About Burlingame's Ray Park

1. Does RESPA Reform apply to all loan types? No. It applies to all open-end and closed-end loans but does not apply to home equity lines of credit.
2. At what point can a loan originator collect upfront fees? An applicant must receive his or her initial disclosures before upfront fees can be collected from the applicant. The only exception is the credit report fee which can be collected at application.
3. What if the settlement agent or attorney that the REALTOR or customer prefers to use is unable to fulfill on the expectations set forth in the closing agent instructions? In any such case, another settlement agent or attorney who can execute based on our closing agent instructions will need to be selected.
4. Is there anything a REALTOR or Builder needs to look for with settlement agents or attorneys? We recommend REALTORS and Builders talk to the settlement agents or attorneys right away about the RESPA Reform requirements to ensure the closing agents are prepared to issue the new HUD-1 as required. This may help avoid the possibility of having to select a new closing agent midstream which could impact the closing date.
5. Is a GFE a loan commitment? No, the GFE is not a loan commitment. A GFE is an estimate of the total charges associated with obtaining the loan, regardless of who is responsible for paying each of those charges, but neither the borrower nor the lender is obligated to enter into the loan. We, however, are bound to the charges quoted on the GFE for 10 days, unless a valid changed circumstance arises.
6. If a charge on the HUD-1 is less than the charge on the GFE, could this cause a delay in the closing? No. It is permissible for charges to the borrower to decrease without a need for the GFE to be reissued or the closing to be delayed.
7. Are there additional impacts to new construction loans? In transactions involving new home purchases where settlement is anticipated to occur more than 60 calendar days from the time the GFE is provided, the loan originator may provide the GFE to the borrower with a disclosure stating that at any time up until 60 calendar days prior to closing, a revised GFE may be issued, even without changed circumstance.

Can a Realtor receive a gift, prize, or fee from a lender, closing attorney, or other settlement service provider?

Section 8(a) of RESPA prohibits the giving or accepting of a "thing of value" to another person for the referral of settlement business. RESPA uses the term a "thing of value" very broadly to include in its prohibition all imaginable forms of compensation for a referral. Section 3 of RESPA defines a "thing of value" to include, among other things, money, services, discounts, commissions, and even the opportunity to participate in a money making program. As a result, Realtors cannot receive gifts, prizes, fees, or kickbacks (even if they are disclosed) for the referral of business to other settlement service providers. It would be a violation of RESPA for a lender to pay for a hotel room,buy an expensive gift, prent a gift certificate, et. in return for the Realtors referring business to a mortgage lender, closing attorney, home inspector or any other settlement service provider. Payment of a thing of value does not require transfer of money,. Any type of consideration that has value to the recipient is covered. Even giving a person the opportunity for a chance to win a trip or some other prize in exchange for the referral of business is considered a thing of value.

An exception to RESPA permits the payment of referral fees between real estate brokers when such payments are made "pursuant to a cooperative brokerage arrangement or agreements between real estate agents and brokers".

Congress enacted RESPA in 1974 to ensure that consumers receive greater and more timely information on the nature and costs of the real estate settlement process and are protected from unnecessarily high costs associated with real estate closings. RESPA attempts to protect borrowers by prohibiting individuals who provide services related to real estate closing from paying one another kickbacks or referral fees, especially hidden or "under the table" kickbacks and referrals fees. The idea behind the law is that eliminating such payments will help keep closing costs down for borrowers. A RESPA violation subjects a person to a fine of up to $10,000 for each offense, imprisonment of up to one year, or both. In addition, the violator may also be liable to the person who was charged for the settlement service (i.e., the buyer or seller) for an amount equal to three times the amount paid for the settlement service. The RESPA statute can be found at 12 U.S.C. 2601, et seq. HUD is charged with enforcing the law. HUD is also empowered with drafting regulations to clarify what is permitted under the law. The regulations issued by HUD, which implement RESPA, are known as Regulation X.

The key language in RESPA is in Section 8, which provides two basic rules of prohibition. First, Section 8(a) prohibits the transfer of a thing of value pursuant to an understanding that business will be referred to any person. It states:

"No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."

While it may be hard to just say "no" to the reebies that mortgage lenders sometimes offer REALTORS for the referral of loan business, just saying "no" is clearly the best way to avoid running afoul of the Real Estate Settlement and Procedures Act (RESPA). RESPA may be the least understood and the most violated real estate law in the country. The broad prohibitions of the law cover many practices, including some practices, which are, unfortunately, engaged in by real estate brokers and lenders. While the law is strict, ambiguities in RESPA lend to the law being blatantly violated by covered individuals. Moreover, RESPA was not aggressively enforced for many years and covered individuals were essentially left to "self-police" their conduct and practices. For obvious reasons, this system did not work well and abuses naturally followed. However, violations carry a high price because RESPA provides for both criminal and civil penalties and subjects the violator to lawsuits seeking treble damages.

In recent years, the Department of Housing and Urban Developement (HUD) has made it clear that it takes violations of RESPA, specifically the ani-kickback and prohibition against unearned referral fees, very seriously. For example, in November of 2001, HUD announced 42 settlements it had reached resulting in over $2.25 million in payments for alleged violations involving kickbacks and referrals. HUD will not shy away from listing the names of the parties and amounts of payments on their Web site to discourage other violators from continuing to engage in illegal behavior. HUD's enforcement crackdown for RESPA violations has continued over recent years and some settlement and services providers have been slapped with penalties.

Compliance with most of the RESPA requirements is simple, so long as the professional is alert and aware of the general rules. The best way for real estate professionals to avoid problems with RESPA is to follow one simple rule-pay your own way, expect others to do the same, and refer business based on the quality of the service provided rather than personal gain. Since RESPA is very complex and any one factor can influence the interpretaion of the relevant provisions, professionals may somtimes find it necessary or appropriate to seek the advice of legal counsel, particularly when settlement service providers redesign their programs or practices.

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