RESPA

· 2 min read
RESPA — the Real Estate Settlement Procedures Act — is a federal law that protects homebuyers from hidden fees, kickback schemes, and shady practices during…

RESPA — the Real Estate Settlement Procedures Act — is a federal law that protects homebuyers from hidden fees, kickback schemes, and shady practices during the closing process. It’s been around since 1974, and it’s the reason your lender has to tell you what you’re actually paying for.

What RESPA Protects You From

Kickbacks and referral fees. Your real estate agent can’t get a secret payment for steering you to a specific lender. Your lender can’t pay a title company for referrals. Anyone caught taking or giving kickbacks faces fines up to $10,000 and a year in prison per violation.

Fee surprises at closing. RESPA requires lenders to provide a Loan Estimate within three business days of your application and a Closing Disclosure at least three days before closing. Fees can’t jump beyond legal tolerance limits between those two documents.

Excessive escrow padding. Your lender can collect a cushion in your escrow account for taxes and insurance, but RESPA caps that cushion at two months’ worth of payments. Without this rule, lenders could tie up thousands of your dollars indefinitely.

Title company monopolies. Sellers can’t force you to use a specific title insurance company. You have the right to shop for your own title services.

Key RESPA Provisions

  • Affiliated Business Disclosure: If your agent refers you to a title company they’re financially connected to, they must disclose that relationship in writing
  • Servicing Transfer Notice: If your mortgage gets sold to another servicer, you must receive 15 days’ notice before the transfer
  • Escrow Account Statements: Your servicer must send an annual escrow analysis showing what went in, what went out, and any shortage or surplus
  • Qualified Written Request: If you send your servicer a written complaint, they must acknowledge it within 5 business days and resolve it within 30

Frequently Asked Questions

What do I do if I think someone violated RESPA?

File a complaint with the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov. You can also sue privately — RESPA allows borrowers to recover up to three times the amount of any kickback or overcharge, plus legal fees. If your lender failed to provide required disclosures, document everything. Check your closing costs against your original Loan Estimate, and review our buying guide for what legitimate closing should look like.