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Real Estate Settlement Procedures Act
In 1974, Congress enacted the important Real Estate Settlement Procedures Act (RESPA), a major consumer-protection law that protects residential real estate buyers and sellers during the settlement procedure, also known as the closing. RESPA protections are required only for residential real estate transactions financed by federally related mortgage loans, which for all practical purposes means virtually all residential mortgages. Residential real estate for purposes of RESPA is real estate constructed for one to four families, including cooperative and condominium units.
Congress charged the US Department of Housing and Urban Development (HUD) with administering RESPA. HUD has enacted a detailed set of regulations implementing RESPA, popularly called Regulation X. Educational information about RESPA is available for consumers on the HUD Web site.
RESPA’s focus is mainly on providing important and timely information to the consumer, holding closing costs to a reasonable level and preventing corrupt settlement practices. The major consumer protections provided by RESPA include:
- Early notice of closing-cost estimate
- Early disclosure of mortgage terms
- Abolition of kickbacks and lucrative referral or fee-splitting arrangements
- Prohibition of seller requirement that buyer use specific title insurer
- Prohibition of certain fees
- Escrow account capping and other specific escrow regulation
- Use of the Uniform Settlement Statement (HUD-1) containing an itemization of charges and specific title insurance information
- Timely provision of the booklet Settlement Costs and You about unfair practices, escrow accounts, typical closing costs and more
RESPA does not apply in several situations, including, but not limited to:
- Sale of property containing 25 or more acres
- Home-improvement loan
- Home-equity loan
- Loan not secured by a first mortgage on the subject property
- Most temporary financing
- Purchase for resale
- Purchase of lot with no intent to use any loan proceeds to place a residence thereon
- Construction loan for residence if lot was previously purchased by the borrower
Anyone violating RESPA may be liable for a fine of up to $10,000 or up to one year’s imprisonment, or both. A RESPA violator is also liable to the person who paid the wrongful settlement charge for damages in the amount of three times the wrongful charge. There are other specific penalties for particular violations. Anyone harmed by these RESPA violations may bring an enforcement action in court, normally within one year. The Attorney General, HUD Secretary or a state insurance commissioner may bring an enforcement action within three years.
The courts are split as to whether any private right to sue for damages under RESPA exists, with most courts denying such right.
This is only a cursory look at RESPA. You should obtain legal advice about its application to your particular situation. Other related federal and state legislation may also apply to your residential real estate closing.
Throughout the residential sales process, whether you are a buyer or seller, you should consult a skilled real estate attorney to provide guidance, to answer any questions that arise and to look out for your interests. Be sure to alert your lawyer if you have concerns about your RESPA rights during the settlement process.
Your First Appointment With a Real Estate Attorney
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