If you are even remotely involved with fee splitting /referral fees …….the government has you in its sights.

The Federal “SAFE Act” of 2010 empowered HUD and state regulatory agencies with the both the mandate and the means to wipe out “fee splitting” (i.e. referral fees /kickbacks) between mortgage loan originators (MLO) and real estate licensees.

Beginning in 2011, Federal and State agencies and local authorities will be sharing information of compliance audits of licensees …..when those audits reveal payment of compensation to any unlicensed individuals.

Audits can be initiated and data now can be shared between by a host of government agencies including:

IRS  

State Franchise tax Board

HUD

Ca. Dept of Corp

California D.R.E.

Some audits may warrant criminal prosecution from state and local prosecutors.

The following is a typical example of how violators are detected:

MLO Smith agrees to pay a referral fee to Real Estate Broker Jones for buyer referrals. Upon “close of escrow” MLO Smith issues a check (or any form of compensation)  to RE Broker Jones…and at a later date attempts to “write off” that compensation as a legitimate business  expense on both Federal and State tax returns.

After all, is the MLO really going to split a commission while taking the entire “hit” on the taxes?

Later, during an audit... investigators demands MLO Smith provide a SAFE Act licensing number for the recipient of the paid compensation. (It’s just this simple.) “No Safe Act license number” you say….Congratulations!! You hit the “trifecta” of prosecution.

You just lost your professional license, your bank account and probably your freedom.

And so will the recipient (i.e. RE Broker Jones) of the compensation.

Violators’ are subject to (up to) 1 year in federal prison and (up to) a $10,000 fine for each violation.

In your (future) spare time (between working shifts as a Wal-Mart Greeter)….you’ll get the opportunity to prepare for the additional tax audits (for the past 6 years) of tax returns that will certainly follow.

In all probability both co-conspirators will be “marked” for review of future tax returns audits as well.

For the most comprehensive news source for real estate fraud in California, log on to California Real Estate Fraud Report.