Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act, or RESPA, was enacted by Congress to provide homebuyers and sellers with improved disclosures of settlement costs and to eliminate abusive practices in the real estate settlement process.

Originally passed by Congress in 1974, the Real Estate Settlement Procedures Act became effective on June 20, 1975. RESPA has been impacted over the years by several changes and amendments. Enforcement initially fell under the jurisdiction of the U.S. Department of Housing & Urban Development (HUD). After 2011, those responsibilities were assumed by the Consumer Financial Protection Bureau (CFPB) due to the Dodd–Frank Wall Street Reform and Consumer Protection legislation. 

From its inception, RESPA has regulated mortgage loans attached to one-to-four family residential properties with the objective of educating borrowers regarding their settlement costs and to eliminate kickback practices and referral fees that can inflate the cost of obtaining a mortgage. The types of loans included would consist of the majority of purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. 

RESPA attempts to regulate settlement costs by requiring lenders, mortgage brokers or servicers of home loans to provide disclosures to borrowers that will inform them about real estate transactions, settlement services, relevant consumer protection laws and any other pertinent and timely information connected to the cost of the real estate settlement process. Any business relationships between closing service providers and other parties connected to the settlement process would also need to be disclosed to the borrower.

The Act also prohibits specific practices, such as kickbacks, referral, and unearned fees. RESPA regulates the use of escrow accounts – such as prohibiting loan servicers to demand excessively large escrow accounts. RESPA also restricts sellers from mandating title insurance companies.

A plaintiff has up to one year to bring a lawsuit to enforce violations where kickbacks or other improper behavior occurred during the settlement process.

If the borrower has a grievance against their loan servicer, there are specific steps that must be followed before any suit can be filed. The borrower must contact their loan servicer in writing, detailing the nature of their issue. The servicer is required to respond to the borrower’s complaint in writing within 20 business days of receipt of the complaint. The Servicer has 60 business days to correct the issue or gives its reasons for the validity of the accounts current status. Borrowers should continue to make required payments until the issue is resolved.

A plaintiff has up to three years to bring a suit for specific improprieties against his or her loan servicer. Any of these suits can be brought in any federal district court if it’s either in the district where the property is located or if its the district where the RESPA violation took place.