Real Estate Settlement Procedures Act

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Real Estate Settlement Procedures Act

Description: Also referred to by it's abbreviation RESPA, this act was passed in 1974 to protect consumers. It requires a range of disclosures to be provided to consumers so they can make informed decisions when purchasing settlement/ closing services.

Another purpose of the act was to eliminate kickbacks between real estate, mortgage and settlement professionals.

It applies to mortgage loans on single family homes on up to 4 unit buildings, regardless of whether it is a purchase loan, refinance, or HELOC. The major aspects of the act are:

Borrowers must be given a special information booklet along with a good faith estimate of settlement costs.

There must be disclosures for all affiliated business arrangements. The closing company can't require the use of a specific third party, but the lender can in order to protect it's interests.

The consumer must be provided with the HUD-1 Settlement Statement, which shows all reciepts, disbursments, credits and charges, and fees. The borrower can request this one day before closing.

Loan servicing companies must provide an annual statement to borroers that summarizes all account activity such as taxes, insurance, and other items.

If loan servicing is transferred, the servicer must give the borrower notice at least 15 days before the effectivve date, and if the borrower makes timely payments tot he older servicer during the first 60 days they can't be penalized.

Sellers can't specify the use of a specific title insurance company as a condition of sale. If they do so, the buyer may sue them for an amount equal to three times the charges made for title insurance.

RESPA is a complex act, and a lawyer should be consulted for any specific legal questions regarding RESPA.

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