Ethics and engineers - InspectionNews

Jim Luttrall · #1 (**permalink**) 06-15-2007, 12:28 PM

I just got this email promising a $75 referral fee for each foundation inspection referral this company gets. Needless to say, they won't get any from me!

"INSPECTORS !!!

We will send you a $75.00 check for every foundation inspection referral you send that we inspect for which we are paid. Your referral check will be sent within 2 weeks after the inspection, guaranteed. Fill out the attached form and fax or mail it to us.

We are looking forward to doing business with you.

Thanks for your time.
PAL Engineering
Palengineering@gmail.com"

I have notified TREC and sent these folks a copy the last time I got this. I guess there is no ethical or legal standard preventing this at the engineers licensing level. Maybe it is just me, but it seems slimy. Pardon me, but I have to go take a shower now!
Jim

Richard Rushing · #2 (**permalink**) 06-15-2007, 12:41 PM

You got it... it smells pretty funny. Too much room for some people to be quick to recommend a PE. I can't tell you how many times I'm asked the name and number of a structural engineer...

Usually, if it doesen't pass the smell test... it's not a worth while endeavour.

Rich

Phillip Stojanik · #3 (**permalink**) 06-16-2007, 10:59 AM

And of course, we as TREC licensed inspectors would be in violation of TREC ethics rules if we were to accept that referral fee!

I am not a lawyer but it is my opinion that Mr. Page may be in violation of the federal Real Estate Settlement Procedures Act (RESPA) regarding referral fees. Home inspectors and engineers are considered to be Settlement Service Providers when providing services for buyers and sellers of real property. If Mr. Page is passing all or part of that referral fee on to the client, then he is running up the cost of settlement services to the home buying public.

Thom Walker · #4 (**permalink**) 06-16-2007, 11:38 AM

Phillip,
Actually, as long as you disclosed that you accepted a fee from them, no, you wouldn't be in violation. The idea will make anyone who accepts ethically challenged in my opinion, but if they disclose, they can do it.

Phillip Stojanik · #5 (**permalink**) 06-17-2007, 10:30 AM

Quote:

Originally Posted by Thom Walker

Actually, as long as you disclosed that you accepted a fee from them, no, you wouldn't be in violation. The idea will make anyone who accepts ethically challenged in my opinion, but if they disclose, they can do it.

Not exactly Thom. The disclosure form (REI 7B-0) that TREC created is not a license to break the law. It is intended for disclosure of legally accepted or paid fees to non settlement service providers.
The fine print at the bottom of the form reads…

"The form of this addendum has been approved by the Texas Real Estate Commission for use by licensed real estate inspectors. Such approval relates to this form only. No representation is made as to the legal validity or adequacy of any provision in any specific transactions. It is not suitable for complex transactions. Texas Real Estate Commission, P.O. Box 12188, Austin, TX 78711-2188, 1-800-250-8732 or (512) 459-6544 (http://www.trec.state.tx.us)"

RESPA still applies and, in a sense, this is TREC giving an inspector a little rope with which to hang himself.

Nolan Kienitz · #6 (**permalink**) 06-17-2007, 05:59 PM

Quote:

Originally Posted by Jim Luttrall

PAL Engineering
Palengineering@gmail.com"

Jim,

Note the e-mail address. It is a FREE account from Google mail. Does not even have the "hoodspa" to have a valid owned/operated website with their company name.

I can understand having the Yahoo, Google, MSN, etc., etc., for personal email accounts, but NOT your business .... not even we inspectors. We are and should have a professional presentation that includes a "legit" e-mail address.

Sry ... but it is one of my pet peeves.

Thom Walker · #7 (**permalink**) 06-17-2007, 08:29 PM

Quote:

Originally Posted by Phillip Stojanik

Not exactly Thom. The disclosure form (REI 7B-0) that TREC created is not a license to break the law. It is intended for disclosure of legally accepted or paid fees to non settlement service providers.
The fine print at the bottom of the form reads…

"The form of this addendum has been approved by the Texas Real Estate Commission for use by licensed real estate inspectors. Such approval relates to this form only. No representation is made as to the legal validity or adequacy of any provision in any specific transactions. It is not suitable for complex transactions. Texas Real Estate Commission, P.O. Box 12188, Austin, TX 78711-2188, 1-800-250-8732 or (512) 459-6544 (http://www.trec.state.tx.us)"

RESPA still applies and, in a sense, this is TREC giving an inspector a little rope with which to hang himself.

Phillip,
The form is attached. I think it says exactly what I said. Help me understand where I'm missing something, please. I'm talking about disclosure. No one is talking about illegal referrals. Whether this ethically challenged engineer is breaking the law is for detrmination by someone else.

Phillip Stojanik · #8 (**permalink**) 06-18-2007, 10:43 AM

Quote:

Originally Posted by Thom Walker

Phillip,
The form is attached. I think it says exactly what I said. Help me understand where I'm missing something, please. I'm talking about disclosure. No one is talking about illegal referrals. Whether this ethically challenged engineer is breaking the law is for detrmination by someone else.

Obviously I am not an attorney but I will try and explain what I have been told by attorneys in the past. I also do not officially speak for TREC so keep that in mind as well!

The Inspector Committee talked to the TREC attorneys about form REI 7B-0 back when the ethics for inspectors were being re-written. We had received an opinion from a RESPA attorney who pointed out that the form seemed to lend legitimacy to "transactions" that were potentially illegal under RESPA laws.

TREC pointed out that there are legitimate and legal uses for the form. The form is intended to inform the public about transactions that might otherwise be hidden yet legally going on around the home purchase transaction.

The most notable example of a legal use of the form would be to disclose the fee some inspectors receive when using the Brinks alarm inspection service. In this transaction, Brinks is not considered to be a "settlement service provider" per RESPA because their service is free to the public and the public is under no obligation to do business with Brinks thereafter. If the buyer ever establishes a working relationship with Brinks, it will only be after the closing when the sales transactions has already settled through escrow.

In terms of RESPA, violations generally occur between "settlement service providers". Even still, legal transactions can take place between "settlement service providers" as along as a legitimate service is provided by all parties to justify the fees being paid and charged back to the consumer.

For example, if you as an inspector hired a pool company to do an inspection for your client and you paid the pool company directly and added the charges to your own invoice, that would be a legitimate sub-contractor arrangement and would require disclosure to the buyer via REI 7B-0 on the amount you paid the pool contractor for his part of the provided services. (Granted, this kind of arrangement might not be a wise thing to do for other reasons…but that's another topic.)

From TREC's perspective, any time money (or other valuable considerations) change hands during a transaction between other parties, disclosure via form REI 7B-0 is required. What the form does not do is legalize an otherwise potentially illegal transaction just because the form was used to disclose the transaction. That was the point I was trying to make and perhaps I misunderstood your original point. I assumed you were of the opinion that using the form would make everything "OK" when engaging in an otherwise illegal transaction. I see that I was wrong in my hasty assumption?

I have been told that home inspectors are indeed considered to be "settlement service providers" and we do fall under RESPA laws. This would include our engineer friends who inspect homes for home buyers and sellers. TREC however does not regulate engineers who do home inspections working under their PE license and they would fall under the auspice of the Board of Engineers here in Texas and their particular ethics rules. All inspectors across the country (engineer or not) who get involved in real estate transactions however do fall under the Federal RESPA rules!

Now, a TREC inspector who received a referral fee from our engineer friend here would fall under TREC rules and would be required to report to his client that he received a $75 fee from the engineer he referred on REI 7B-0. Not disclosing that fee would potentially get that inspector in trouble with TREC. Disclosing a fee of that nature should get that inspector in trouble with his client, and might eventually even get him into trouble with RESPA depending on all of the circumstances!

Personally, I would not touch that $75 referral fee (or the engineer offering it) with a 10 foot pole so having to disclose anything becomes a mute point for me! I believe you and I are both in agreement on that score?

Thom Walker · #9 (**permalink**) 06-18-2007, 04:19 PM

Yes, we are in agreement.