What is the meaning of RESPA?
The Real Estate Settlement Procedures Act or RESPA for short is a set of laws put in place by Congress to protect consumers’ rights during real estate settlements, according to Redfin.
According to the Federal Reserve, RESPA was created in 1974 to make sure that lenders, home loan servicers, and mortgage brokers provide timely full disclosure of the cost and nature of the settlement to their clients. In addition, RESPA puts limitations on escrow accounts and prohibits bad practices such as kickbacks.
What does RESPA do?
Buying and selling properties is a very challenging job with complex steps. Many home buyers and sellers do not understand the ins and outs of selling houses. So, they rely on their real estate agents, mortgage lenders, and real estate attorneys to tackle the most complex tasks.
Due to the lack of knowledge, some lenders and brokers can include unnecessary steps in order to collect more money from the seller or buyer. These practices are unethical and illegal. For this reason, a full disclosure of all costs and the nature of the sale should be made available to clients.
As noted by the U.S Department of Housing and Urban Development (HUD), RESPA’s intention is to reduce the settlement costs and abusive practices in real estate transactions. The following are some of the services and information that must be disclosed during a real estate settlement, based on HUD.
- Information about settlement services
- Access to information related to consumer protection rules
- Mortgage transferring information
- Itemization of closing costs
- Access to real estate transaction information
The following are some activities and behaviors that RESPA prohibits during a real estate transaction.
- Referrals fees
- Sellers should not require buyers to purchase insurance at companies they recommended
- Pocketing unearned fees
- Moneylenders are prohibited from requiring excessive escrow accounts
- Kickbacks are not allowed
