RESPA Disclosure
What You Don’t Do Can Hurt You
Under RESPA, REALTORS® can be penalized for what they don’t tell their clients.
The Real Estate Settlement Procedures Act, a federal statute enforced by the U.S. Department of Housing and Urban Development (HUD), requires specific disclosures to the consumer at three times: before settlement, at settlement and after settlement.
Before Settlement
Under RESPA, borrowers must be given a special informational booklet explaining various aspects of the mortgage financing process at the time of or within three business days of the loan application. According to PAR member Heidi Bullita, associate broker at Prudential, Fox and Roach in Exton and certified MCE instructor, the booklet must include consumer information about real estate settlement services.
In addition, the REALTOR® must provide a good faith estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement and a Mortgage Servicing Disclosure Statement, which discloses whether the lender intends to service the loan or transfer it to another lender.
Bullita says that while there isn’t an explicit penalty for failure to provide the information booklet, GFE or mortgage servicing statement, bank regulators may choose to impose penalties on lenders who fail to comply.
In addition, prior to settlement REALTORS® must supply an Affiliated Business Arrangement (AfBA) disclosure that details any business arrangement between two settlement service providers. This is required whenever a settlement service provider involved in a transaction refers the consumer to a provider with whom the referring party has ownership or other beneficial interest. The AfBA must be given at or prior to the referral and must describe and give the borrower an estimate of the second provider’s charges. (NAR’s Code of Ethics refers to this issue as well in Article 6, in box at right.)
At Settlement
At settlement, RESPA requires provision of the HUD-1 Settlement Statement that shows the actual settlement costs of the loan transaction. Separate forms may be prepared for the borrower and the seller. Since PA licensees are required to provide an estimate of closing costs prior to signing the Agreement of Sale, the buyer and seller should be familiar with the items to expect on the HUD-1, Bulitta said.
The buyer should also receive an Initial Escrow Statement that itemizes estimated taxes, insurance premiums and other charges that are expected to be paid from the buyer’s escrow account during the first 12 months of the loan. This statement lists the escrow payment amount and any required cushion. The statement is usually given at settlement but the lender has 45 days from settlement to deliver it.
After Settlement
Loan servicers are required to deliver to borrowers an Annual Escrow Statement once a year. The statement summarizes all escrow account deposits and payments during the servicer’s 12-month computation year, notifies the borrower of any shortages or surpluses in the account and advises the borrower about any course of action being taken.
If the loan servicer sells or transfers the servicing rights to a borrower’s loan, he is required to provide to the borrower a Servicing Transfer Statement 15 days before the effective date of the loan transfer. The notice must include the servicer’s name, address, toll-free telephone numbers and the place where the new servicer will be accepting payments. As long as the borrower makes timely payments to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized.
To learn more about RESPA, visit www.REALTOR.org/RESPA.