Real Estate Settlement Procedures Act (RESPA)
Definition and meaning of Real Estate Settlement Procedures Act (RESPA) in real estate.
The Real Estate Settlement Procedures Act, or RESPA, is a federal consumer protection law that requires lenders to provide buyers with disclosures about settlement costs and outlaws kickbacks among settlement service providers.
In more detail
Enacted by Congress to protect home buyers from unnecessarily high settlement costs, this law requires lenders to provide disclosures. It requires lenders to provide a Loan Estimate and a Closing Disclosure to clearly outline all fees. RESPA strictly prohibits kickbacks, unearned fees, and referral fees between real estate agents, lenders, title companies, and insurers. Violating this law can result in civil liability and criminal penalties for the companies involved.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Also known as | RESPA |
| Required by | Federal consumer protection laws |
| Watch out for | Illegal referral fees and kickbacks |
A mortgage lender is fined under RESPA for secretly paying a real estate agent a referral fee for every home buyer the agent sends to the lender.
Frequently asked questions
What transactions are covered by RESPA?
RESPA generally applies to federally related mortgage loans, which include most purchase loans, refinances, home equity lines of credit, and land contracts on one-to-four family residential properties.
What is a RESPA violation?
A common violation is Section 8 of RESPA, which outlaws giving or accepting anything of value in exchange for referrals of settlement service business.