Under which condition is it legal for settlement service provider A to pay settlement service provider B a portion of fees charged to a borrower?

It is legal for settlement service provider A to pay settlement service provider B a portion of the fees charged to a borrower when service provider B has performed bona fide services to earn that fee. This principle is established to prevent kickbacks and unearned fees in the real estate and mortgage industries. Under federal regulations, particularly the Real Estate Settlement Procedures Act (RESPA), service providers can share fees only if the payment is for actual services rendered, reflecting their real contribution to the transaction.

This requirement ensures that the fees paid are justified and transparent, promoting fairness in the settlement process. It prohibits a situation where payments are made for non-existent services or as a means of compensating for a referral alone, which could lead to inflated costs for the borrower and undermine the integrity of the settlement service providers' roles.

Since this choice emphasizes the need for legitimate service completion, it is crucial for maintaining compliance with federal mortgage-related laws and fostering trust in the mortgage lending process.