Loan Auditors

RESPA, or Real Estate Settlement Procedures Act, was passed in 1974 and requires that lenders provide borrowers with certain disclosures prior to closing, at closing, and after closing.

Disclosures required at the time of loan application include:

• The special information booklet
• A Good Faith Estimate
• Mortgage Servicing Disclosure Statement

These three documents are required at the time of the loan application or within three days of receiving the loan application unless the borrower is turned down for the loan.

Disclosures required before closing:

• A Controlled Business Arrangement is required when a borrower’s loan servicing company refers the borrower to a service provider with whom the lender has a beneficial relationship through ownership or other interest
• HUD-1 Settlement Statement

Disclosures required at the time of settlement (closing):

• HUD-1 Settlement Statement - RESPA entitles the borrower an opportunity to see the HUD-1 Settlement Statement one day prior to closing, but the borrower should receive it in the closing documents as well.
• Initial Escrow Statement - Shows the borrower an itemized list of estimated taxes, insurance premiums, and other charges to be paid from the escrow account within the first 12 months of the loan.

Disclosures required after closing:

• Annual Escrow Statement - As the name states, required yearly
• Servicing Transfer Statement - Required if your loan is sold

While RESPA does not prescribe penalties for failure to provide all of these disclosures, some of them do lend themselves to heavy penalties to the lender and in some cases the borrower could receive a refund on some parts of the loan or interest.

Learn more about RESPA and other lender violations.

Thomas Moems is one attorney that understands what RESPA Section 9 requires, or prohibits, from a mortgage company. I love what he says here in his final paragraph:

So, the moral of the story: If you are a seller and you require the buyer to use your favorite title company or closing agent, you are probably violating Section 9 of RESPA.

The law is pretty clear here. RESPA Section 9 explicitly states that

(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.

Mr. Moems waxes poetic about what the definition of a federally related mortgage loan is. It pretty much means any type of loan that is not a construction loan. Yes, even your non-VA and non-FHA residential mortgage. And what is the penalty for violating Section 9 of the RESPA law

(b) Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance. 12 U.S.C. § 2608.

Emphasis is mine. Three times the amount paid for the insurance.

3 X

Let’s say it again. Three times the amount paid for the title insurance.

So any lender that includes a statement in your contract requiring you to purchase title insurance from a specific company is in violation of RESPA. And they don’t even have to do it directly. They can do it indirectly.

A forensic loan audit will be able to tell you whether or not your client’s lender is in violation of RESPA Section 9. If it is then you can use the evidence of that against the mortgage company and negotiate a loan settlement that will allow your client to keep his home.

RESPA is the most comprehensive aspect of real estate law and one every consumer should become familiar with. It stands for Real Estate Supplement Procedures Act and outlines the documentation and disclosures every real estate transaction must have. Furthermore, RESPA prohibits certain actions in order to keep predatory lenders from preying on unsuspecting and innocent home buyers.

For instance, were you aware that loan servicers can’t split fees? And another thing that lenders and home sellers can’t do is require a home buyer to purchase title insurance from a particular company as a condition of the sale. In other words, you’re allowed to get your own title insurance.

If your lender has violated either of the above RESPA conditions then you could be due some damages or you could seek a rescission on your loan. A mortgage document review can determine whether your rights have been violated.

Learn more about the loan audit process from the most comprehensive loan auditors online.

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