Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act (RESPA) is a Department of Housing and Urban Development (HUD) consumer protection statute created to help homebuyers.  The law was designed to keep consumers well informed about closing costs and settlement procedures in real estate transactions.  The Real Estate Settlement Procedures Act helps to keep the process of fees and costs associated with the purchase of real estate as transparent as possible for the benefit of the consumer.  

The Real Estate Settlement Procedures Act obligates the lending institutions, brokers, and agents involved in real estate transaction to provide consumers with a disclosure of the closing costs and settlement procedures associated with their real estate transaction.  These entities are required to provide this information to consumers at various times in the course of their transaction.  Certain disclosures will reveal any costs associated with the settlement or closing, disclose the lender servicing the escrow account, explain escrow account practices, and expose business relationships between the settlement service providers.  RESPA also makes kickbacks and referral fees illegal because they can increase the cost of settlement services.

The Real Estate Settlement Procedures Act includes loans secured by a mortgage and it applies to one through four-family residential property.  RESPA can be applied to mortgages for the purchase of a residential property, assumption loans, refinances, property improvement loans, and equity lines of credit.

At the time of mortgage loan application, RESPA requires mortgage brokers and/or lenders to supply the prospective borrower with the following information:

A Special Information Booklet that contains consumer information concerning various real estate settlement services

  • A Good Faith Estimate (GFE) of closing costs that lists all the charges the buyer is likely to pay at settlement
  • If a lender requires the borrower to use a particular settlement provider, the lender must disclose this requirement on the GFE
  • A Mortgage Servicing Disclosure Statement that discloses whether the lender intends to service the loan or transfer it to another lender
  • The lender must also provide information about complaint resolution options

If the lender fails to turn over these documents to the borrower at the time of loan application, the lender is required by RESPA to mail them to the borrower within three business days of receiving the loan application.

If you need information on the Real Estate Settlement Procedures Act (RESPA), contact a real estate attorney to find out how RESPA can work for you or if you have any real estate related questions.

 

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