The Real Estate Settlement and Procedures Act, or RESPA for short, is a federal law designed to protect aspiring homeowners and enable them to make better, more informed purchasing decisions. It impacts anyone who is buying a home or working in a field involving residential property transactions, such as:
- Mortgage brokers and lenders
- Real estate brokers or agents
- Builders and developers
- Title companies
- Home warranty providers
- Attorneys
RESPA requires all residential real estate service providers to make certain disclosures about the mortgage and settlement process so that homebuyers can make informed choices and assure themselves that any fees they are being charged are both fair and reasonable under the law. It strictly prohibits all providers from offering kickbacks, referral fees, splitting fees, and other unlawful costs that can drive up settlement prices.
There are four points at which settlement providers must make disclosures during the home buying process. They are:
- The time of the loan application. Mortgage brokers and lenders must provide all borrowers with three specific disclosures:
- A Special Information Booklet that describes and explains all closing costs, the RESPA settlement form, the nature of escrow accounts, options that borrowers have when choosing settlement providers, and the deceptive practices that borrowers should be alert for in the settlement process.
- A Good Faith Estimate of settlement costs
- A Mortgaging Service Disclosure Statement that advises the borrower whether the lender will provide the loan themselves or transfer it to another provider.
- Before settlement. Lenders must provide an Affiliated Business Arrangement Disclosure when they refer borrowers to another settlement provider with whom they have an ownership interest. Another required disclosure is the HUD-1 Settlement Statement, which itemizes all fees that will be applied at closing.
- At settlement. When the deal closes, the borrower must be provided with the final HUD-1 Settlement Statement that lists the actual transaction costs. Another required document is the Initial Escrow Statement that confirms the monthly payment amount and the charges that will be paid from the escrow account during the first year of the loan, although the lender has up to 45 days from the closing date to provide it.
- After settlement. After closing, the loan provider must provide the borrower with an Annual Escrow Statement once a year. If the provider sells or transfers the servicing rights to a loan to another company, the borrower must receive a Servicing Transfer Statement 15 days before the date of the loan transfer.
Individuals and businesses issue kickbacks, split fees, and indulge in related practices can be fined up to $10,000 and imprisoned for up to one year, while consumers who have been taken advantage of in this matter may launch civil lawsuits to recover any losses, damages, and attorney’s’ fees and costs.
Other prohibitions applied by the RESPA include:
- Sellers may not require buyers to use a particular title insurance company
- Mortgage lenders are limited in the amounts they can require a borrower to deposit to an escrow account or charge to maintain these accounts.
If you are an aspiring homeowner in Utah or a settlement provider with questions about RESPA compliance, contact Arnold Wadsworth & Coggins today. We can help you with your litigation needs or provide a strong defense against accusations of non-compliance.
Arnold, Wadsworth & Coggins Attorneys is a premier Utah law firm serving the Wasatch Front in the areas of family law, bankruptcy, criminal law, and civil litigation. Our attorneys provide clients with exceptional legal representation and personal attention. With over 35 years of trial practice and litigation experience, we bring big firm expertise at affordable rates
