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 It was originally
enacted in 1974 and ensures that the buyer and seller in a real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.