Real Estate Information

RESPA: The Real Estate Settlement Procedures Act


The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. One of its purposes is to help consumers become better shoppers for settlement services. Another purpose is to eliminate kickbacks and referral fees that increase unnecessarily the costs of certain settlement services. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

Generally, RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division is responsible for enforcing RESPA.

More RESPA Facts

DISCLOSURES:

Disclosures At The Time Of Loan Application

When borrowers apply for a mortgage loan, mortgage brokers and/or lenders must give the borrowers:

a Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only).

a Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use of a particular settlement provider, then the lender must disclose this requirement on the GFE.

a Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.

If the borrowers don't get these documents at the time of application, the lender must mail them within three business days of receiving the loan application. If the lender turns down the loan within three days, however, then RESPA does not require the lender to provide these documents. The RESPA statute does not provide an explicit penalty for the failure to provide the Special Information Booklet, Good Faith Estimate or Mortgage Servicing Statement. Bank regulators, however, may impose penalties on lenders who fail to comply with federal law.

Disclosures Before Settlement (Closing) Occurs

A Controlled Business Arrangement (CBA) Disclosure is required whenever a settlement service provider involved in a RESPA covered transaction refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest.

The referring party must give the CBA disclosure to the consumer at or prior to the time of referral. The disclosure must describe the business arrangement that exists between the two providers and give the borrower estimate of the second provider's charges. Except in cases where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender's interest in the transaction, the referring party may not require the consumer to use the particular provider being referred.

The HUD-1 Settlement Statement is a standard form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows the borrower to request to see the HUD-1 Statement one day before the actual settlement. The settlement agent must then provide the borrowers with a completed HUD-1 Settlement Statement based on information known to the agent at that time.

Disclosures at Settlement

The HUD-1 Settlement statement shows the actual settlement costs of the loan transaction. Separate forms may be prepared for the borrower and the seller. it is not the practice that the borrower and seller attend settlement, the HUD-1 should be mailed or delivered as soon as practicable after settlement.

The Initial Escrow Statement itemizes the estimated taxes, insurance premiums and other charges anticipated to be paid from the escrow account during the first twelve months of the loan. It lists the escrow payment amount and any required cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

Disclosures After Settlement

Loan servicers must deliver to borrowers an Annual Escrow Statement once a year. The annual escrow account statement summarizes all escrow account payments during the servicer's twelve month computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken.

A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer. Generally, the loan servicer must notify the borrower 15 days before the effective date of the loan transfer. As long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.

Respa's Consumer Protections And Prohibited Practices

Section 8: Kickbacks, Fee-Splitting, Unearned Fees

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.

Section 9: Seller Required Title Insurance

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

Section 10: Limits on Escrow Accounts

Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance and other charges related to the property. RESPA does not require lenders to impose an escrow account on borrowers; however, certain government loan programs or lenders may require escrow accounts as a condition of the loan.

At settlement, Section 10 of RESPA prohibits a lender from requiring a borrower to deposit more than the aggregate amount needed to cover escrow account payments for the period since the last charge was paid, up until the due date of the first mortgage installment.

During the course of the loan, RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year.

The lender must perform an escrow account analysis once during the year and notify borrowers of any shortage. Any excess of $50 or more must be returned to the borrower.

Respa Enforcement

Civil law suits

Individuals have one (1) year to bring a private law suit to enforce violations of Section 8 or 9. A person may bring an action for violations of Section 8 or 9 in any federal district court in the district in which the property is located or where the violation is alleged to have occurred. HUD, a State Attorney General or State insurance commissioner may bring an injunctive action to enforce violations of Section 8 or 9 of RESPA within three (3) years.

Loan Servicing Complaints

Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer's required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, against a servicer who fails to comply with Section 6's provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance.

Other Enforcement Actions

Under Section 10, HUD has authority to impose a civil penalty on loan servicers who do not submit initial or annual escrow account statements to borrowers. Borrowers should contact HUD's Office of Consumer and Regulatory Affairs to report servicers who fail to provide the required escrow account statements.

Filing a RESPA Complaint

Persons who believe a settlement service provider has violated RESPA in an area in which the Department has enforcement authority (primarily sections 8 and 9), may wish to file a complaint. The complaint should outline the violation and identify the violators by name, address and phone number. Complainants should also provide their own name and phone number for follow up questions from HUD. Requests for confidentiality will be honored. Complaints should be sent to:

Director, Interstate Land Sales/RESPA Division

Office of Consumer and Regulatory Affairs
U.S. Department of Housing and Urban Development
Room 9146
451 7th Street, SW,
Washington, DC 20410

More information about RESPA, including the complete text of the statute, updates, proposed modifications, etc, can be found at the RESPA Home Page, which is part of the FHA Housing Web site.

Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President's Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: http://neda.dabestani.pcragent.com/

Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.

  


MORE RESOURCES:

Deseret News

Consumers warned to beware of real estate scam
Deseret News
The Utah Division of Real Estate is warning Utah consumers to be aware of a scam that targets property transactions through fake emails in an effort to trick people into wiring loan transfers and other high dollar amounts to fraudulent accounts. The ...

and more »


Houston Chronicle

Agents say real estate market isn't as fun as it used to be
Houston Chronicle
Ferguson, who's been selling real estate since 2001, focused on foreclosed homes during the housing crisis and the early part of the recovery, and went back to traditional home sales in 2013 after most of the foreclosure backlog was cleared. The ...

and more »


Sun Sentinel

Palm Beach County's taxable property values near pre-Recession highs
Sun Sentinel
... to County Property Appraiser Gary Nikolits. That's nearing the historic high of $169.5 billion reached in 2007. But the most recent economic indicators show growth could be slowing, said Ken Johnson, a real estate economist at Florida Atlantic ...

and more »


The San Diego Union-Tribune

Study: San Diego is 8th hottest city for real estate
The San Diego Union-Tribune
When it comes to supply and demand, metro San Diego was the eighth “hottest” home market in the United States in May, said a monthly report from Realtor.com. San Diego County jumped five spots from April to make the Top 10 of the website's hotness ...
Stockton is 5th hottest real estate marketKCRA Sacramento
San Diego Ranked 8th 'Hottest' Real Estate Market in MayTimes of San Diego

all 7 news articles »


Real Estate Roundup: May 27, 2016
Boston Business Journal
The borrower was an affiliate of Longfellow Real Estate Partners. HFF placed the five-year fixed-rate loan with Capital One Healthcare. The four-story property is fully leased to seven tenants, including five biotech companies, an indoor cycling studio ...



New York Post

Hot Hamptons real estate market has magazines feasting
New York Post
Other more established players are reporting double- digit ad-page hikes — and the booming real estate market is playing a big role. “The high-end real estate market is completely booming,” said Kelli Delaney, a former celebrity magazine editor who ...

and more »


Al-Arabiya

Dubai real estate prices fell 'up to $6800' over past year
Al-Arabiya
Property prices in several areas in Dubai - a real estate hotspot and regional safe-haven - have fallen by as much as $6,800 in the past year, a new report suggests. In high-end areas of the city, which are populated by large numbers of wealthy locals ...

and more »


Associate of Utah real estate investing guru sent to prison
Salt Lake Tribune
A federal judge has sentenced a former associate of Rick Koerber, the one-time Utah County real estate investment guru, to 6½ years in federal prison for a fraudulent deal in which he pocketed nearly $2 million. Gabriel Joseph had been a student of ...



The Hindu

Robust momentum seen in real estate
The Hindu
Spurred by a host of positive factors, the real estate sector gained robust momentum during 2015 with nearly all pointers going up over the graphs. Office space leasing surpassed the 50 million square feet (msf) mark last year in the top eight cities ...
Meet the PBJ's Commercial Real Estate Award winners (Photos)Portland Business Journal (blog)

all 3 news articles »


Observer

The Lies, Cover-Ups and Half-Truths About Investing in Real Estate
Observer
Why do so many people think buying a house is part of the American Dream? The cultural programming around buying a house—not renting—is so strong, most people don't even realize where it comes from. Our parents tell us “real estate is the best ...


Google News

Article List | Index | Site Map
All logos, trademarks and articles on this site are property and copyright of their respective owner(s).
The comments are property of their posters, all the rest is Copyright © 2006 CanadaSEEK.com - All Rights Reserved.