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Understanding the Consumer Protection Offer by RESPA

In some parts of the country, some companies have engaged in abusive practices, such as charging settlement charges that were unnecessarily high. To help protect consumers, the Real Estate Settlement and Procedures Act (RESPA), was enacted by Congress. Buyers will benefit from being aware of the protection offered to them by this important act. Included in this act is the following:

  • Payments Permitted – Appraisers, title companies, closing agents, attorneys and mortgage brokers are entitled to reasonable payment for their work as long as they perform a service related to the settlement or the mortgage loan.

  • Fees Prohibited – Certain fees are prohibited by RESPA. For example, RESPA makes it illegal for anyone to receive a kickback, fee or anything else of value for agreeing to refer business to a specific organization or person involved in settlement services. This means that lenders may not pay fees to real estate agents or brokers for referrals. Unless someone has actually performed settlement services, it is illegal for them to accept part of a fee or a complete fee.

  • Potential Penalties – Paying or receiving an illegal referral fee is a crime and may result in certain penalties. Penalties may include paying a fine, imprisonment or it may include both penalties. Consumers affected by the crimes of others may be able to recover as much as three times the amount they were charged if they file a private lawsuit. In some cases, the court may even award consumers attorney’s fees and court costs as well.

RESPA makes it illegal for anyone to receive a kickback during HUD homes sales.

Next: Common FHA-financing myths