The Real Estate Settlement Procedures Act (RESPA) is a federal law in the United States that regulates the way in which real estate transactions are conducted. It was enacted in 1974 and is administered by the Department of Housing and Urban Development (HUD). The main purpose of RESPA is to protect consumers by requiring disclosure of certain information and limiting certain practices that could be considered abusive or discriminatory. It requires mortgage lenders to provide borrowers with detailed information about the costs of a mortgage loan, and also requires that borrowers be provided with a good faith estimate of closing costs before they agree to the loan. Additionally, it also prohibits certain practices such as kickbacks and referral fees among real estate professionals.
The Real Estate Settlement Procedures Act (RESPA) applies to most residential real estate transactions that involve a mortgage loan. This includes transactions where the borrower is purchasing a new home, refinancing an existing mortgage, or obtaining a home equity loan. RESPA applies to all parties involved in the transaction, including the borrower, the lender, and any real estate professionals such as real estate agents and title companies. The law applies to all types of mortgages, including fixed-rate and adjustable-rate mortgages, and to all types of properties, including single-family homes, condos, and multi-unit buildings.
Under RESPA, mortgage lenders are required to provide borrowers with a good faith estimate of closing costs within three days of receiving a loan application. This estimate must itemize all of the costs associated with the loan, including origination fees, title insurance, and other charges. Additionally, RESPA requires that lenders provide borrowers with a HUD-1 Settlement Statement at least one day before the closing. This statement must itemize all of the charges and fees for the transaction.
RESPA also prohibits certain practices such as kickbacks and referral fees among real estate professionals. For example, it is illegal for a real estate agent to receive a referral fee for steering a borrower to a particular lender or title company. It also prohibits the practice of offering or accepting any fee, kickback, or thing of value for the referral of settlement service business involving a federally related mortgage loan.
Some key provisions of RESPA include:
- Good Faith Estimate: Lenders are required to provide borrowers with a Good Faith Estimate (GFE) of closing costs within three days of receiving a loan application. The GFE must itemize all of the costs associated with the loan, including origination fees, title insurance, and other charges.
- HUD-1 Settlement Statement: Lenders must provide borrowers with a HUD-1 Settlement Statement at least one day before the closing. This statement must itemize all of the charges and fees for the transaction, and must match the GFE provided earlier.
- Prohibition of kickbacks and referral fees: RESPA prohibits the payment of kickbacks or referral fees among real estate professionals, including real estate agents, mortgage brokers, and title companies. This is to prevent these professionals from steering borrowers to certain lenders or services in exchange for financial incentives.
- Servicing Disclosure: Lenders are required to disclose information about loan servicing to the borrower, including the name, address, and telephone number of the loan servicer, and how to contact the servicer.
- Error Resolution: RESPA requires servicers to establish procedures for borrowers to report errors or to request information about their mortgages. Servicers must also acknowledge receipt of a borrower’s complaint or inquiry in writing and provide the borrower with the results of its investigation.
- Limitation on Escrow Account: RESPA limits the amount that a servicer can require a borrower to maintain in an escrow account for taxes and insurance.
- Prohibition on Force-Placed Insurance: RESPA prohibits servicers from obtaining force-placed insurance on a borrower’s property without first providing notice and opportunity for the borrower to obtain their own insurance.
Real Estate Settlement Procedures Act (RESPA) Responsibilities and Accountabilities
The Real Estate Settlement Procedures Act (RESPA) is a federal law that regulates the closing process for residential real estate transactions. It is designed to protect consumers from potential abuses in the mortgage lending and settlement process. The law applies to all federally related mortgage loans and has specific provisions that create responsibilities and accountabilities for various parties involved in a real estate transaction. Some of the key responsibilities and accountabilities under RESPA include:
- Disclosure of Fees and Charges: Lenders and settlement service providers must disclose all charges and fees associated with the transaction to the borrower in writing. This includes a Good Faith Estimate (GFE) and a Settlement Statement (HUD-1) that itemize all charges and fees.
- Prohibition of Kickbacks and Referral Fees: RESPA prohibits the payment or receipt of kickbacks, referral fees or other things of value in exchange for the referral of settlement service business.
- Escrow Accounts: Lenders are required to establish escrow accounts for the payment of certain property-related expenses, such as property taxes and insurance, for a period of time following closing.
- Prohibition of Dual Agency: RESPA prohibits a person from acting as a real estate broker and a settlement service provider in the same transaction.
- Right to Cancel: Borrowers have the right to cancel certain services within three days of signing a loan application or settlement service contract.
- Record Keeping: Lenders, mortgage brokers and service providers must maintain records of all transactions for a period of 3 years.
- Compliance with Servicing and Loss Mitigation rules: Lenders and servicers must comply with the servicing and loss mitigation rules of the RESPA.
- Responsibilities of the Servicers: Servicers must provide borrowers with information about their loan, respond to qualified written requests and must follow loss mitigation procedures.
Real Estate Settlement Procedures Act (RESPA) Sanctions and Remedies
The Real Estate Settlement Procedures Act (RESPA) is a federal law that regulates the closing process for residential real estate transactions. It is designed to protect consumers from potential abuses in the mortgage lending and settlement process. The law applies to all federally related mortgage loans and has specific provisions that set out sanctions for violations of the act and its rules. Some of the key sanctions under RESPA include:
- Civil Penalties: The Consumer Financial Protection Bureau (CFPB) can impose civil penalties on lenders, mortgage brokers, and other settlement service providers that violate RESPA. These penalties can include fines, disgorgement of ill-gotten gains, and other sanctions.
- Cease-and-Desist Orders: The CFPB can issue cease-and-desist orders to prevent lenders, mortgage brokers, and other settlement service providers from continuing to violate RESPA.
- Suspension or Bar of Officers and Directors: The CFPB can bar or suspend officers and directors of a company that violates RESPA from serving as officers or directors of any company.
- Restitution: The CFPB may order restitution to consumers who have been harmed by violations of RESPA.
- Investor Remedies: Consumers who have been harmed by violations of RESPA may bring private civil actions to recover damages.
- Injunctions: The CFPB can bring an action in federal court to seek an injunction to prevent a lender, mortgage broker, or other settlement service provider from violating RESPA.
- Referral to other agencies: The CFPB may refer violators of RESPA to other federal or state agencies for further action.