You may want to settle a real estate loan with your bank or any other lender finding it difficult to carry on with the monthly payments. However, even though the law allows you to settle your loan with your creditors, just like all other loans a real estate loan settlement will also have significant impact. It will affect the financial health as well as credit of your business and even your personal credit if you are a sole proprietor.
Well, coming to your rescue the RESPA or Real Estate Settlement Procedures Act can relieve a bit of the stress but the fact that the legalities are not taken away from debt settlement may make your endeavor unfavorable at times. It is for this reason you should know about this Act before you make any decision.
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About RESPA
These are the five letters that can have a huge effect on the future of your business just as it can in any type of loan transaction. It will have its effect on all possible perspectives whether you take out the loan for:
- Running your business
- Buying a home
- Any business that has a direct relation with the residential real estate transactions.
It will also have its effect irrespective of the fact that you are a:
- Mortgage broker
- Real estate agent or broker
- A lender
- A builder
- A developer
- A home warranty firm
- A title company and
- Even an attorney.
It is for this reason that experts always suggest that when you settle a debt you should always go through different debt settlement reviews to have a fair idea about its working process and how it affects the financial health of a business or an individual.
A brief knowledge about RESPA or Real Estate Settlement Procedures Act will help you in a great way. The different specific things to know include the following:
- This is a specially designed Act with reference to the federal consumer protection law
- The law is usually overseen by the US Department of Housing and Urban Development or HUD
- It requires all real estate settlement providers to make a series of disclosures about the settlement process and the mortgage to the home buyers to make sure they make an informed choice regarding the settlement providers
The law also requires disclosing the fees that are charged in connection to the settlement process and to make sure that these are reasonable and fair as per the law.
There are two primary purposes of RESPA which includes:
- Mandating specific disclosures for the real estate settlement process to facilitate decisions and
- Prohibiting the common unlawful practices followed by the real estate settlement providers.
This law prevents these settlement companies to charge upfront or referral fees or any kickbacks that may jeopardize the entire process as well as drive up the settlement costs.
About the disclosures
As per the RESPA requirement, settlement providers need to make disclosures at four specific points.
At the time of application:
Specific disclosures are required at the time of loan application by the home purchasers. The three specific disclosures at this time that all mortgage brokers and lenders must provide the borrowers as per RESPA are:
- A Special Information Booklet during loan application or within three days after that describing the nature of all closing costs, explaining a sample of the RESPA settlement form, nature of escrow accounts, choices available to the borrowers for the selection of settlement providers, explaining the common types of unfair practices, nature of all unreasonable charges that a borrower must watch out for during the settlement process.
- A Good Faith Estimate of settlement costs that must describe all of the charges that a buyer needs to pay at closing. The GFE is just an estimate and therefore the total amount chargeable may vary. It also includes the disclosure if the borrower needs a particular settlement provider.
- A Mortgaging Service Disclosure Statement is also required that should advise the borrower regarding the intentions of the lender whether they want to service the mortgage or transfer it to any other lender. It must also contain the info regarding the steps to follow in case any borrower wants to resolve any grievances that they may have against the lender.
Before settlement:
The lender should also provide specific disclosures before the settlement process starts as well. This will include:
- An Affiliated Business Arrangement Disclosure when one settlement provider having some form of ownership interest refers the borrower to another settlement provider.
- This disclosure must be given to the borrower by the referring provider before the referral is made.
- The disclosure should include al descriptions and explanations about the nature and intent of relationship between these business bodies.
- It must also include the estimate of the charges that the second provider may impose on the borrower.
Usually, RESPA prohibits forcing the borrower by the referring party to take help of other provider.
There is another disclosure required before settlement and that is the HUD-1 Settlement Statement which is ideally a form that enlists all the fees that may be charged to the borrower at closing. You as a borrower have the right to review this HUD-1 Settlement Statement one day prior to closing.
During settlement:
RESPA also requires specific disclosures at the settlement table as well.
- The final HUD-1 Settlement Statement must be provided to the borrower showing the real settlement costs of such transaction.
- The borrower should also be provided an Initial Escrow Statement that will itemize the taxes, insurance, and all other charges that must be paid from the escrow account within the first 12 months of the loan. In addition to that, it is also required to mention the monthly payment amount to be made to the escrow account.
The escrow statement is usually provided by the lender to the borrower at the closing but if the lender wants it can be provided within 45 days from the closing date.
Lastly, after the settlement an Annual Escrow Statement is provided to show all deposits and payments made to the escrow account during the year along with surpluses or shortages if any.