Real Estate Settlement Procedures Act
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Real Estate Settlement Procedures Act (RESPA)
A federal consumer protection statute supervised and enforced by the Department of Housing and Urban Development (HUD). First passed in 1974, it requires various disclosures in order to help consumers make more informed decisions when shopping for settlement (real estate closing) services. It also seeks to eliminate kickbacks and referral fees, which unnecessarily increase the costs of certain settlement services. It applies to mortgage loans on single-family housing, duplexes, triplexes, and four-plexes (generally described as “one- to four-family residential property”), whether the loan is for a purchase, refinance,property improvement,or home equity line of credit.
• When borrowers apply for a purchase loan, they must be given a special information book- let regarding various real estate settlement services, a good-faith estimate of settlement costs, and a mortgage servicing disclosure statement regarding whether the lender will service the loan or transfer it to another.
• There must be an affiliated business arrangement disclosure whenever a closing company recommends a particular attorney, appraiser, surveyor or others if that third party is not independent from the closing company. The closing company cannot require use of a particular third party, but the lender can do so in order to protect its interests.
• The settlement agent must provide the consumer with the HUD-1 Settlement Statement, which clearly shows all receipts, all disbursements, all credits and charges, and all fees in connection with the transaction. The borrower may request to see the HUD-1 one day before closing.
• Loan servicing companies must supply an annual escrow statement to borrowers at least once a year. It summarizes all escrow account activity for taxes, insurance, and other escrow items.
• If the loan servicing is transferred, the borrower must be given a servicing transfer statement at least 15 days before the effective date, including a toll-free number and address for the new servicer. If the borrower makes timely payments to the old servicer during the first 60 days after transfer, the borrower cannot be penalized.• Kickbacks and referral fees for settlement service business involving federally insured loans are prohibited, with civil and criminal penalties for violation.
• Sellers may not specify the buyer use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision and receive an amount equal to three times all charges made for title insurance.
• Escrow deposit payments cannot be excessive. Lenders may require borrowers to pay no more than one-twelfth of the total annual disbursements each month, plus a cushion that cannot exceed one-sixth of the total disbursements for the year.