RESPA is a federal regulation that governs certain aspects of the
closing and settlement process in a real estate transaction.Â Designed
to protect consumers who are buying houses, the U.S. Department of
Housing & Urban Development (HUD) enforces RESPA.Â Essentially,
RESPA requires that buyers be given certain disclosures or information
at various points during the purchase process, and outlaws kickbacks
that might increase the costs of closing and settlement.
RESPA applies to most mortgage loans taken out for primary
homes.Â When you apply for a mortgage loan, the lender must give you
certain information about various real estate settlement services, a
Good Faith Estimate as to the amount of settlement charges you will face
if your loan is approved, and a Mortgage Servicing Disclosure
Statement, which addresses whether the lender intends to service the
loan or transfer it to another lender. You must also be given procedures
for resolving any complaints that you might have.Â Lenders have to give
you this information at the time of your loan application, or mail it
to you within three business days of your application.Â The only
exception is if the lender turns down your loan application within
three days; in this case, the lender is not required to comply with
this aspect of RESPA.
A lender must also make certain disclosures before settlement or
closing on the loan occurs.Â RESPA requires that you receive a completed
HUD-1 Settlement Statement at least one day before closing.Â This
document sets forth all of the charges that apply to both the buyer and
seller at the time of closing.Â RESPA also mandates that you receive an
Affiliated Business Arrangement Disclosure prior to settlement, if the
settlement provider has referred you to a provider with whom it has
some sort of business arrangement.
In addition to the HUD-1 Settlement Statement, RESPA also provides
that you receive an Initial Escrow Statement at settlement or within 45
days thereafter, which sets forth the estimated property taxes and
insurance premiums that you will pay during the first year of the
loan.Â This Statement also must contain the total amount of escrow
payments you will make, as well as any required minimum amount that the
lender requires to remain in your escrow account at all times.
Following settlement of your loan, RESPA imposes an obligation on
lenders to send you an Annual Escrow Statement that gives an itemized
account of all payments and deposits on your escrow account.Â At that
time, you will be refunded any overpayments, or be required to make up
any shortages in your escrow account.Â You also are entitled to a
Servicing Transfer Statement at any time that your lender sells or
otherwise transfers the servicing of your loan to another company.
Finally, RESPA prohibits any kickbacks, fee splitting, or other
unearned fees that might unfairly increase your settlement
costs.Â Violations of these provisions of RESPA can result in both civil
and criminal penalties.Â Additionally, RESPA places limits on escrow
accounts and outlaws lenders from requiring that you use a particular
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