The Real Estate Settlement Procedures Act (RESPA) was a law passed by the United States Congress in 1974 and codified as Title 12, Chapter 27 of the United States Code, 12 U.S.C. The main objective was to protect homeowners by assisting them in becoming better educated while shopping for real estate services, and eliminating kickbacks and referral fees which add unnecessary costs to settlement services. RESPA 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. RESPA was also designed to prohibit potentially abusive practices such as kickbacks and referral fees, the practice of dual tracking, and imposes limitations on the use of escrow accounts.
The Real Estate Settlement Procedures Act (RESPA) is a federal law that governs residential real estate closings. It primarily aims to protect consumers by ensuring transparency and fairness in the real estate settlement process. Here’s a breakdown of the key aspects mentioned:
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Governs Residential Real Estate Closings:
RESPA applies to most residential real estate transactions involving a mortgage loan from an institutional lender. It ensures that buyers are fully informed about the costs associated with their mortgage loan and the closing process.
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Requires Disclosures Regarding Closing Costs:
RESPA mandates that lenders provide specific disclosures to loan applicants, including a Loan Estimate (formerly the Good Faith Estimate) of closing costs, within three business days of receiving a loan application. This helps borrowers understand the total costs of the transaction and prevents surprises at closing.
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HUD-1 Settlement Statement (Former Requirement):
Before 2015, RESPA required escrow agents to prepare and provide a HUD-1 Settlement Statement, which detailed all the costs and fees associated with the real estate transaction. However, as of October 3, 2015, the HUD-1 was replaced by the Closing Disclosure for most residential mortgage transactions, per the TILA-RESPA Integrated Disclosure (TRID) rule.
In summary, RESPA is crucial for ensuring that consumers are well-informed and protected throughout the residential real estate closing process.
