the practice into question and issued a rule in 2010 by the Department of Housing and Urban Development that made it a violation to offer compensation to an agent for the sale of a warranty product. HUD cited that the warranty program was a part of the financial closing process in the purchase of a property, which is indeed under the purview of RESPA.

NAR disagreed. A warranty product, while put in place during the closing of a real estate property, has nothing to do with the buyer’s financial process and therefore not under the purview of RESPA.

HUD’s ruling is not consumer friendly. The result of this ruling was in fact the removal of the real estate professional from the warranty sales process. This in turn hurt consumers because the real estate professional is in the best position to explain and service the warranty when questions or problems arise.

This bipartisan legislation clarifies the intention of Congress with regard to RESPA and warranties. The new legislation restates that home warranties are not covered by RESPA. It also directs the disclosure of any relationship between the real estate professional and the warranty company, which had been the practice before the RESPA rule.

The bipartisan legislation, introduced by Representatives Judy Biggert (R-Ill.) and William “Lacy” Clay (D-Mo.), has 40 co-sponsors. We’re very pleased the House has passed the clarification of RESPA, and NAR will continue to work with our industry partners to pass the measure in the Senate.