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