Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) is a federal law enacted to protect consumers in real estate transactions involving residential properties. RESPA was passed by Congress in 1974 and is administered and enforced by the Consumer Financial Protection Bureau (CFPB). The primary purpose of RESPA is to ensure transparency, fairness, and accountability in the settlement process by regulating certain practices and disclosures related to real estate closings and mortgage transactions.
Key provisions of RESPA include:
1. Disclosure requirements: RESPA requires lenders and mortgage servicers to provide borrowers with clear and accurate disclosures about loan terms, closing costs, and other fees associated with the mortgage transaction. This includes providing borrowers with a Loan Estimate (LE) and a Closing Disclosure (CD) at specific points in the loan process to help borrowers understand the terms and costs of their mortgage loans.
2. Prohibition against kickbacks and referral fees: RESPA prohibits the payment or receipt of kickbacks, referral fees, or other incentives in exchange for the referral of settlement services, such as title insurance, appraisals, or closing services. This provision aims to prevent conflicts of interest and ensure that consumers receive competitive pricing and quality services.
3. Escrow account requirements: RESPA requires lenders to establish and maintain escrow accounts for the payment of property taxes, homeowners insurance, and other recurring expenses related to the property. Lenders are generally limited in the amount of money they can require borrowers to deposit into escrow accounts and are required to provide borrowers with annual escrow account statements detailing the activity and balance of the account.
4. Loan servicing requirements: RESPA imposes certain obligations on mortgage servicers, including providing borrowers with timely and accurate information about the status of their loan, handling borrower inquiries and complaints, and following specific procedures for the transfer of loan servicing rights.
5. Anti-steering provisions: RESPA prohibits lenders and mortgage brokers from steering borrowers into loans that are not in their best interest or that involve higher costs or risks. Lenders are required to provide borrowers with information about loan options and terms and to ensure that borrowers are able to choose the loan product that best suits their needs and financial circumstances.
Violation of RESPA can result in civil penalties, fines, and liability for damages. Consumers who believe their rights under RESPA have been violated may file complaints with the CFPB or pursue legal action against the responsible parties.
Overall, RESPA plays a critical role in protecting consumers and promoting transparency and fairness in real estate and mortgage transactions. By ensuring that borrowers receive clear and accurate information about loan terms and settlement costs, RESPA helps empower consumers to make informed decisions and safeguard their interests in the homebuying process.
