HUD stepping up RESPA enforcement

Recently, the federal government has stepped up its enforcement of the Real Estate and Settlement Procedures Act (RESPA.) HUD has tripled its investigative staff and has a contract with a company in Virginia that provides ex-FBI, ex-Customs Bureau and other trained law enforcement and financial investigators to deconstruct even the most sophisticated cover-ups of referral fee arrangements.

RESPA Dos and Don'ts for Real Estate Agents (pdf) Federal Issues in Brief - RESPA (NAR)

Last year, the RESPA and Interstate Land Sales Division cleared 1,200 complaints - more than double the number in 2002.

In April, they reported that there were more than 60 on-going investigations into supposed violations under Sections 4 and 8 of the law.

Section 4 prescribes the use of the uniform "HUD-1" settlement statement in all federally related mortgage transactions and requires the settlement agent to provide a copy of the completed form to the borrower, seller and lender.

Section 8 bans settlement service providers from paying fees to others in the transactions in return for steering business their way. However, the prohibitions against kickbacks and unearned fees do not apply to affiliated business arrangements as long as they are disclosed and the borrower is not required to use a particular provider.

Recent articles in the press indicate that some of those involved in real estate settlements may not fully understand their obligations under the Real Estate Settlement Procedures Act (RESPA). On the next couple pages are some RESPA DOs and DON'Ts for real estate brokers and agents.

Background:

In 1974, Congress enacted RESPA to protect consumers during the home purchase process. The purposes of RESPA include (a) giving consumers better advance disclosures of settlement costs, and (b) eliminating kickbacks or referral fees that unnecessarily increase certain settlement costs.

RESPA requires lenders to give prospective borrowers a booklet on "the nature and costs of real estate settlement services" and a good faith estimate of likely settlement costs. Then, at closing, the borrower and seller receive a settlement sheet (the "HUD-1"), which itemizes the costs paid in connection with the purchase of the home. RESPA also prohibits both giving and receiving anything between providers of settlement for the referral of business.

Even though the law has been in place for 30 years, there still exists a great deal of uncertainty over which fees are permitted and which are prohibited. Uncertainty is especially troubling since the anti-kick-back provisions in section 8 of RESPA may result in criminal penalties and substantial civil penalties.

HUD is responsible for administering this regulatory program and enforcing its provisions. Its implementing regulations are at 24 CFR Part 3500.