Compliance with RESPA is an essential part of complying with real estate law. In this article, we’ll define the term “RESPA.”
RESPA stands for the Real Estate Settlement Procedures Act. It is a federal law that was enacted in 1974 to provide homebuyers and sellers with accurate and timely information about the costs of real estate settlement services and to protect them from abusive practices by lenders and settlement agents.
One of the key provisions of RESPA is the requirement for lenders to provide borrowers with a Good Faith Estimate (GFE) of the costs associated with a mortgage loan within three business days of receiving a loan application. The GFE must include an estimate of the interest rate, closing costs, and other fees associated with the loan. This information helps borrowers compare loan offers from different lenders and understand the costs associated with a mortgage loan.
Another important provision of RESPA is the requirement for lenders to provide borrowers with a HUD-1 Settlement Statement at the time of closing. The HUD-1 Settlement Statement provides a detailed breakdown of the costs associated with the real estate transaction, including the fees paid to the lender, title company, and other settlement service providers. The statement also shows the amount of money the borrower will need to bring to the closing table.
RESPA also prohibits certain practices that could potentially harm consumers. For example, the law prohibits kickbacks and fee-splitting arrangements between lenders and settlement agents. This means that lenders and settlement agents cannot receive payments or compensation from each other for referring business. RESPA also requires that borrowers receive a disclosure form, known as the Affiliated Business Arrangement Disclosure, if the lender has a financial interest in a settlement service provider that the borrower is using.
In addition to these specific provisions, RESPA also gives borrowers the right to file a complaint with the Consumer Financial Protection Bureau (CFPB) if they believe that a lender or settlement agent has violated the law. The CFPB can investigate complaints and take action against lenders or settlement agents that have violated RESPA.
RESPA is an important federal law that protects homebuyers and sellers. By requiring lenders to provide borrowers with accurate and timely information about the costs associated with a mortgage loan and prohibiting certain practices, RESPA helps ensure that consumers are able to make informed decisions about real estate transactions. Real estate professionals and consumers alike should be familiar with the requirements of RESPA to ensure that they are conducting business lawfully and ethically.
