Federal Regulations

Consumers of settlement services have the following rights:

* To choose their settlement agent and title insurer. * To receive settlement cost information in advance of settlement. * To receive an itemized settlement statement from the settlement agent detailing all fees paid to the settlement agent before choosing a settlement agent. * To be informed about the total cost that will be due at time of settlement. * To ask and receive accurate information from the settlement agent about whether there is a ground rent, lien, judgment, or any other matters related to the status of title. * To request and receive Closing Disclosure three (3) business days before settlement or HUD-1 one business day before the date of settlement. * To ask the settlement agent questions and receive clear and complete answers about charges and documents to be executed at time of settlement. * To receive copies from the settlement agent of all documents signed at the time of closing. * To have all funds disbursed timely and properly by the settlement agent in accordance with the Closing Disclosure or HUD-1 Settlement Statement signed at time of closing.

The Hud-1 Settlement Statement

Although now limited in its use, the HUD-1 Settlement Statement is a standard form used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for purchasing or refinancing real estate. The borrower has the right to inspect the HUD-1 one day prior to day of settlement. The form is filled out by the settlement agent who will conduct the settlement.

Limitation on Fees (Loan Estimate)

Consistent with current law, the creditor generally cannot charge consumers any fees until after the consumers have been given the Loan Estimate form and the consumers have communicated their intent to proceed with the transaction. There is an exception that allows creditors to charge fees to obtain consumers' credit reports.

Disclaimer on Early Estimates (Loan Estimates)

Creditors and other persons may provide consumers with written estimates prior to application. The rule requires that any such written estimates contain a disclaimer to prevent confusion with the Loan Estimate form. This disclaimer is required for advertisements.

Provision of Disclosures (Closing Disclosure)

Currently, settlement agents are required to provide the Closing Disclosure Form or HUD-1 under RESPA, while creditors are required to provide the revised Truth in Lending disclosure under TILA. Under the final rule, the creditor is responsible for delivering the Form to the consumer, but creditors may use settlement agents to provide the Form, provided that the settlement agents comply with the rule's requirements for the Closing Disclosure.

RESPA Prohibitions Section 10

Limits on escrow accounts (Escrow analysis must be performed yearly - Funds over $50 must be returned) Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for to pay real property taxes, hazard insurance and other charges related to the property. RESPA does not require lenders to impose an escrow account on borrowers; however, certain government loan programs or lenders may require escrow accounts as a condition of the loan. RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year.

The Consumer Financial Protection Bureau (CFPB)

Provides general information about a wide variety of consumer financial products, including, for example, mortgage loans, and enforces RESPA and other federal consumer financial laws. CFPB also investigates consumer complaints about federal financial products or services, including, for example, complaints that: a settlement service provider has violated RESPA by engaging in kickbacks, fee splitting or charging unearned fees, a seller required a title insurer as a condition of sale; or a lender charged excessive amounts for the escrow account

Provision by Mortgage Broker (Loan Estimate)

Recognizing that consumers may work more closely with a mortgage broker than with the creditor, under the final rule and similar to current rules, either a mortgage broker or creditor is required to provide the Loan Estimate form upon receipt of an application by a mortgage broker. However, even if the mortgage broker provides the Loan Estimate, the creditor remains responsible for complying with the all requirements concerning provision of the form.

RESPA Prohibitions Section 8: Kickbacks, fee-splitting, unearned fees prohibited (Cannot accept anything of value)

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed. Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.

RESPA Prohibitions Section 9: Seller required title insurance prohibited

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

The Closing Disclosure (Replaces HUD 1)

The Closing Disclosure form replaces the current form used to close a loan, the HUD-1, which was designed by HUD under RESPA. It also replaces the revised Truth in Lending disclosure designed by the Board under TILA. The Closing Disclosure form contains additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.

Loan Estimate

The Loan Estimate form replaces two current Federal forms. It replaces the Good Faith Estimate designed by the Department of Housing and Urban Development (HUD) under RESPA and the "early" Truth-in-Lending disclosure designed by the Board of Governors of the Federal Reserve System (Board) under TILA. The Loan Estimate form also incorporates new disclosures required by Congress under the Dodd-Frank Act.

Real Estate Settlement Procedure Act - RESPA

The Real Estate Settlement and Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purpose of RESPA is 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. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers. RESPA also prohibits certain practices that increase the cost of settlement service.

USA Patriot Act (Identification must be verified with government issued ID, helps prevent fraud)

The USA Patriot Act was signed into law in October 2001. The Act requires financial institutions (including title agents) to verify the identity of parties in a real estate transaction or parties receiving substantial funds from closing. Title agents should collect a government issued photo identification, such as a driver's license or a passport. Names must be compared with the Specially Designated Nationals Blocked Persons List (SDN List). The list is maintained by the Office of Foreign Assets Control, Department of the Treasury.

Timing (Closing Disclosure Form)

The creditor must give to consumers the Closing Disclosure Form at least three business days before the consumer closes on the loan. If the creditor makes certain significant changes, the consumer must be provided a new form and an additional three-business-day waiting period after receipt of the new form. Less significant changes can be disclosed on a revised Closing Disclosure Form provided to the consumer at or before closing, without delaying the closing. This requirement provides an additional three-day waiting period for the significant changes but will not cause closing delays for less significant costs that may frequently change.

Timing (Loan Estimate)

The creditor or mortgage broker must provide the form to the consumer no later than three business days after the consumer applies for a mortgage loan. The final rule contains a definition of what constitutes an "application" for these purposes, which consists of the consumer's name, income, social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought.

Limits on Closing Cost Increases

The rule restricts the circumstances in which consumers can be required to pay more for settlement services - the various services required to complete a loan, such as appraisals, inspections, etc. - than the amount stated on their Loan Estimate form. Unless an exception applies, charges for the following services cannot increase: • The creditor's or mortgage broker's charges for its own services • Charges for services provided by an affiliate of the creditor or mortgage broker • Charges for services for which the creditor or mortgage broker does not permit the consumer to shop. • Charges for other services can increase, but generally not by more than 10%, unless an exception applies. • The exceptions include, for example, situations when the consumer asks for a change • The consumer chooses a service provider that was not identified by the creditor • Information provided at application was inaccurate or becomes inaccurate • The Loan Estimate expires. When an exception applies, the creditor generally must provide an updated Loan Estimate form within three business days.