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RESPA
Real Estate Settlement Procedures Act
(Information from HUD's home page)
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.
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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.
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DISCLOSURES BEFORE SETTLEMENT (CLOSING)
OCCURS
An Affiliated Business Arrangement (AfBA) 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 AfBA 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 an 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 Settlement 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. Where 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 deposits and 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.
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 6 within three years.
Lawsuits for violations of Section 6, 8, or 9 may be brought
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 6, 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, within three years,
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 6, 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
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