RESPA
The Real Estate Settlement Procedures ACT (RESPA)
The Real Estate Settlement Procedures Act (RESPA) is a federal law in the United States that was established in 1974 to provide consumer protection during the home purchase and financing process.
RESPA's primary goal is to ensure that when purchasing a home, buyers receive complete and accurate information about the expenses involved in the real estate transaction, including the settlement procedure. Moreover, RESPA aims to prevent unscrupulous practices in the mortgage industry.
The Consumer Financial Protection Bureau (CFPB) is responsible for enforcing and administering RESPA, which includes several important provisions.
- Loan Estimate: Lenders are required to provide borrowers with a loan estimate of the closing costs, including loan fees, title insurance, appraisal fees, and other charges associated with the loan, within three business days of receiving a loan application. The loan estimate helps borrowers understand and compare the costs of different mortgage loans.
- Closing Disclosure and HUD1: At closing, RESPA mandates the use of two standardized settlement statements - the HUD-1 and the Closing Disclosure. These statements outline all the costs and fees associated with the transaction. This helps borrowers in reviewing and comprehend the charges they are required to pay.
- Prohibition of Kickbacks and Referral Fees: The Real Estate Settlement Procedures Act (RESPA) prohibits companies from receiving kickbacks, referral fees, or unearned fees for referring settlement services like title insurance or appraisals to affiliated businesses. This rule aims to prevent conflicts of interest and ensure that consumers are charged fair costs.
- Limits on Escrow Accounts: The amount that lenders can require borrowers to hold in escrow accounts for property tax, insurance premiums, and other expenses is limited by RESPA. This rule helps prevent lenders from charging borrowers too much for these services.
- Servicing Disclosure Statement: Borrowers must receive a servicing disclosure statement from lenders. The statement lets them know if the lender plans to service the loan or transfer servicing rights to a different company. This information helps borrowers understand who will handle their loan payments. Output Language Code: EN-US
- Borrower's Right to Choose Service Providers: Under RESPA, borrowers are entitled to choose their own providers of settlement services which may include insurance companies, attorneys, or appraisers. This allows borrowers to compare prices and services to make the best decision.
RESPA promotes transparency and fairness in the real estate settlement process, which protects consumers from abusive practices and provides the information they need to make informed decisions when purchasing a house.
