RESPA

RESPA is a common term for the Real Estate Settlement Procedures Act. This sounds like a long name and it is, but this law is the one that provides protection for the homebuyer. It was originally enacted in 1974 and ensures that the buyer and seller in a real estate transaction have knowledge of all settlement costs when buying a home. It also specifies that with first mortgage loans certain information is given to the mortgage applicant or buyer.

RESPA also prevents companies form receiving money for referring you to another business partner. In short, it provides protection and full disclosure so you know how much you are paying for each element of the property, an important factor in the most important purchase of your life.

One piece of information that mortgage lenders must provide everyone that prepares a mortgage loan application is a special information booklet that is published by the U.S. Department of Housing and Urban Development (HUD) entitled “Settlement Costs and You.”

HUD’s informational booklet provides the borrower with general information about closing costs and explains in detail the Uniform Settlement Statement or closing statement. This statement is provided to all borrowers at closing and is one of the most important statements in the transaction.

Another piece of information that is required by RESPA is an estimate, made in good faith, of all of the closing costs involved in generating the mortgage loan. This estimate is based on past transactions and also provides you with information if a business relationship exists between the lender and their Title Company or attorney that they are directing you to use. This helps clarify who is getting all of the money generated from various fees.

RESPA also states that you must be given information when closing a mortgage loan on a special form designed by HUD that lists all of the financing information involved in your mortgage loan. This statement itemizes all of the charges being paid out of the money you are borrowing. It also typically lists costs that have been agreed to between the buyer and the seller. If you want to review the settlement statement prior to the final closing, you have the right to do this up to one day in advance. This is important as it will allow you time to review the charges and correct any errors prior to closing date.

The RESPA act also prevents the payment of kickbacks on charges that you pay. For example, if your mortgage lender refers you to a particular insurance agent, there is no referral fee paid form either. This does not cover a very common practice of one real estate agent generating a referral fee for directing you to another agent.