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An Overview of RESPAAn Overview of RESPA

Coalition Corner:Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries

© 2005, Employee Relocation Council/Worldwide ERC® Coalition

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Program Objectives

• This program supplements a monthly editorial feature in ERC’s Mobility magazine

• In this segment, users will learn:– What RESPA stands for– Who enforces it– What’s covered – How it impacts real estate professionals and consumers– What the penalties for violations are– When it might not be applicable– Where to find additional information

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What is RESPA?

• Acronym for “Real Estate Settlement Procedures Act”

• Federal consumer protection statute

• Originally enacted in 1974 (updated since)

• Enforced by the Department of Housing and Urban Development (HUD)

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Purposes

• “To help consumers become better shoppers for settlement services” and

• “To eliminate ‘kickbacks’ and referral fees that unnecessarily increase the costs of certain settlement services”

As defined by HUD, its purposes are:

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Key Details

• Requires that borrowers receive disclosures at various times in transaction (detailing costs, outlining lender servicing and escrow account practices and describing business relationships)

• Dictates that mortgage brokers and/or lenders must provide borrowers with:– Special Information Booklet– Good Faith Estimate (GFE) of settlement costs– Mortgage Servicing Disclosure Statement

• Prohibits such practices as:

– Giving or accepting any “thing of value” for referrals of settlement service business

– Giving or accepting any part of a charge for services not actually performed

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Coverage and Scope

• Covers loans secured with mortgage placed on a one-to-four-family residential property

• Includes most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit

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Violations

• Violations subject to criminal and civil penalties

• Criminal: may be fined up to $10,000 and imprisoned for up to one year

• Civil: may be liable to the person charged an amount equal to three times’ the amount of the charge paid for the service

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• Real estate agents may not be paid (and may not accept) any referral fee from a lender, appraiser, inspector, insurance agent, attorney, or other settlement services provider

• It is completely inappropriate for real estate agents to

request any service provider to pay a referral fee in any transaction covered by RESPA -- acceptance of such fees is a violation

• Regulations not limited to payment of fees – any “thing

of value” given in exchange for referrals is prohibited

Relevance to Real Estate Agents

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When RESPA May Not Apply

• RESPA restrictions do not apply to brokerage commissions splits among real estate agents or to referral fees paid by one real estate agent to another, including a licensed relocation management company

• It is not a violation for a service provider to use a marketing program involving giveaways to all real estate agents in a particular area, trade organization, group, etc.

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Other Resources…

• HUD-dedicated RESPA web site:

– http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm