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RESPA: The Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act Prohibited PracticesSection 8: Kickbacks,
(RESPA) is a consumer protection statute, Fee-Splitting, Unearned FeesSection 8 of
first passed in 1974. One of its purposes RESPA prohibits anyone from giving or
is to help consumers become better accepting a fee, kickback or any thing of
shoppers for settlement services. Another value in exchange for referrals of
purpose is to eliminate kickbacks and settlement service business involving a
referral fees that increase unnecessarily federally related mortgage loan. In
the costs of certain settlement services. addition, RESPA prohibits fee splitting
RESPA requires that borrowers receive and receiving unearned fees for services
disclosures at various times. Some not actually performed.Violations of
disclosures spell out the costs Section 8's anti-kickback, referral fees
associated with the settlement, outline and unearned fees provisions of RESPA are
lender servicing and escrow account subject to criminal and civil penalties.
practices and describe business In a criminal case a person who violates
relationships between settlement service Section 8 may be fined up to $10,000 and
providers.RESPA also prohibits certain imprisoned up to one year. In a private
practices that increase the cost of law suit a person who violates Section 8
settlement services. Section 8 of RESPA may be liable to the person charged for
prohibits a person from giving or the settlement service an amount equal to
accepting any thing of value for three times the amount of the charge paid
referrals of settlement service business for the service.Section 9: Seller
related to a federally related mortgage Required Title InsuranceSection 9 of
loan. It also prohibits a person from RESPA prohibits a seller from requiring
giving or accepting any part of a charge the home buyer to use a particular title
for services that are not performed. insurance company, either directly or
Section 9 of RESPA prohibits home sellers indirectly, as a condition of sale.
from requiring home buyers to purchase Buyers may sue a seller who violates this
title insurance from a particular provision for an amount equal to three
company.Generally, RESPA covers loans times all charges made for the title
secured with a mortgage placed on a insurance.Section 10: Limits on Escrow
one-to-four family residential property. AccountsSection 10 of RESPA sets limits
These include most purchase loans, on the amounts that a lender may require
assumptions, refinances, property a borrower to put into an escrow account
improvement loans, and equity lines of for purposes of paying taxes, hazard
credit. HUD's Office of Consumer and insurance and other charges related to
Regulatory Affairs, Interstate Land Sales the property. RESPA does not require
RESPA Division is responsible for lenders to impose an escrow account on
enforcing RESPA.More RESPA borrowers; however, certain government
FactsDISCLOSURES:Disclosures At The Time loan programs or lenders may require
Of Loan ApplicationWhen borrowers apply escrow accounts as a condition of the
for a mortgage loan, mortgage brokers and loan.At settlement, Section 10 of RESPA
or lenders must give the borrowers:a prohibits a lender from requiring a
Special Information Booklet, which borrower to deposit more than the
contains consumer information regarding aggregate amount needed to cover escrow
various real estate settlement services. account payments for the period since the
(Required for purchase transactions last charge was paid, up until the due
only).a Good Faith Estimate (GFE) of date of the first mortgage
settlement costs, which lists the charges installment.During the course of the
the buyer is likely to pay at settlement. loan, RESPA prohibits a lender from
This is only an estimate and the actual charging excessive amounts for the escrow
charges may differ. If a lender requires account. Each month the lender may
the borrower to use of a particular require a borrower to pay into the escrow
settlement provider, then the lender must account no more than 1/12 of the total of
disclose this requirement on the GFE.a all disbursements payable during the
Mortgage Servicing Disclosure Statement, year, plus an amount necessary to pay for
which discloses to the borrower whether any shortage in the account. In addition,
the lender intends to service the loan or the lender may require a cushion, not to
transfer it to another lender. It also exceed an amount equal to 1/6 of the
provides information about complaint total disbursements for the year.The
resolution.If the borrowers don't get lender must perform an escrow account
these documents at the time of analysis once during the year and notify
application, the lender must mail them borrowers of any shortage. Any excess of
within three business days of receiving $50 or more must be returned to the
the loan application. If the lender turns borrower.Respa EnforcementCivil law
down the loan within three days, however, suitsIndividuals have one (1) year to
then RESPA does not require the lender to bring a private law suit to enforce
provide these documents. The RESPA violations of Section 8 or 9. A person
statute does not provide an explicit may bring an action for violations of
penalty for the failure to provide the Section 8 or 9 in any federal district
Special Information Booklet, Good Faith court in the district in which the
Estimate or Mortgage Servicing Statement. property is located or where the
Bank regulators, however, may impose violation is alleged to have occurred.
penalties on lenders who fail to comply HUD, a State Attorney General or State
with federal law.Disclosures Before insurance commissioner may bring an
Settlement (Closing) OccursA Controlled injunctive action to enforce violations
Business Arrangement (CBA) Disclosure is of Section 8 or 9 of RESPA within three
required whenever a settlement service (3) years.Loan Servicing
provider involved in a RESPA covered ComplaintsSection 6 provides borrowers
transaction refers the consumer to a with important consumer protections
provider with whom the referring party relating to the servicing of their loans.
has an ownership or other beneficial Under Section 6 of RESPA, borrowers who
interest.The referring party must give have a problem with the servicing of
the CBA disclosure to the consumer at or their loan (including escrow account
prior to the time of referral. The questions), should contact their loan
disclosure must describe the business servicer in writing, outlining the nature
arrangement that exists between the two of their complaint. The servicer must
providers and give the borrower estimate acknowledge the complaint in writing
of the second provider's charges. Except within 20 business days of receipt of the
in cases where a lender refers a borrower complaint. Within 60 business days the
to an attorney, credit reporting agency servicer must resolve the complaint by
or real estate appraiser to represent the correcting the account or giving a
lender's interest in the transaction, the statement of the reasons for its
referring party may not require the position. Until the complaint is
consumer to use the particular provider resolved, borrowers should continue to
being referred.The HUD-1 Settlement make the servicer's required payment.A
Statement is a standard form that clearly borrower may bring a private law suit, or
shows all charges imposed on borrowers a group of borrowers may bring a class
and sellers in connection with the action suit, against a servicer who fails
settlement. RESPA allows the borrower to to comply with Section 6's provisions.
request to see the HUD-1 Statement one Borrowers may obtain actual damages, as
day before the actual settlement. The well as additional damages if there is a
settlement agent must then provide the pattern of noncompliance.Other
borrowers with a completed HUD-1 Enforcement ActionsUnder Section 10, HUD
Settlement Statement based on information has authority to impose a civil penalty
known to the agent at that on loan servicers who do not submit
time.Disclosures at SettlementThe HUD-1 initial or annual escrow account
Settlement statement shows the actual statements to borrowers. Borrowers should
settlement costs of the loan transaction. contact HUD's Office of Consumer and
Separate forms may be prepared for the Regulatory Affairs to report servicers
borrower and the seller. it is not the who fail to provide the required escrow
practice that the borrower and seller account statements.Filing a RESPA
attend settlement, the HUD-1 should be ComplaintPersons who believe a settlement
mailed or delivered as soon as service provider has violated RESPA in an
practicable after settlement.The Initial area in which the Department has
Escrow Statement itemizes the estimated enforcement authority (primarily sections
taxes, insurance premiums and other 8 and 9), may wish to file a complaint.
charges anticipated to be paid from the The complaint should outline the
escrow account during the first twelve violation and identify the violators by
months of the loan. It lists the escrow name, address and phone number.
payment amount and any required cushion. Complainants should also provide their
Although the statement is usually given own name and phone number for follow up
at settlement, the lender has 45 days questions from HUD. Requests for
from settlement to deliver it.Disclosures confidentiality will be honored.
After SettlementLoan servicers must Complaints should be sent to:Director,
deliver to borrowers an Annual Escrow Interstate Land Sales/RESPA
Statement once a year. The annual escrow DivisionOffice of Consumer and Regulatory
account statement summarizes all escrow Affairs
account payments during the servicer's U.S. Department of Housing and Urban
twelve month computation year. It also Development
notifies the borrower of any shortages or Room 9146
surpluses in the account and advises the 451 7th Street, SW,
borrower about the course of action being Washington, DC 20410More information
taken.A Servicing Transfer Statement is about RESPA, including the complete text
required if the loan servicer sells or of the statute, updates, proposed
assigns the servicing rights to a modifications, etc, can be found at the
borrower's loan to another loan servicer. RESPA Home Page, which is part of the FHA
Generally, the loan servicer must notify Housing Web site.Neda Dabestani-Ryba is a
the borrower 15 days before the effective licensed Realtor in Maryland. She is a
date of the loan transfer. As long the member of the President's Circle of Top
borrower makes a timely payment to the Real Estate Professionals. She can be
old servicer within 60 days of the loan reached at (800) 536-3806 or visit her
transfer, the borrower cannot be website for more information:
penalized. The notice must include the Carruthers REALTORS is an independently
name and address of the new servicer, owned and operated member of Prudential
toll-free telephone numbers, and the date Real Estate Affiliates, Inc., a
the new servicer will begin accepting Prudential Financial company.
payments.Respa's Consumer Protections And




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