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