The Real Estate Settlement Procedures Act (RESPA) is a federal law that protects homebuyers and sellers from abusive practices in the real estate settlement process. It was enacted in 1974 and is now regulated by the Consumer Financial Protection Bureau (CFPB).
RESPA aims to provide transparency and ensure that consumers are well-informed about the costs associated with real estate transactions. It requires lenders and others involved in mortgage lending to provide borrowers with pertinent and timely disclosures regarding the nature and costs of a real estate settlement process.
Some key aspects of RESPA include:
- Prohibition of kickbacks and referral fees: RESPA prohibits giving or receiving any fee, kickback, or thing of value in exchange for referrals of settlement service business.
- Escrow account requirements: RESPA limits the amount of money that a lender can require to be held in an escrow account for property taxes and insurance.
- Good Faith Estimate (GFE): Lenders must provide borrowers with a GFE of settlement costs within three days of receiving a loan application.
- HUD-1 Settlement Statement ( Now called a "Closing Statement"): This document itemizes all charges and fees associated with the real estate transaction and must be provided to the borrower at least one day before the closing.
Overall, RESPA is an important piece of legislation that helps to protect consumers and promote transparency in the real estate settlement process.