The Real Estate Settlement Procedures Act (RESPA) was enacted in 1975. The federal statute was introduced to stop malpractice and restrict the usage of escrow accounts in the real estate settlement process.
Who regulates RESPA?
Once RESPA became effective in 1975, it was under the U.S. Department of Housing & Urban Development (HUD) jurisdiction. Ever since its inception, the Act has undergone several amendments and changes. However, after 2011, the Consumer Financial Protection Bureau monitored RESPA due to the Dodd-Frank Wall Street Reform and Consumer Protection legislation.
What is the objective of RESPA?
The primary objective of this federal statute is to make consumers aware of settlement costs and eradicate referral fees that increase mortgage costs.
RESPA- Key features
1. The seller and the buyer will get complete settlement cost disclosures.
2. The Act applies to all kinds of home loans like:
● Property improvement loans
● Refinance loans
● Equity line of credit
● Reverse mortgage
3. Home loan servicers, mortgage lenders, and brokers have to provide the following disclosures to the home buyers:
● Consumer protection laws
● Real estate transactions
● Settlement services
4. Loan servicers cannot demand massive escrow accounts.
5. Sellers cannot endorse or instruct title insurance companies.
6. Any kickbacks and referral fees are prohibited.
7. The servicer of the loan should itemize the charges a borrower has to pay and report the total amount paid from the escrow account.
8. If there is any violation of the RESPA laws during the settlement process, the plaintiff can file a lawsuit within a year.
What kind of information should you get from the mortgage lender?
- RESPA mandates mortgage brokers, lenders, and services to provide all the information about the real estate transaction to borrowers. They must tell borrowers how much they need to pay for the total settlement service charges.
- Lenders must provide the borrowers with a disclosure (known as the Good Faith Estimate). They have to list a variety of charges here.
- The disclosure should contain a summary of the loan, contact details of the lender, important dates, escrow account information, settlement charges, and so on.
- The lender must disclose to the borrower within three business days. However, if the application is rejected or the borrower withdraws it, the lender does not have to provide a good faith estimate.
- Mortgage lenders cannot charge any fee to the borrower for providing the good faith estimate. If they charge a fee, it shouldn’t be more than what consumers pay for a credit report.
- Mortgage lenders must provide an affiliated business arrangement disclosure when they refer you to an affiliate for settlement service.
- If there is a business relationship between third parties involved in the settlement process, that has to be mentioned to the borrower.
- Servicers of the loans should maintain a proper procedure to contact the borrowers.
- The servicer must analyze the escrow account annually to determine if there is a surplus or deficit.
- If there is any deficit in the account, the servicer should inform the borrower.
What should the borrower do if lenders violate RESPA?
Borrowers can file a lawsuit against mortgage lenders for RESPA violations within a year of committing the act. If there is any improper behavior during the settlement process, borrowers can take the following steps:
● Send a written letter to the loan servicer. Explain your problem in detail.
● According to the law, the servicer must reply within 20 days of receiving your letter.
● The servicer must resolve your issue within 60 business days of receiving your complaint. If the servicer feels there is no discrepancy, they have to give you valid reasons.
● Continue making monthly payments to the servicer until the issue is resolved.
● If the servicer does not take any step to resolve the issue, you can file a lawsuit against them.
● Check if there is a federal district court where the property is located or if the dispute has occurred. If you find one, you can file a lawsuit there.
RESPA has been a boon in disguise for consumers and has curbed malpractices in the mortgage industry to some extent. It would be good if the federal government introduced something like this to reduce fraudulent practices in the payday loan debt settlement industry. Many people are getting scammed yearly due to the lack of stringent laws.
Finally, the law does not mandate that you consult a lawyer during the real estate settlement process. If you find malpractice, it is best to consult a lawyer ASAP. The lawyer knows the nitty-gritty of RESPA, and you can expect to navigate the legal process smoothly.
About the Author: Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.