The Real Estate Settlement Procedures Act of 1974, Pub.L 93-533, 88 Stat. 1724, as amended by the Real Estate Settlement Procedures Act Amendments of 1975 ("RESPA"), Pub. L. 94-205, 89 Stat. 1157, is codified at 12 U.S.C. secs 2601-2517.
The provisions of RESPA are designed to ensure that residential real estate consumers are provided with timely information regarding the nature of the settlement process and the cost associated therewith and to protect such consumers from certain abusive practices which have occurred in the home mortgage industry.
The Secretary of the United States Department of Housing and Urban Development is authorized to prescribe rules and regulations, make interpretations and grant exemptions as necessary to achieve the purposes of RESPA (12 U.S.C. sec 2617). Pursuant to this authority, the Secretary of Housing and Urban Development has promulgated regulations commonly known as "Regulation X", which are found at 24 C.F.R. secs 3500.1-3500.14 (1985).
The requirements of RESPA and Regulation X (24 C.F.R. secs 3500.1-3500.14 (1985)) are generally applicable to all "federally regulated mortgage loans" except those made to finance certain specifically exempted transactions. A loan is a federally related mortgage loan if it meets each of the following requirements:
- Its proceeds finance the purchase of real property;
- It is secured by a first mortgage on real property;
- A one-to-four family structure occupies or will occupy the real property;
- The real property is located in the United States; and
- The lender is federally regulated or insured, or the lender is a creditor under the Consumer Credit Protection Act, Pub. L. 90-321, 82 Stat. 146, or the loan is governmentally insured, guaranteed, supplemented or assisted (12 U.S.C. sec 2602(1) (1982); 24 C.F.R. sec 3500.5 (b) (1985)).
Basically, RESPA and Regulation X apply to loans secured by a first mortgage on the residential real property purchased with the loan proceeds. If the real property that is purchased with the loan proceeds is vacant land, RESPA and Regulation X will apply only if the proceeds are also used to construct a one-to-four family structure or to purchase a manufactured home to be placed on the real property.
Pursuant to his statutory authority, the Secretary of Housing and Urban Development has determined that the following classes of transactions are specifically exempted from RESPA:
- A loan to finance the purchase or transfer of property of twenty-five or more acres;
- A loan not use to finance the purchase of real property;
- A loan to finance the purchase of a vacant lot where no proceeds are used for the construction of a residence or the purchase of a manufactured home.
- Assumption or acquisition subject to an existing mortgage, except when a buyer purchases real property from a builder and assumes the builder's construction loan as a part of the buyer's permanent financing;
- A construction loan, unless the first buyer assumes the builder's construction loan as a part of the buyer's permanent financing;
- A loan to finance construction of a residence on a vacant lot already owned by the borrower;
- A loan to finance the purchase of property where the primary purpose of the purchase is for resale; and
- Execution of a land sales contract or installment land contract.
The disclosure requirements described below must be satisfied in all the transactions covered by RESPA.
- Special Information Booklet
The Secretary of Housing and Urban Development has developed a booklet called the Special Information Booklet which lenders must distribute to every person who submits a written loan application. The lender must deliver or mail this booklet to the applicant not later than three days after the lender's receipt of the loan application. (12 U.S.C. sec 2604 (1982); 24 C.F.R. sec 3500.6 (1985)).
- Good Faith Estimate of Settlement Services
Not longer than three days after receipt of a written loan application, the lender must deliver to the applicant a good faith estimate of the settlement costs the applicant is likely to incur (12 U.S.C. sec 2604(c) (1982); 24 C.F.R. sec 3500.7 (1985)).
No precise formula is provided for the determination of a good faith estimate but the basic guideline is that the estimate bear a reasonable relationship to the charge likely required to be paid based on the lender's experience in the area in which the property is located (24 C.F.R. sec 3500.7(b) (1985)).
The charges required to be estimated are those charges listed in section L of the Uniform Settlement Statement, 24 C.F.R. sec 3500.7(d) (1985). The Uniform Settlement Statement is set forth in Appendix A to Regulation X. The good faith estimate of each charge is to be expressed as a dollar amount or range and follow the format set forth in 24 C.F.R. sec 3500.7(d) (1985).
If the lender requires that a particular settlement service provider be used and that the borrower pay some or all of the cost of such services, additional information is required to be included in the good faith estimate (24 C.F.R. sec 3500.7(e) (1985)).
- Use of Uniform Settlement Statement Form
The person conducting the settlement must complete and deliver to the parties the Uniform Settlement Form which has been developed by the Secretary of Housing and Urban Development and is set forth in Appendix A to Regulation X (12 U.S.C. sec 2603 (1982); 24 C.F.R. sec 3500.8 (1985)).
This form itemizes all charges paid by the borrower or seller in connection with the settlement. The sellers charges need not be shown on the borrower's form and vice versa.
The general rule is that the Uniform Settlement Statement be delivered or mailed by the person conducting the settlement to the parties at or before settlement, (24 C.F.R. sec 3500.10(b) (1985)). If, however, the borrower has waived the general rule or the settlement falls within one or two exemptions set forth in Regulation X, the Uniform Settlement Statement need be delivered only as soon as practicable after settlement (24 C.F.R. sec 3500.10(c) and (d) (1985)).Regulation X sets forth certain minor variations of the Uniform Settlement form which are permissible (24 C.F.R. sec 3500.9 (1985)). The person conducting the settlement must provide the lender with a copy of each completed settlement statement which the lender must retain for two years unless it disposes of its interest in the mortgage and does not service the mortgage (24 C.F.R. sec 3500.8(c) (1985)). No fee may be charged for the preparation or the delivery of the Uniform Settlement Statement (24 C.F.R. sec 3500.12 (1985)).
- One-Day Advance Inspection of Uniform Settlement Statement
Upon the borrower's request, the person conducting the settlement must permit the borrower to inspect the completed Uniform Settlement Statement during the business day immediately preceding the date of settlement (12 U.S.C. sec 2603(b) (1982); 24 C.F.R. sec 3500.10 (1985).
- Enforcement of Disclosure Requirements
Neither RESPA nor Regulation X specifies a remedy or penalty for failure to make any of the required disclosures.
Prohibition Against Kickbacks and Unearned Fees
The giving and accepting of "any fee, kickback, or thing of value" for the referral of business incident to a federally related mortgage loan is prohibited (12 U.S.C. sec 2607(a) (1982); 24 C.F.R. sec 3500.14 (1985)).
The giving and accepting of any portion or percentage of a charge for settlement services other than for services actually performed is prohibited (12 U.S.C. sec 2607(b) (1982); 24 C.F.R. sec 3500.14 (1985)).
Regulation X contains a thorough discussion of these prohibition and includes specific examples of prohibited activities. 24 C.F.R. 3500.14 and Appendix B thereto. The sanctions for failure to heed there prohibitions include criminal penalties and treble damages. (12 U.S.C. sec 2607(d)).
Specific Title Insurance Companies
Sellers of property to be purchased with the assistance of a federally related mortgage loan may not require, as a condition of sale, that title insurance covering the property be purchased by the buyer from any particular title insurance company (12 U.S.C. sec 2608(a) (1982)). Any seller violating this provision of RESPA shall be liable to the buyer for treble damages computed on the amount of title charges (12 U.S.C. sec 2608(b) (1982)).
Limitation on Escrow Deposits
RESPA limits the amount that a lender can require to be deposited in escrow at the time of settlement and subsequently monthly deposits.
At the time of settlement, the lender may require the borrower to deposit in an escrow account an amount sufficient to pay taxes, insurance premiums or other charges with respect to the property which are due from the last date the seller paid such charges to the date of the first mortgage installment, plus one-sixth of the aggregate amount due per year (12 U.S.C. sec 2609(1) (1982)).
The lender may require that the monthly payments under the mortgage include escrow payments for taxes, insurance and other charges against the property, but such payments may not exceed one-twelfth of the total amount reasonably anticipated to be paid by the lender during the ensuing twelve-month period (12 U.S.C. sec 2609(2) (1982)).
Neither RESPA nor Regulation X (24 C.F.R. secs 3500.1-3500.14 (1985)) specifies a remedy or penalty for violation of this section.