What is RESPA?
RESPA, or the Federal Real Estate Settlement Procedures Act, is a federal act passed by congress in 1974. After being controlled under U.S. Department of Housing and Urban Development (HUD), responsibility for the act was assumed by the Consumer Financial Protection Bureau (CFPB) in 2011.
The act regulates the real estate settlement process by requiring lenders, mortgage brokers or servicers of home loans to provide disclosures to borrowers that will inform them about real estate transactions, settlement services, relevant consumer protection laws and any other important and relevant information connected to the cost of the real estate settlement process. Any business relationships between closing service providers and other parties connected to the settlement process would also need to be disclosed to the borrower.RESPA's goal has been to regulate mortgage loans attached to one-to-four family residential properties with the objective of educating borrowers regarding their settlement costs and to eliminate kickback practices (A kickback is the payment to a recipient as compensation or reward for providing favorable treatment or services to another party, similar to a bribe) and referral fees that can inflate the cost of obtaining a mortgage. The types of loans included would consist of the majority of purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit.
RESPA also limits the use of escrow accounts – such as prohibiting loan servicers to demand excessively large escrow accounts. It also restricts sellers from mandating title insurance companies.
How is RESPA enforced?
Individuals have 1 year to bring a law suit to court to enforce violations where kickbacks or other improper behavior occurred during the settlement process.
If an individual has issues with their lender, they must follow a few simple steps. They must first contact their loan servicer, detailing the nature of the issue, giving the servicer 20 days to reply. The servicer then has 60 days to correct the issue or give reasons for the validity of the current status of their account. Borrowers should continue to make payments in the meanwhile.
If the borrower's issue is not resolved, they have 3 years to bring up the case to federal court, either in the district where the property is located, or where the violation of RESPA took place.
The CFPB also has authority to impose a civil penalty on loan servicers who do not submit initial or annual escrow account statements to borrowers.
How does RESPA help me as a consumer?
RESPA helps protect consumers by forcing loan servicers to be more open with fees and to limit harmful business practices such as kickbacks. If you believe you are not being disclosed all the information related to the cost of the real estate settlement process, then talk to a lawyer to see your options regarding RESPA.
If you are in need of a mortgage and want to be sure if they are trustworthy or not, we have some mortgage brokers that we recommend here at Tom Crimmins Realty and are known to be some of the best. If you would like to inquire more, you can contact us at 718-370-3200 or you can visit our website at www.tomcrimminsrealty.com