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 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.
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