RESPA basics: What you should be aware of

Real Estate Settlement Procedures Act or RESPA is a statute that has been formulated for consumer protection. This act was first passed in 1974. The main objective of Real Estate Settlement Procedures Act is to abolish referral fees & kickbacks which unnecessarily raise costs of some specific settlement services. The other objective of this act is to protect the consumers from the predatory practices of settlement service providers like realtors, lenders, and title insurers.

According to the rules of Real Estate Settlement Procedures Act (RESPA) the borrowers must receive disclosures at different times. This act also forbids practices that raise the expenses involved in settlement services.



The borrowers will get disclosures that are correlated to the costs associated with escrow account practices, settlement, and outlining of lender servicing.



Loans covered under RESPA



This act covers loans such as property improvement loans, refinance loans, purchase loans, assumptions and equity lines of credit.



Disclosures required under RESPA



Borrowers are entitled to receive the following disclosers at various stages of real estate settlement.



1. Disclosures at the time of loan application: At the time of loan application, the lenders are required to provide a special information booklet. The consumers will get information about various real estate settlement services from this booklet. The borrowers will also get a Good Faith Estimate (GFE) of settlement costs and Mortgage Servicing Disclosure Statement.



2. Disclosures at settlement: The borrowers will receive the Initial Escrow Statement which shows the insurance premiums, estimated taxes and other charges that have to be paid from the escrow account during the first twelve months of the loan.



3. Disclosures after settlement: Lenders are required to provide Annual Escrow Statement to the borrowers once a year. The annual escrow account statement sum up all escrow account deposits and payments during the year. They might also receive a Servicing Transfer Statement.



4. Disclosures before closing occurs: The borrowers will receive an Affiliated Business Arrangement (AFBA) disclosure. They are also entitled to receive HUD-1 Settlement Statement. This disclosure shows charges that the borrowers and sellers have to pay in connection with the settlement.