Real Estate Settlement Procedures Act (RESPA)

Detailed Definition

The Real Estate Settlement Procedures Act (RESPA) was enacted by Congress in 1974 to provide homebuyers and sellers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. RESPA aims to prevent unethical practices by improving transparency and reducing the costs associated with closing.

Under RESPA, lenders, mortgage brokers, and servicers of home loans must inform buyers about real estate transactions, settlement services costs, and pertinent consumer protection laws. This act particularly addresses concerns around items like kickbacks, referral fees, and unearned fees that might increase the costs unnecessarily for a borrower.

Examples

Good Faith Estimate (GFE): Under RESPA, lenders must provide a Good Faith Estimate of the settlement charges the borrower is likely to incur.
Hud-1 Settlement Statement: RESPA requires that borrowers receive a detailed itemized listing of all closing costs within one business day of the settlement.
Transfer of Servicing Disclosure: This document informs the borrower whether the lender intends to service the loan or transfer it to another entity.

Frequently Asked Questions

Q: What types of loans are covered by RESPA? A: RESPA applies to most loans secured by a lien on residential properties positioned on real property, including purchase loans, assumptions, refinance transactions, and home equity lines of credit.

Q: Are commercial transactions subjected to RESPA regulations? A: No, RESPA solely applies to one to four-family residential mortgage loans, including purchases, assumptions, refinances, and property improvement loans.

Q: What is prohibited under RESPA? A: Kickbacks, fee splitting, and unearned fees for services not actually performed are prohibited under RESPA. This ensures that consumers are not loaded with excessive costs.

Q: Does RESPA impose any other significant regulations for transparency? A: Yes, RESPA requires that lenders provide the mortgage servicing disclosure statement that outlines whether the lender maintains or assigns the servicing of the loan, and the HUD-1 Settlement Statement which specifies all charges imposed upon borrowers and sellers.

Kickback: A return of a portion of the purchase price by the seller to the buyer which different parties can benefit from undeclared to inflate costs.
HUD-1 Settlement Statement: Provides an itemized listing of fees and charges imposed upon borrower and seller that corresponds to the closing of a real-estate transaction.
Good Faith Estimate (GFE): An itemized listing provided by a mortgage lender detailing initial, estimated settlement costs of a loan.

Online Resources

References

U.S. Department of Housing and Urban Development. “RESPA - Real Estate Settlement Procedures Act”.
Consumer Financial Protection Bureau. “Real Estate Settlement Procedures Act (Regulation X)”.

Suggested Books for Further Studies

“Essential Guide to Real Estate Settlement Procedures Act: How It Affects Real Estate Professionals” by Realty Publications.
“Real Estate Law” by Robert J. Aalberts.
“Understanding the RESPA: Creating a Legal Framework for Real Property Transactions” by Jeffrey D. Fisher.

Real Estate Basics: RESPA Fundamentals Quiz

### What year was RESPA enacted? - [ ] 1980 - [x] 1974 - [ ] 1964 - [ ] 1990 > **Explanation:** RESPA was enacted by Congress in 1974 to provide transparency in the costs and procedures related to real estate settlement. ### Which loans are covered by RESPA? - [ ] Commercial loans - [x] Residential mortgage loans - [ ] Auto loans - [ ] Student loans > **Explanation:** RESPA pertains to most residential mortgage loans, excluding commercial loans. ### What does RESPA aim to prevent? - [ ] Low interest rates - [ ] Unregulated foreclosure processes - [x] Abusive practices and excessive settlement charges - [ ] High mortgage approval rates > **Explanation:** RESPA aims to prevent abusive practices, including kickbacks and referral fees, and ensure costs are transparent and fair. ### What kind of estimate must lenders provide under RESPA? - [x] Good Faith Estimate - [ ] Market Value Estimate - [ ] Property Tax Estimate - [ ] Repair Cost Estimate > **Explanation:** Lenders must provide a Good Faith Estimate (GFE) showing anticipated costs of settlement. ### Are unearned fees for unperformed services allowed under RESPA? - [ ] Yes, whenever negotiated. - [ ] Only if agreed by the buyer - [x] No, they are prohibited. - [ ] Only by small lenders > **Explanation:** RESPA prohibits unearned fees for services not actually performed to prevent unethical cost increments. ### Which document breaks down the costs subsumed in a real estate transaction and is required under RESPA? - [ ] Purchase Agreement - [ ] Title Insurance Policy - [x] HUD-1 Settlement Statement - [ ] Homeowner’s Insurance Estimate > **Explanation:** The HUD-1 Settlement Statement, required under RESPA, provides an itemized breakdown of all costs associated with a real estate transaction. ### Does RESPA apply to home equity lines of credit? - [x] Yes - [ ] No - [ ] Only in certain states - [ ] Only for primary residences > **Explanation:** RESPA covers home equity lines of credit as it applies to most types of residential loans. ### What information is included in the Transfer of Servicing Disclosure? - [ ] Buyer’s credit score - [ ] Seller’s payment history - [ ] Future real estate market forecast - [x] Details on whether the lender intends to service or transfer the servicing of the loan > **Explanation:** The Transfer of Servicing Disclosure informs the borrower if the lender will service the loan or transfer it to another servicer. ### Who enforces RESPA regulations? - [ ] Local government offices - [ ] Federal Bureau of Investigation (FBI) - [ ] Internal Revenue Service (IRS) - [x] Consumer Financial Protection Bureau (CFPB) > **Explanation:** The Consumer Financial Protection Bureau (CFPB) is responsible for enforcing RESPA regulations. ### What major consumer benefit does RESPA provide? - [ ] Higher interest rates - [x] Transparent disclosure of settlement costs - [ ] Quicker loan approvals - [ ] Lower credit score requirements > **Explanation:** The major consumer benefit of RESPA is the transparent disclosure of all settlement costs so that borrowers can make informed decisions.

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Real Estate Settlement Procedures Act (RESPA)