Real Estate Settlement Procedures Act
The "Real Estate Settlement Procedures Act" (RESPA) was originally enacted in 1974 by The Department of Housing and Urban Development. The purpose of the statute is to mandate full disclosure to the parties in a real estate transaction. The disclosure items covered by RESPA include closing costs, lender servicing and escrow account practices and affiliated business relationships. RESPA applies to all mortgages for residences for one (1) to four (4) families and include all purchase loans, refinance loans, equity lines of credit, property improvement loans and loan assumptions. RESPA also mandates that it is illegal for there to be any "kickbacks" or "referral fees" between service providers.
Upon making loan application, your loan officer will review all documentation required by RESPA and give you a copy of each one. From a borrowers perspective The Good Faith Estimate is probably the most important of these documents because it details the estimated costs to close the loan. Should your loan application be over the phone, all RESPA documents will be mailed to you within three (3) days.
So far we have only discussed borrowers however RESPA actually protects both buyers and sellers in a real estate transaction. The settlement statement, also known as the HUD-1, discloses all costs to both parties.
RESPA protection for consumers is not completed at the closing of the mortgage. After the loan has successfully closed the investor who is servicing the loan must provide the borrower with an annual statement regarding the escrow account and review all disbursements and adjustments to the escrow account.
For more information on the Real Estate Settlement Procedures Act please visit The Department of Housing and Urban Development website.
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