Definition
The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute that was enacted in 1974. The act is designed to ensure that homebuyers and sellers are provided with pertinent and timely disclosures regarding the real estate settlement process. The goal of RESPA is to eliminate abusive practices, ensure transparency, prevent unnecessary increases in the costs of settlement services, and effectively protect consumers.
Key Features
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Disclosure Requirements: RESPA mandates that borrowers receive several specific disclosures that better inform them during the settlement process, including the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement.
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Escrow Accounts: RESPA regulates the amount of money that lenders can require borrowers to hold in escrow accounts, limiting the amount to cover insurance and property taxes without excessive padding.
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Prohibition on Kickbacks and Referral Fees: The act prohibits anyone from giving or accepting fees (kickbacks) for business referrals related to settlement services, which might otherwise inflate the cost to consumers.
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Servicing Disclosure: Lenders are required to disclose to borrowers if their loan will be serviced by a different company post-closing.
Examples
- Disclosures: A homebuyer receives a Good Faith Estimate which lists estimated charges for settlement followed by a final HUD-1 Settlement Statement that shows the actual charges.
- Escrow Maintenance: A lender collects appropriate amounts into an escrow account monthly to pay property taxes and homeowner’s insurance when due.
- Prohibition Compliance: A real estate agent does not accept a fee from a home inspector for referring business, adhering to RESPA’s rules against kickbacks.
Frequently Asked Questions
Q: What transactions are covered by RESPA?
A: RESPA applies to federally related mortgage loans, including most purchase loans, refinances, property improvement loans, and equity lines of credit secured by a lien on residential property.
Q: What disclosures are required under RESPA?
A: The required disclosures include the Good Faith Estimate (GFE), HUD-1 Settlement Statement, Mortgage Servicing Disclosure Statement, and the Escrow Account Operation & Disclosure.
Q: Are there any penalties for violating RESPA?
A: Yes, penalties can include fines, imprisonment, and liability up to three times the amount of any charge paid for the settlement service.
Q: How does RESPA impact escrow accounts?
A: RESPA limits the amount lenders may require borrowers to deposit into escrow accounts and mandates annual statements.
Q: Are there any restrictions on settlement service fees?
A: Yes, RESPA prohibits unearned fees and kickbacks that can unduly inflate the cost of settlement services.
Related Terms
- Good Faith Estimate (GFE): A document that provides borrowers with estimated settlement costs.
- HUD-1 Settlement Statement: A standard form showing the actual settlement costs of a real estate transaction.
- Kickback: An illicit payment made to someone as a part of a transaction.
- Escrow Account: An account where funds are held by a third party on behalf of the buyer and seller in a real estate transaction.
Online References
- Consumer Financial Protection Bureau (CFPB) on RESPA
- U.S. Department of Housing and Urban Development (HUD) on RESPA
Suggested Books for Further Studies
- RESPA: Real Estate Settlement Procedures Act: An In-Depth Guide by Sarah A. Albee
- Mortgage and Real Estate Finance: For Securitization Markets and Investment by Steph Morrison
- Real Estate Law by Marianne M. Jennings
Fundamentals of RESPA: Real Estate Basics Quiz
Thank you for exploring the intricacies of RESPA with our comprehensive guide and engaging Quiz questions. Keep up the diligent study to master real estate procedures and consumer protection laws!
