86 [78 Op. Att’y

 The section contains certain exceptions that are not relevant to

1

your inquiry. 

CONSTITUTIONAL LAW ) PREEMPTION — PROPERTY — FEDERAL

LAW DOES NOT PREEMPT MARYLAND LAW PROHIBITING

KICKBACKS IN CONNECTION WITH REAL ESTATE SETTLEMENTS

January 27, 1993

The Honorable Donald C. Fry

House of Delegates

You have requested our opinion concerning the effect of recent

federal regulations on Article 27, §465A of the Maryland Code.

Specifically, you ask whether the Maryland statute has been

preempted by the revised Regulation X of the federal Department of

Housing and Urban Development.

For the reasons stated below, we conclude that Article 27,

§465A has not been preempted. 

I

Maryland Anti-Kickback Legislation

 Article 27, §465A broadly prohibits kickbacks or other types

of referral payments in connection with real estate settlements: “No

person, firm, or corporation having any connection whatsoever with

the settlement of real estate transactions involving land situated and

lying in this State, shall, for the purpose of soliciting, obtaining,

retaining, or arranging any real estate settlement for real estate

settlement business, pay to or receive from, any other person, firm,

or corporation any fee, compensation, gift (except promotional or

advertising materialsfor general distribution), thing of value, rebate,

or other consideration, including loans and advancements of

commissions or deposit moneys.” A violation of this provision is a

misdemeanor punishable by fine or imprisonment.1

This prohibition was enacted as Chapter 756 of the Laws of

Maryland 1967 in essentially its present form. Although we are not
Gen. 86] 87

 One illustration, drawn from the explanatory material in the HUD 2

regulation, conveys the essence of what is now permitted under federal

law: Suppose that A, a franchisor for franchise real estate brokers, owns

B, a provider of settlement services. C, a franchisee of A, refers business

to B. Under this controlled business arrangement, and assuming that

certain disclosure and other requirements of the regulation are satisfied,

B is permitted to make payments to A of dividends representing a return

on A’s ownership interest.

aware of any legislative history bearing on the purpose of the

provision, it is evidently intended to prevent a real estate broker, for

example, from having a financial incentive to steer a purchaser of

real property to a particular provider of settlement services.

Presumably, the General Assembly perceived that the purchaser

would be better served if advice about settlement services was free

of such bias. 

II

Regulation X

On November 2, 1992, the federal Department of Housing and

Urban Development (“HUD”) adopted a final rule detailing the

requirements of the Real Estate Settlement Procedures Act of 1974

(“RESPA”), taking into account certain amendments in 1983. See

24 C.F.R. Part 3500. 

RESPA generally prohibits any fee or kickback for a referral

of “business incident to or part of a settlement service ....” 12 U.S.C.

§2607. As amended in 1983, however, RESPA allows certain

payments among participants in a “controlled business

arrangement.” 12 U.S.C. §2607(c)(4). A “controlled business

arrangement” is one in which a person in a position to refer

settlement business “has either an affiliate relationship with or a

direct or beneficial ownership interest of more than 1 percent in a

provider of settlement services” and refers business to that provider.

12 U.S.C. §2601(7).

For purposes of this opinion, we need not explore the details

under which payments otherwise prohibited by RESPA may be

made among participants in a “controlled business arrangement.”2
88 [78 Op. Att’y

 Regulation X provides that: “Upon request by any person, the 3

[HUD] Secretary is authorized to determine if inconsistencies with State

law exist ....” 24 C.F.R. §3500.1(b).

The key point is that Article 27, §465A prohibits certain payments

that federal law allows in controlled business arrangements. The

question, then, is whether federal law preempts the Maryland

prohibition. 

III

Preemption Analysis

RESPA preempts state laws only to the extent of any

inconsistency with RESPA. The HUD Secretary is given authority

to determine whether such inconsistencies exist but “may not

determine that any State law is inconsistent with any provision of

[RESPA] if the Secretary determines that such law gives greater

protection to the consumer.” 12 U.S.C. §2616. Moreover, 3

Regulation X states as follows: 

In determining whether provisions of

State law or regulations concerning controlled

business arrangements are inconsistent with

RESPA or this part, the Secretary may not

construe those provisions that impose more

stringent limitations on controlled business

arrangements as inconsistent with RESPA so

long as they give more protection to

consumers and/or competition.

24 C.F.R. §3500.13(b)(2). 

Congress and HUD enacted these preemption provisions with

presumed knowledge of the well-established “assumption that the

historic police powers of the States were not to be superseded by

[federal statute] unless that was the clear and manifest purpose of

Congress.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230

(1947). Hence, express preemption provisions like these are to be
Gen. 86] 89

construed narrowly “in light of the presumption against the

preemption of state police power regulations.” Cipollone v. Liggett

Group, Inc., 112 S.Ct. 2608, 2618 (1992).

A narrow application of RESPA preemption means that the

HUD Secretary could find Article 27, §465A to be preempted only

if the Maryland law manifestly failed to give greater protection to

the consumer than does RESPA. But surely the General Assembly

could reasonably conclude that, even if a property buyer is dealing

with a participant in a “controlled business arrangement” as defined

by federal law, advice about settlement services should be offered

without the prospect of financial inducement. Under this view,

Article 27, §465A provides greater protection to consumers than

RESPA by eliminating such inducements, for which the consumer

would indirectly pay. While we do not doubt that economic

arguments the other way could be mounted, RESPA preemption,

construed narrowly as it should be, leaves such fairly debatable

policy judgments to the states. 

We recognize that the HUD Secretary has ultimate authority to

decide whether Article 27, §465A indeed “gives greater protection

to the consumer.” See Greenwald v. First Fed. Savings & Loan

Ass’n, 446 F. Supp. 620, 625 (D. Mass. 1978), aff’d 591 F.2d 417

(1st Cir. 1979). But, in our opinion, if the Secretary applies the law

correctly, he would conclude that §465A is not preempted. 

IV

Conclusion

In summary, it is our opinion that Article 27, §465A of the

Maryland Code is not preempted by federal law. 

J. Joseph Curran, Jr.

Attorney General

Jack Schwartz

Chief Counsel

Opinions & Advice