|
The Real Estate Settlement Procedures Act (RESPA) is a consumer
protection statute that was first passed in 1974. One of its main objectives
is to help consumers become better shoppers for real estate settlement (closing)
services. Another aim is to eliminate kickbacks and referral fees that add unnecessary
costs to settlement services.
RESPA requires that certain disclosures be made to borrowers at various points
in time. Some of these disclosures specify the costs associated with the settlement,
delineate lender servicing and escrow account policies and details, and explain
business relationships between settlement service providers.
The Act also prohibits certain practices that increase settlement services
costs. For example, section 8 of RESPA prohibits individuals from giving or
accepting any item of value in exchange for referrals of settlement service
business related to a federally related mortgage. It likewise prohibits individuals
from providing or accepting any part of a charge for services that are not actually
performed. Section 9 of RESPA forbids home sellers from requiring home buyers
to purchase title insurance from a particular company.
In general, RESPA covers loans secured with a mortgage placed on one-to-four
family residential properties. These consist of most purchase loans, assumptions,
refinances, property improvement loans, and equity lines of credit. The Housing
and Urban Development (HUD)'s Office of Consumer and Regulatory Affairs,
Interstate Land Sales/RESPA Division enforces RESPA.
Disclosures at the Time of Loan Application
When borrowers apply for a mortgage, mortgage brokers and/or lenders must
provide the borrowers:
- A Special Information Booklet, which includes consumer information concerning
various real estate settlement services (for purchase transactions only).
- A Good
Faith Estimate (GFE) of settlement costs listing the charges the buyer
is likely to pay at the settlement. If a lender requires the borrower to use
a particular settlement provider, he or she must disclose this condition on
the GFE.
- A Mortgage Servicing Disclosure Statement, which notifies the borrower
whether the lender intends to service the loan or transfer it to another lender.
It also gives the buyer information about complaint resolution.
- If the borrowers do not receive these documents at the time of application,
the lender must mail them within three business days of receiving the loan application.
However, if the lender turns down the loan within three days, then the lender
need not provide these documents. RESPA does not explicitly provide for a penalty
for the failure to provide the above described documents. Bank regulators may
nevertheless penalize lenders who fail to comply with federal law.
If the borrowers do not receive these documents at the time of application,
the lender must mail them within three business days of receiving the application.
If the loan is denied, however, the lender is not required to provide these
documents.
Disclosures Before Settlement Occurs
The Controlled Business Arrangement (CBA) disclosure is required whenever a
settlement service provider involved in a real estate transaction covered by
RESPA refers the consumer to an affiliate for a settlement service. The referring
party must give the CBA disclosure to the consumer at or before
the time of referral. The disclosure must explain the business arrangement that
exists between the two providers and provide the borrower with an estimate of
the affiliate's charges. The disclosure will remind the consumer that he or
she is generally not required (with the exception of cases in which a lender
refers a borrower to an attorney, credit reporting agency, or real estate appraiser
to represent the lender's interest in the transaction) to use the particular
affiliate being referred and is free to seek another provider.
Disclosures at Settlement
The HUD-1 Settlement statement indicates the actual settlement
costs of the loan transaction. Separate forms may be provided to the borrower
and the seller. The borrower and seller need not attend settlement, but the
statement should be mailed or delivered as soon as possible after closing.
The Initial Escrow Statement itemizes the estimated taxes, insurance premiums,
and other charges expected to be paid from the escrow account during the first
twelve months of the loan. The statement lists the escrow payment amount and
any required "cushion." The statement is usually provided at settlement;
however, the lender has 45 days from settlement to deliver it.
Disclosures After Settlement
Borrowers must be provided with an Annual Escrow Statement by loan servicers
once per year. This statement summarizes all escrow account payments made during
the servicer's year (twelve months computed). It also informs the borrower
of any shortages or surpluses in the account and notifies the borrower about
the course of action being pursued.
A Servicing Transfer Statement must be provided if the loan servicer sells or
assigns the servicing rights to a borrower's loan to another loan servicer.
In general, the loan servicer must inform the borrower of the loan transfer
15 days before its effective date. The borrower cannot be penalized as long
as he or she makes a timely payment to the old servicer within 60 days of the
transfer. The notice must contain the name and address of the new servicer,
relevant toll-free telephone numbers, and the date the new servicer will begin
accepting payments.
NEW! - Rate This: 7.57/10 (47 votes
cast)
|
