“RESPA compliance is mandatory for all real estate transactions involving residential properties. Learn about the Real Estate Settlement Procedures Act regulations and how a RESPA lawyer helps in avoiding its non-compliance.”
RESPA Compliance Overview
RESPA stands for the Real Estate Settlement Procedures Act. In December 1974, congress passed RESPA which became effective from June 20, 1975. Ever since then, RESPA has undergone numerous changes and amendments. These revisions to RESPA have enabled it to strengthen and better serve the interests of residential real estate buyers and sellers.
If you are wondering about who enforces RESPA, it is the Consumer Financial Protection Bureau or CFPB. It was created in 2011 for RESPA compliance and enforcement. Before CFPB, the US Department of Housing and Urban Development or HUD was responsible for RESPA compliance and enforcement.
But while the CFPB is a regulatory body, the parties involved in any residential real estate transaction also have a clear responsibility. By hiring a qualified real estate attorney, possible violations of RESPA are avoidable.
Remember that non-compliance of RESPA is a punishable act with both fine and imprisonment charges.
What is RESPA or Real Estate Settlement Procedures Act?
The main purpose of the RESPA or Real Estate Settlement Procedures Act is to make sure that buyers and sellers involved in a residential real estate transaction have access to complete and improved settlement cost disclosures.
RESPA puts the responsibility of disclosing all the necessary and updated information on mortgage brokers, lenders, and home loan servicers. These persons should provide borrowers with details regarding nature and costs involved in a real estate settlement process.
Besides this, RESPA also focuses on minimizing closing costs by completely preventing the use of referral fees and kickbacks. It also puts limits on the use of unnecessarily large escrow accounts which the loan servicers in some cases may demand.
What are settlement costs?
Settlement costs or closing costs are costs and fees paid in relation to closing or completing a real estate transaction. For example, fees and charges incurred on a loan application, real estate attorney services, title search, home inspection, credit report pulling, escrow account setup, property recording and transfer, etc.
The term closing refers to the point where both the buyer and the seller have fulfilled their agreed-upon responsibilities. This means that the seller can now proceed with the transfer of the property in question to the buyer.
Settlement costs do not form part of the property value. It is for the seller and the buyer to decide on who should pay the settlement costs.
What is the main intent and purpose of RESPA compliance?
By making home finance and mortgage consumers aware of their settlement costs, RESPA works to eliminate consumer exploitation in terms of being demanded with kickbacks and/or referral fees. This ultimately prohibits an increase in costs of obtaining mortgages as well as discouragement from applying for mortgages.
What is covered by RESPA?
RESPA basically covers and administers any federally regulated mortgage loan. It applies to a vast number of residential real estate purchase loans, refinancing agreements, property improvement loans, and equity lines of credit.
As a general fact, federal laws and regulations govern over most of the mortgage loans secured for residential properties. Since this includes federal loan guarantees and mortgage funding consolidation, most real estate transactions fall in the ambit of RESPA.
However, below is a specific list of transactions that are RESPA regulated. These include –
- Home purchase loans;
- Majority of loans secured by way of a lien on residential property;
- Refinancing loans;
- Lender approved assumptions;
- Loans secured for property improvement;
- Home equity lines of credit or HELOC; and
- Reverse mortgages.
RESPA and its scope on settlement service providers
A settlement service that becomes part or whose nature constitutes its performance or procurement as an essential part of a real estate transaction is a real estate settlement service.
This includes but is not in any way limited to –
- Search for proper property titles;
- Examination of such titles searched or already known;
- The provision of title certificates;
- Insurance as to titles;
- Hiring services of a real estate attorney for a consultation on the before-mentioned matters;
- Property surveys;
- Preparation of all the necessary documents;
- The rendering and pulling of credit reports or appraisals for such purpose;
- Inspections after pest and fungus fumigations;
- Hiring services of a real estate agent or brokerage firm;
- Companies involved in providing home warranties; and
- Any other service related to the handling of the processes and closing or settlement of the real estate transaction.
Due to the involvement of multiple settlement services and providers in each real estate transaction, the scope of RESPA is quite broad.
Without putting any specific restrictions on roles or distinguishing among the different types of settlement service providers, the scope of RESPA regulations is uniformly applied to each aspect of every settlement service rendered and becoming part of a real estate transaction.
CFPB’s authority under RESPA for its compliance by real estate agents or brokers
Although the Consumer Financial Protection Bureau or CFPB handles all the regulatory responsibilities under RESPA, there is a limitation. This general limitation excludes the CFPB from exercising direct authority over real estate brokerage transactions.
However, this does not in any way mean that CFPB’s role is completely excluded in this case. Under the guidelines established by RESPA, CFPB has the right to exercise authority over real estate agents and brokerage firms that engage in offering or providing financial products and services.
Because of this, RESPA compliance becomes important for all real estate agents and brokerage firms. Further, they cannot demand or obtain anything of value, such as gifts or monetary benefits, as a referral fee for their settlement services.
To conclude, any person’s attempt to bypass the RESPA compliance is a serious offence and subject to penalties. This includes being charged to make good any damages, pay fines, or serve a term in imprisonment.
What procedure to follow in case of RESPA violations?
Ways to prevent a violation and enable RESPA compliance
The compliance of RESPA and preventing any of its violations is only possible with a joint effort from both CFPB and you.
While the CFPB does everything in its capacity and ambit to prevent violations and enforce RESPA compliance, this isn’t enough. This means that exceptions do exist, but occurrence of which is avoidable or or at least minimizable by you playing your part.
Therefore, as a party to a real estate transaction, you must comply with RESPA regulations. However, if you aren’t fully aware as to your rights on being provided with the necessary disclosures as mentioned above in this article, hiring a real estate attorney for RESPA compliance is the right choice. Besides making you aware of your rights, a RESPA attorney can help you with other issues as well. For instance, he can make sure that no deliberate or unintentional RESPA violation has been made.
RESPA violations occurring during the settlement process
On identifying a RESPA violation, here is what the plaintiff needs to do.
Within a period of one year, the plaintiff can at any time initiate a lawsuit for the correction of any RESPA violations. Examples of such violations include kickback payments or any improper behavior that occurred during any stage of the settlement process.
RESPA violation involving loan servicer
In cases where the borrower finds a RESPA violation from a loan servicer, here is what he/she should do. Please note that using the below mentioned steps are important before initiating any legal lawsuit.
As a preliminary step, the borrower should make a written attempt to contact their loan servicer. This complaint should include all the necessary details.
Upon receiving the complaint, the loan servicer should reply with a written response to the grievances of the borrower. For this, the loan servicer has approximately 20 business days from the receipt of the written complaint.
The loan servicer, within a period of not more than 60 business days, should take the appropriate actions on his behalf. This includes any of the following two actions –
- Either correct the issues mentioned in the complaint; or
- Provide a reasonable justification to validate the non-compliance.
However, it is important to mention that the borrower during all this period, should not in any case stop making payments that become payable.
If a plaintiff remains unsatisfied with the corrective measures as adopted by the loan servicer or his response of validation, he can now proceed with legal action.
For this, the plaintiff has a period of up to three years to take legal action against the inappropriate actions and misconduct of the loan servicer.
The plaintiff, in this case, can file a law suit in any federal district court that meets the following criteria –
- Either the court is in the district where the concerned property is located; or
- The court is in the district where the RESPA violation took place.
Despite being highly effective and being enforceable on a majority of residential real estate transactions, RESPA violations do occur. Many critics of RESPA believe that almost all the acts that it is poised to enforce, still happen. According to such critics, there are evident loopholes which the lenders use to design schemes for bypassing the RESPA compliance.
Due to all this, hiring a real estate attorney for all of your real estate transactions is the right choice.
Attorneys Real Estate Group has the expertise to guide you with RESPA compliance issues. Our team of professionals knows exactly how to prevent any possible RESPA violations during a residential real estate transaction.
Simply, give us a call at 916-702-8443 or visit our website at Attorneysre.com. You can also get free legal consultation by filling in the form at this link. One of our attorneys will get back to you as quickly as possible and will be glad to assist you. We look forward to welcoming you soon.