TABLE OF CONTENTS
Introduction
The
Real Estate Settlement Procedures Act (RESPA) is a consumer
protection statute, first passed in 1974. The purposes of RESPA
are
- to
help consumers become better shoppers for settlement services
and
- to
eliminate kickbacks and referral fees that unnecessarily increase
the costs of certain settlement services.
Details
about RESPA
Corresponding
with the above purposes:
1.
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.
2. 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.
RESPA in general
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 RESPA and
Interstate Land Sales is responsible for enforcing RESPA.
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RESPA required 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) and
- 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 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. However, bank regulators
may choose to impose penalties on lenders who fail to comply with
federal law. Please read the section on RESPA enforcement for more
information.
Disclosures
before settlement/closing occurs
The
terms "settlement" and "closing" can be and
are used interchangeably.
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
the seller both attend the 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.
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RESPA'S statutes
explained: 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.
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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 RESPA and
Interstate Land Sales 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,
Office of RESPA and Interstate Land Sales
US Department of Housing and Urban Development
Room 9154
451 7th Street, SW
Washington, DC 20410 |
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