RESPA

Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act (RESPA) provides consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks.

RESPA was signed into law in December 1974 and became effective on June 20, 1975. The law has gone through a number of changes and amendments since then, all with the intent of informing consumers of their settlement costs and prohibiting kickbacks that can increase the cost of obtaining a mortgage.

RESPA covers loans secured with a mortgage placed on one-to-four family residential properties. Originally enforced by the U.S. Department of Housing & Urban Development (HUD), RESPA enforcement responsibilities were assumed by the Consumer Financial Protection Bureau (CFPB) when it was created in 2011.

RESPA prohibits service providers from giving anything of value in exchange for referrals of business. RESPA violations can carry serious consequences. Examples of what you can and cannot do to comply with RESPA:

Do:

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.
Don’t:

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 agents 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.

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