Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 to provide consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks. Through the years, the Department of Housing and Urban Development (HUD) has issued regulations and policy statements to provide RESPA guidance to industry and consumers alike.
On November 17, 2008, HUD published a new final rule “To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.” The rule mandates use of a new Good Faith Estimate (GFE) and HUD-1 which went into effect on January 1, 2010. Go here for details.
Do's and Don'ts
RESPA prohibits service providers from giving anything of value in exchange for referrals of business.
RESPA violations can carry serious consequences. The following examples of things you can and cannot do to comply with RESPA will help you on your way to understanding the law:
- RESPA allows a title agent to pay for your dinner when business is discussed, provided that such dinners are not a regular occurrence.
- RESPA allows a home inspection company to sponsor association events when representatives from that company also attend and to post a sign identifying its services and sponsorship of the event.
- RESPA allows a lender to pay you fair market value to rent a desk, copy machine and phone line in your office to pre-qualify applicants.
- RESPA allows a title agent to provide, during an open house, a modest food tray in connection with the title company's marketing information indicating that the refreshments are sponsored by the title company.
- RESPA allows you to jointly advertise with a mortgage broker if you pay a share of the costs in proportion with your prominence in the advertisements.
- RESPA allows a hazard insurance company to give you marketing materials such as notepads, pens and desk blotters which promote the hazard insurance company's name.
- RESPA prohibits acceptance of payment from a mortgage lender just for taking a loan application.
- RESPA prohibits accepting gifts from mortgage brokers, such as paying your greens fees.
- RESPA prohibits a mortgage broker or title company from paying for your tickets to a sporting event.
- RESPA prohibits acceptance of contributions from a title company to offset the cost of a real estate agent's promotional event except to the extent of the value of any marketing done by the title company during that event.
- RESPA prohibits a title company from regularly providing dinner and reception for real estate agents.
- RESPA prohibits acceptance of a dinner paid for by a home inspector who doesn't attend the dinner to market his/her services to you.
For information to help you determine the ins and outs of this complicated legal issue, here are some helpful links:
For additional information on RESPA, visit www.realtor.org/RESPA. Speak with a RESPA attorney to make sure you comply with all applicable laws.