What Is RESPA And How Does It Protect Consumers?
RESPA — the Real Estate Settlement Procedures Act of 1974 — is a federal law that protects consumers from predatory lending practices in residential real estate transactions. It is enforced by the Consumer Financial Protection Bureau (CFPB). RESPA protects mortgage borrowers from unscrupulous lending actions. It requires lenders to disclose financial information so consumers can make informed decisions when purchasing a home. In addition, it eliminates kickbacks and limits the use of escrow accounts.
RESPA covers home loans made for residential properties. This includes most home purchase loans in addition to home equity lines of credit (HELOCs), mortgage refinances, and home improvement loans.
RESPA consumer protections
RESPA protects homebuyers in numerous ways. These include:
- Requiring the lender to make full disclosure of loan costs
- Protecting borrower’s rights from lenders, real estate brokers, and loan servicers
- Prohibiting kickbacks and regulating business affiliations
- Limiting escrow account requirements
- Prevention of preferred title insurance requirements
RESPA prohibits kickbacks and unearned fees
Let’s say that you’re a prospective buyer attempting to purchase a home with the help of a real estate agent. Your real estate agent helps you find a property that you love, and then recommends a mortgage loan provider to you. In return for bringing the mortgage loan provider your business, the real estate agent receives a kickback from the loan provider.
In the aforementioned scenario, the home buyer might have found a better deal using another lender. The home buyer was also unaware that the real estate agent and the mortgage loan provider were in cahoots. U.S. lawmakers passed RESPA to eliminate this sort of collusion against home buyers.
RESPA limits the use of escrow funds
While RESPA allows lenders and loan servicing providers to collect money to pay property taxes, homeowners insurance, and escrow account costs, it limits the amount that lenders and providers can add to these accounts.
Lenders can only require payments of 1/12th of the total annual disbursements and require a 2-month cushion for these payments. Escrow account overage balances must be returned to the borrower after all disbursements are made.
RESPA prohibits preferred title insurance companies
Real estate developers and builders generally have relationships with title companies to handle bulk title insurance transactions. In some of these cases, attorneys for the sellers have a financial relationship with title insurance companies and want to hedge buyers to use their services.
Under RESPA, if a seller compels a potential buyer to use a title insurance company and will not let the sale go forward unless the buyer complies, then the seller has violated federal law. The seller can agree to pay for title insurance on behalf of the buyer so long as they don’t add the cost back later down the line.
Talk to a Columbus, OH Foreclosure Defense Attorney Today
Kohl & Cook Law Firm, LLC represents the interests of Ohio residents facing foreclosure. If a lender, seller, or other party violates RESPA, you have a defense to your foreclosure. Call our Columbus consumer lawyers today to schedule an appointment, and we can begin discussing your next moves right away.
