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Kickback

DEFINITION

Illegal payment by one party to another in return for a referral, a favor, or other compensation.

EXPLANATION

A kickback is an illegal payment in return for one party being bribed to do or not do something. Typically, the kickback is talked about prior to the act occurring including money, services, or goods. A kickback involves collusion between parties to do something illegal with the intent of hiding the occurrence of the events and payments.

The word kickback derives from the idea that the paying party is kicking back a fee in return for a favor. That is it is not a one way streak of help without payment. A common illegal kickback in real estate is a real estate agent getting paid to refer a loan to a loan broker. Another common type of kickback is a contractor inflating the cost of goods to his client so he can gain a higher profit on his work. In this example, the store owner who inflated the invoice would be guilty of assisting the contractor gaining an unfair profit. This type of kickback is rarely, if ever tried in court because it is such a widespread occurrence.

Kickbacks in Politics

Politicians commonly use kickbacks to get favors in return for promoting certain policies, viewpoints, and exemptions for certain groups. In return they typically get campaign donations, personal favors (rides in planes, discounts to places, etc.), and others. Prior to the mortgage collapse of 2008, some politicians had been found guilty of getting below market or no interest loans in return for promoting loan legislation that contributed to the mortgage collapse.

Kickbacks are a major mechanism, if not one of the biggest forms of corruption in government. Oftentimes, many of these kickbacks don’t even take place until the politician is out of office. The need to raise money for campaigns has caused many politicians to push the boundary between legal and illegal methods by working with lobbyists who can get them this capital, even if it means skirting the law.

A kickback describes a misappropriation of money in return for one party using their influence to get the other party they result they want when it is illegal to hire that party. In government this might occur when a politician appropriates funds to a company in return for that company donating to their campaign. This practice is corrupt, however difficult it is difficult to prosecute in court because the company getting the donation has the right to receive a government contract irrespective of their ties to a politician.

A politician has the right to award government contracts to companies. Oftentimes, the parties that are beneficiaries of these contracts are campaign donors, friends, family, and others.

Real Estate Settlement Procedures Act and Kickback

The Real Estate Settlement Procedures Act, more commonly known as RESPA, is a is a federal consumer protection law that helps borrowers be better informed while shopping for mortgage and loan services and makes certain practices illegal.

One such act that was made unlawful by RESPA was the outlawing of lenders to receive kickbacks or referral fees from other service providers. This ensures that consumers receive unbiased information and prevents lenders from simply recommending services for money. Should a lender, broker, or other party violate this provision, they could be subject to damages of up to $10,000 and face up to one year in prison. They could also be held liable for up to three times the fee for which the prospective borrower was charged.

As a general rule, side deals, bonuses, kickbacks, and other “sweetheart deals” are strictly prohibited unless they are already included in the agency agreement. Many real estate firms choose to bar any additional profits, even if they are handled legally.

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