Real Estate Settlement Procedures Act (RESPA)
What Is the Real Estate Settlement Procedures Act (RESPA)?
The Real Estate Settlement Procedures Act (RESPA) is a federal law that protects consumers during real estate transactions involving federally related mortgage loans.
Enacted in 1974, RESPA requires transparency in closing costs and prohibits certain abusive practices.
It is enforced by the Consumer Financial Protection Bureau.
Why It Matters
RESPA:
- Requires lenders to provide a Loan Estimate
- Requires a Closing Disclosure before final settlement
- Prohibits kickbacks and referral fees between service providers
- Regulates escrow account practices
The goal is to ensure consumers understand the true cost of borrowing and prevent hidden fees.
How It Works
- Lender provides Loan Estimate within three business days of application.
- Closing Disclosure must be delivered at least three days before closing.
- Service providers cannot receive undisclosed referral payments.
Violations can result in penalties and consumer remedies.
RESPA vs. Truth in Lending Act (TILA)
RESPA → Focuses on settlement practices and disclosures
TILA → Focuses on credit terms and APR transparency
Both laws work together to protect borrowers.
FAQs About RESPA
Does RESPA apply to all real estate transactions?
It applies primarily to federally related mortgage loans.
Can lenders recommend service providers?
They can provide recommendations, but they cannot receive undisclosed kickbacks.
Why is the three-day disclosure period important?
It gives borrowers time to review final loan terms before committing.
Related Terms
