By Marc Shaw
Passed in 1974, the Real Estate Settlement Procedures Act (RESPA) is designed to protect consumers from unscrupulous sales practices and make them more informed shoppers for settlement services. This law requires disclosures to be made at various points in the closing process so that borrowers fully understand the costs associated with all the services provided. It also prohibits certain practices that unnecessarily increase the cost of settlement services.
If you are currently buying real estate or you plan to in the future, it’s a good idea to study RESPA and the important consumer protections it provides. Read on for a basic overview of some of these protections from the team at World Wide Land Transfer!
RESPA requires lenders and mortgage brokers to make the following disclosures when you apply for a loan:
Lenders must provide these documents either at the time of loan application or must mail them within three business days unless they turn down the loan within three days. Before closing occurs, they must also provide a Controlled Business Arrangement disclosure if they plan to refer the consumer to a settlement service provider with whom they have a beneficial interest. This disclosure will describe their relationship with the service provider and give an estimate of the charges that will be incurred. Although there are some exceptions, a consumer cannot be required to use a particular service provider. A HUD-1 Settlement Statement must also be provided one day before settlement that outlines all charges that will be imposed on the buyer and seller.
At settlement, a HUD-1 Settlement Statement must be provided that shows the actual settlement costs, as well as an Initial Escrow Statement that itemizes estimated taxes, insurance premiums, and other charges that will be paid from the escrow account in the first year of the loan. Once settlement has been completed, loan servicers must provide an Annual Escrow Statement. If the lender sells or transfers the loan, they must provide a Servicing Transfer Statement within 15 days before the loan transfer.
Some practices that artificially inflate the cost of settlement services are prohibited by RESPA. These include:
Section 10 of RESPA limits the amount of money a lender can require a borrower to place in escrow and prevents them from charging excessive amounts for the escrow account throughout the loan. Once every year, the lender is required to perform an escrow account analysis and notify borrowers of any shortage. If there is an excess amount of more than $50 in the escrow account, it must be returned to the borrower.
If you believe your lender or settlement service provider has violated RESPA, you can file a complaint with the Department of Housing and Urban Development (HUD). Your complaint should include an outline of the violation and the violators by name, address, and phone number. You should also include your own name and phone number so they can contact you with any further questions. Send your complaint to:
Director, Interstate Land Sales/RESPA Division
Office of Consumer and Regulatory Affairs
U.S. Department of Housing and Urban Development
451 7th Street SW
Washington, DC 20410
This blog post is intended to provide a basic overview of your rights as a borrower under RESPA; for more specific information, you can consult the Consumer Protection section of the World Wide Land Transfer site or HUD’s PDF version of RESPA and other important consumer protection laws.
At World Wide Land Transfer, we strive to provide the best experience for everyone who utilizes our title and escrow services, and that includes staying in compliance with RESPA and all other laws related to real estate transactions. Be aware that you have the right to choose your title insurance company, and we hope that you will choose us to be your tile insurance company holding escrow funds for any real estate transaction you will be undertaking in the future.
World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.