Who RESPA Protects
RESPA protects consumers in transactions involving:- Purchase loans for 1-4 family residential properties
- Refinances of existing residential mortgages
- Home equity loans and lines of credit
- Reverse mortgages
- Loans secured by manufactured homes
- Loans for business or commercial purposes
- Temporary financing (construction loans)
- Loans on properties larger than 25 acres
Key Protections
Right to Choose Service Providers
Right to Choose Service Providers
Borrowers have the right to choose their own settlement service providers, including:
- Title insurance companies
- Escrow/settlement agents
- Attorneys
- Home inspectors
- Homeowners insurance
Loan Estimate Disclosure
Loan Estimate Disclosure
Within 3 business days of receiving a loan application, lenders must provide a Loan Estimate detailing:
- Interest rate and monthly payment
- Total closing costs
- Estimated cash needed to close
- Loan terms and features
- Projected payments over time
Closing Disclosure
Closing Disclosure
At least 3 business days before closing, borrowers must receive a Closing Disclosure showing:
- Final loan terms
- Actual closing costs
- How costs compare to the Loan Estimate
- Cash needed at closing
Escrow Account Limits
Escrow Account Limits
RESPA limits how much lenders can require in escrow accounts for taxes and insurance:
- Monthly deposits limited to 1/12 of annual costs
- Maximum cushion of 2 months’ worth of payments
- Annual escrow analysis required
- Surplus over $50 must be refunded
Servicing Transfer Notices
Servicing Transfer Notices
When mortgage servicing is transferred to a new company:
- Current servicer must notify borrower at least 15 days before transfer
- New servicer must notify borrower within 15 days after transfer
- 60-day grace period during which late fees cannot be charged for payments sent to wrong servicer
Prohibited Practices
RESPA prohibits certain practices that increase costs or limit consumer choice. Unearned Fees No one can charge fees for services not actually performed. Fee splitting is only permitted when each party provides actual services. Requiring Specific Providers Sellers cannot require buyers to use a specific title insurance company. Lenders cannot require specific settlement providers unless they pay for the service. Inflated Fees Service providers cannot charge more than the reasonable value of services performed.Affiliated Business Arrangements (AfBAs)
Real estate professionals often have ownership interests in related businesses (a real estate brokerage owning a title company, for example). These arrangements are legal under RESPA if: Disclosure is provided Written disclosure of the business relationship must be given at or before referral. No required use Consumers cannot be required to use the affiliated business. Only legitimate payments The affiliated business can only receive payment for services actually performed, not for referrals.When receiving a referral to a title company, lender, or other service provider, ask: “Do you have any ownership interest or business relationship with this company?” Providers are required to disclose these relationships, but asking directly ensures transparency.
Tolerance Limits on Closing Costs
RESPA limits how much actual closing costs can exceed the Loan Estimate: Zero tolerance (cannot increase):- Lender fees (origination, underwriting)
- Transfer taxes
- Fees for services where lender selected the provider
- Title services and insurance (if borrower uses lender’s list)
- Recording fees
- Other services borrower cannot shop for
- Services borrower shopped for independently
- Prepaid interest
- Property insurance premiums
Required Disclosures
| Disclosure | When Provided | What It Contains |
|---|---|---|
| Loan Estimate | Within 3 business days of application | Loan terms, estimated costs, cash needed |
| Closing Disclosure | At least 3 business days before closing | Final terms, actual costs, comparison to estimate |
| Affiliated Business Disclosure | At or before referral | Business relationships, estimated charges |
| Servicing Transfer Notice | 15 days before/after transfer | New servicer information, effective date |
| Escrow Account Statement | Annually | Account activity, projected payments |
Filing RESPA Complaints
Consumer Financial Protection Bureau (CFPB) Primary enforcement agency for RESPA violations. Website: consumerfinance.gov/complaint Phone: 1-855-411-2372 What to include in complaints:- Names of companies involved
- Dates of transactions or violations
- Copies of relevant documents
- Description of how RESPA was violated
- Financial harm suffered
- 1 year for most RESPA violations
- 3 years for violations involving damages
Private Legal Action
Borrowers can sue for RESPA violations and may recover: Kickback violations:- Up to 3 times the amount of the kickback
- Actual damages
- Up to $2,000 in statutory damages for pattern of violations
- Attorney fees and costs
- Available for widespread violations affecting multiple borrowers