RESPA And Foreclosure
The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute designed to help mortgage borrowers level the playing field with lenders, and eliminate illegal fees that make mortgages more expensive.
RESPA requires that borrowers receive disclosures that show closing costs, lender practices, and relationships among the companies that provide services before, during and after closing. RESPA also prohibits kickbacks and referrals fees.
RESPA covers loans secured with a mortgage placed on a one-to-four family residential property.
Disclosures Required At The Time Of Loan Application
When you apply for a mortgage loan, mortgage brokers and/or lenders must give you a Good Faith Estimate of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use a particular settlement provider, then the lender must disclose this requirement on the GFE. The lender must also provide a Mortgage Servicing Disclosure Statement, which discloses whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.
Disclosures at Closing
A HUD-1 Settlement Statement shows the actual closing costs. In addition, the lender must provide an Initial Escrow Statement showing the estimated taxes, insurance premiums and other charges expected to be paid from the Escrow Account during the first twelve months of the loan.
Disclosures after Closing
Loan servicers must deliver to borrowers an Annual Escrow Statement once a year. The annual Escrow account statement summarizes all escrow account deposits and payments during the servicer’s twelve month computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken.
A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower’s loan to another loan servicer. Generally, the loan servicer must notify the borrower 15 days before the effective date of the loan transfer. As long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.
Why Is RESPA Important In Foreclosure?
A lender or servicer that fails to comply with RESPA may be held liable for monetary damages and legal fees. In other words, if a mortgage company decides not to pay attention to the law it could mean big problems – and I’ll be sure to find out.