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What Is the Real Estate Settlement Procedures Act (RESPA)?

What Is RESPA?
What Is RESPA? -Mortgage Rates Today

The Real Estate Settlement Procedures Act (RESPA) was passed by the United States Congress in 1975 to enable accurate settlement cost disclosures to homebuyers and sellers. RESPA was also enacted to prevent bribes, limit the usage of escrow accounts, and remove abusive activities in the real estate settlement process. The Consumer Financial Protection Bureau currently regulates RESPA, a federal law (CFPB).

RESPA Explained

The major goal of the Real Estate Settlement Procedures Act is to safeguard homeowners by supporting them in becoming more knowledgeable when shopping for real estate services and eliminating kickbacks and referral fees, which add needless costs to settlement services. RESPA mandates that lenders and others involved in mortgage lending give borrowers with timely and accurate information on the nature and expenses of the real estate settlement process. RESPA also prohibits potentially abusive tactics including kickbacks and referral fees, as well as the practice of dual tracking and limits the usage of escrow accounts.

RESPA Process

RESPA has regulated mortgage loans tied to one- to four-family residential buildings since its creation. RESPA’s goal is to inform borrowers about their settlement costs and to minimize kickbacks and referral fees that can drive up the cost of getting a mortgage. The bulk of purchase loans, assumptions, refinances, property renovation loans, and home equity lines of credit are covered under RESPA (HELOCs).

Requirements for the Real Estate Settlement Procedures Act 

RESPA lays forth the rules that lenders must follow when issuing mortgages backed by government guaranteed loans. Home purchase loans, refinancing, lender-approved assumptions, home repair loans, equity lines of credit, and reverse mortgages are all examples of this.

When purchasing a property, working with a reputable, licensed real estate agent or broker who can guide you through the process might be beneficial. It’s also crucial to use a reputed lender if you’re refinancing an existing mortgage or borrowing against your home equity. RESPA, along with other regulatory rules, is intended to protect prospective and existing homeowners against deceptive tactics by real estate agents, brokers, lenders, and connected businesses.

RESPA Summary

  • The Real Estate Settlement Procedures Act (RESPA) governs the majority of house purchase, refinance, and improvement loans, as well as home equity lines of credit.
  • RESPA mandates that lenders, mortgage brokers, and home loan servicers give borrowers information on real estate transactions, settlement services, and consumer protection laws.
  • RESPA prevents loan servicers from requiring unreasonably large escrow accounts and sellers from requiring title insurance.
  • A plaintiff has one year from the date of the violation to file a lawsuit to pursue violations including bribes or other inappropriate activities during the settlement process.
  • A plaintiff can file a lawsuit against their loan servicer for up to three years.

Key points for RESPA and VA loans

Residential assumable loans are few and far between these days, but VA loans are an exception. The answer is yes RESPA does apply to VA loans. The debt is not insured when it is assumed and the lender has no right to approve future persons for the assumption.

If you have any other questions regarding RESPA contact the mortgage experts at 864-397-8500 or click Mortgage Rates Today!