RESPA is a federal law regulating certain aspects of the settlement procedure and closing a transaction on real estate. The law was designed to protect consumers who buy houses. The Department of Housing and Urban Development (HUD) runs RESPA.
Essentially, RESPA requires that buyers be given certain information disclosure or at various points during the procurement process, and outlaw bribes that would increase costs and closing arrangement.
RESPA applies to most mortgage loans taken for purchasing houses. When you apply for a mortgage loan, the lender must give you some information about various real estate-related services, good faith estimate (GFE) of the amount for settlement charges you will face if your loan is approved, and a Declaration on Disclosure Services to the Mortgage, which is directed either to the lender trying to service the loan or transfer it to another, as well as procedures for resolving complaints you may have about it. Lenders have to give this information at the time of loan application, or mail within three days upon request. With the exception of the case where the lender accepts your loan application within three days; as in this case, it is not required that the lender complies with the provisions of RESPA.
A lender must also make certain disclosures before the arrangement and/or closure occurs. RESPA requires that you receive a Declaration on the HUD-1 Settlement duly completed, at least one day before closing. This document sets out all charges will apply to both the buyer and seller at the time of closing. RESPA also orders you receive a Release Affiliated Business Arrangement prior arrangement, if the provider has taken turns with a provider who has any kind of business arrangements.
Furthermore, in addition to the Declaration on the Settlement HUD-1 RESPA also offers you receive an Initial Declaration of Trust in the settlement or within 45 days, to expose the estimated property taxes and insurance premiums you will cover during the first year of the loan. This declaration must also contain the total amount of payments from the trust that you will do as well as any minimum amount required by the lender to stay in your escrow account at all times.
Following the settlement of your loan, RESPA imposes an obligation to give an Annual Declaration of Trust which provides a detailed account of all payments and deposits into your escrow account to lenders. At that time, it will return any excess payments or will be required to cover any outstanding escrow account. You are also entitled to a Declaration on Transfer Services at any time your lender sells or otherwise transfer your loan to another company.
Finally, RESPA prohibits any bribe, fee-splitting, or other unearned fees that might unfairly increase the costs of your arrangement. Violations of these provisions can lead to both civil and criminal penalties.