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The Real Estate Settlement Procedures Act (RESPA) is a consumer protection
statute, first passed in 1974. One of its purposes is to help consumers
become better shoppers for settlement services. Another purpose is to
eliminate kickbacks and referral fees that increase unnecessarily the costs
of certain settlement services. 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.
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.
Generally, 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 Consumer and Regulatory Affairs, Interstate Land
Sales/RESPA Division is responsible for enforcing RESPA.
More RESPA Facts
DISCLOSURES:
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).
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 of 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. Bank regulators, however, may impose penalties on lenders who
fail to comply with federal law.
Disclosures Before Settlement (Closing) Occurs
A Controlled Business Arrangement (CBA) 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 CBA 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
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 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.
it is not the practice that the borrower and seller attend 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
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.
Respa's 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.
At settlement, Section 10 of RESPA prohibits a lender from requiring a
borrower to deposit more than the aggregate amount needed to cover escrow
account payments for the period since the last charge was paid, up until the
due date of the first mortgage installment.
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.
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 8 or 9 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 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, 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 Consumer and Regulatory
Affairs to report servicers who fail to provide the required escrow account
statements.
Received on Mon Sep 24 2007 - 18:00:36 EDT
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