What does the Real Estate Settlement Procedures Act require?
The Real Estate Settlement Procedures Act (RESPA) requires certain information be provided to a consumer prior to the closing of a loan secured by a lien on residential property. This includes: home purchase loans, refinances, assumption of loans, home improvement loans, home equity lines of credit and reverse mortgages. RESPA also prohibits home sellers from requiring the use of a specific title insurance company and prohibits lenders from referring business to providers with whom the lender is affiliated without providing information about the affiliation to the consumer. Additionally, RESPA regulates servicers of mortgage loans.
Who is regulated?
RESPA applies to almost all mortgage loans. In addition, it applies to settlement service providers in certain situations, such as real estate agents, closing attorneys and title companies.
When does the law apply?
RESPA requires certain disclosures be made prior to and at the closing of a mortgage loan. It also requires certain disclosures be made during the servicing of the loan.
- When a consumer applies for a home loan, he or she must receive a Good Faith Estimate of the cost of the settlement services for the loan.
- At the time a home loan closes, the consumer must receive a HUD-1 Settlement Statement which shows the actual settlement costs of the loan transaction, such as the appraisal fees, credit report fees, loan origination charges, etc.
- A consumer must receive an initial escrow statement which itemizes the estimated taxes, insurance premiums and other charges, if any, anticipated to be paid from the escrow account.
- During servicing of a loan, the servicer must send a consumer an annual escrow statement summarizing the activity of the escrow account.
- If a loan servicer sells or assigns the servicing rights to a loan, it must notify the consumer 15 days prior to the effective date of the transfer. If a consumer makes a timely payment to the old servicer within 60 days of the transfer, the consumer cannot be penalized.
- The seller of a home cannot require that a buyer use a particular title insurance company as a condition of the sale.
- If a consumer is charged an excessive amount for an escrow account, or required to put extra money into an escrow account above the amount required by law, RESPA may provide a remedy.
- If a consumer has a dispute with his or her loan servicer and the consumer sends a Qualified Written Request to the servicer, RESPA requires the servicer to respond and address the problems noted in the Qualified Written Request.
Is there a solution?
Violations of RESPA’s prohibitions regarding kickback, title insurance, and servicing requirements may entitle a consumer to three times the prohibited amount collected. In addition, RESPA contains a “fee-shifting” provision which may require the defendant to pay for the plaintiff’s attorney fees and court costs. Click here for a free RESPA case review.