Real Estate Settlement Procedures Act (RESPA)

Introduction

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are

1. to help consumers become better shoppers for settlement services and

2. to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Details about RESPA

Corresponding with the above purposes:

1. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

2. RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

RESPA in general

RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of RESPA and Interstate Land Sales is responsible for enforcing RESPA. Back to top

RESPA required disclosures:

At the time of loan application

When borrowers apply for a mortgage loan, mortgage brokers and/or lenders must give the borrowers:

* a Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only) and

* a Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use a particular settlement provider, then the lender must disclose this requirement on the GFE.

* a Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.

If the borrowers don't get these documents at the time of application, the lender must mail them within three business days of receiving the loan application.

If the lender turns down the loan within three days, however, then RESPA does not require the lender to provide these documents.

The RESPA statute does not provide an explicit penalty for the failure to provide the Special Information Booklet, Good Faith Estimate or Mortgage Servicing Statement. However, bank regulators may choose to impose penalties on lenders who fail to comply with federal law. Please read the section on RESPA enforcement for more information.

Disclosures before settlement/closing occurs

The terms "settlement" and "closing" can be and are used interchangeably.

An Affiliated Business Arrangement (AfBA) Disclosure is required whenever a settlement service provider involved in a RESPA covered transaction refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest.

The referring party must give the AfBA disclosure to the consumer at or prior to the time of referral. The disclosure must describe the business arrangement that exists between the two providers and give the borrower an estimate of the second provider's charges.

Except in cases where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender's interest in the transaction, the referring party may not require the consumer to use the particular provider being referred.

The HUD-1 Settlement Statement is a standard form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows the borrower to request to see the HUD-1 Settlement Statement one day before the actual settlement. The settlement agent must then provide the borrowers with a completed HUD-1 Settlement Statement based on information known to the agent at that time.

Disclosures at settlement

The HUD-1 Settlement Statement shows the actual settlement costs of the loan transaction. Separate forms may be prepared for the borrower and the seller. Where it is not the practice that the borrower and the seller both attend the settlement, the HUD-1 should be mailed or delivered as soon as practicable after settlement.

The Initial Escrow Statement itemizes the estimated taxes, insurance premiums and other charges anticipated to be paid from the Escrow Account during the first twelve months of the loan. It lists the Escrow payment amount and any required cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

Disclosures after settlement

Loan servicers must deliver to borrowers an Annual Escrow Statement once a year. The annual Escrow account statement summarizes all escrow account deposits and payments during the servicer's twelve month computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken.

A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer. Generally, the loan servicer must notify the borrower 15 days before the effective date of the loan transfer. As long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.

RESPA'S statutes explained: consumer protections and prohibited practices

Section 8: kickbacks, fee-splitting, unearned fees

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.

Section 9: Seller required title insurance

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

Section 10: Limits on escrow accounts

Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance and other charges related to the property. RESPA does not require lenders to impose an escrow account on borrowers; however, certain government loan programs or lenders may require escrow accounts as a condition of the loan.

During the course of the loan, RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year.

The lender must perform an escrow account analysis once during the year and notify borrowers of any shortage. Any excess of $50 or more must be returned to the borrower.

RESPA enforcement

Civil law suits

Individuals have one (1) year to bring a private law suit to enforce violations of Section 8 or 9. A person may bring an action for violations of Section 6 within three years. Lawsuits for violations of Section 6, 8, or 9 may be brought in any federal district court in the district in which the property is located or where the violation is alleged to have occurred.

HUD, a State Attorney General or State insurance commissioner may bring an injunctive action to enforce violations of Section 6, 8 or 9 of RESPA within three (3) years.

Loan servicing complaints

Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer's required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6's provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance.

Other enforcement actions

Under Section 10, HUD has authority to impose a civil penalty on loan servicers who do not submit initial or annual escrow account statements to borrowers. Borrowers should contact HUD's Office of Consumer and Regulatory Affairs to report servicers who fail to provide the required escrow account statements.

Filing a RESPA complaint

Persons who believe a settlement service provider has violated RESPA in an area in which the Department has enforcement authority (primarily sections 6, 8 and 9), may wish to file a complaint. The complaint should outline the violation and identify the violators by name, address and phone number. Complainants should also provide their own name and phone number for follow up questions from HUD. Requests for confidentiality will be honored. Complaints should be sent to:

Director, Office of RESPA and Interstate Land Sales

US Department of Housing and Urban Development
Room 9154
451 7th Street, SW
Washington , DC 20410

 

 

 

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Gulf Shores and Orange Beach Area Info

Climate
The Gulf Coast Area has a mild climate with an average annual temperature of 67.4 degrees. The average temperature in January is 51.4 degrees. The average temperature in July is 81.8 degrees. The average annual precipitation is 67 inches, and the growing season is 292 days.

Education
Education is a fundamental block in building a bright future. The Gulf Coast Area opened a brand new high school during 1999 in Gulf Shores (ph. 251.968.4747). The area has two elementary schools; they are Gulf Shores Elementary (ph. 251.968.7375) and Orange Beach Elementary (ph. 251.981.5662). Gulf Shores Middle School (ph. 251.968.8719) offers an excellent curriculum in preparation for high school. All public schools are part of the Baldwin County school system. If you are interested in private education, you also have the option of Bayside Academy (ph. 251.955.5211), which includes age 3yrs – Grade 4.

Healthcare
The nearest hospital is South Baldwin Regional Medical Center (ph. 800.580.3627) located in Foley. South Baldwin Medical Center offers 24-hour emergency services (ph. 251.952.3400). Numerous medical professionals practice in the area providing both family practice and specialized care.

Airports
Corporate and Private air service is available in Gulf Shores from the Jack Edwards Municipal Airport, with a full Instrument Landing System and the longest paved runway being 7000 feet. The closest commercial air service is available in Pensacola, roughly 30 miles away, at the Pensacola Regional Airport (ph. 850.435.1746). Major carriers serving the airport are Continental, US Airways, Delta, Northwest, and American. Other commercial airports are located in Mobile (ph. 251.633.0313) and Gulf Port, Mississippi (ph. 228.863.5951).

Shopping
The area offers many shops ranging from casual apparel and beachwear to upscale fashion and specialty boutiques. If you are a bargain hunter, you can find 120 factory outlet stores in Foley.

Parks and Recreation
The nearest state park is the Gulf State Park (ph. 251.948.7275). The 6,000-acre park area offers campsites, picnic areas, 18-hole golf course, 825 foot fishing pier, 144 room hotel and convention center. Other parks in the area include Bon Secour Wildlife Refuge (ph. 251.540.7720), Meyer Park (ph. 251.968.4420), Johnnie Sims Park and Kids Park (ph. 251.968.4420), and Wade Ward Nature Park (ph. 251.968.4420).

State/Local Income Tax
For detailed information about Alabama income tax, contact the Alabama Department of Revenue, Individual and Corporate Tax Division (ph. 251.242.1000). In most instances, local governments in Alabama do not levy city, town, or county income taxes.

Property Taxes
Property (Ad Valorem) taxes are taxes on real business and/or personal property. “Ad Valorem” means “according to value”. For details, call the Revenue Commissioner’s office (ph. 251.943.5061, ext. 2840).