|
Frequently
Asked Questions About RESPA
RESPA stands for "Real Estate Settlement
Procedures Act." This is the law that says that you should
be given certain information when you are purchasing a home. HUD
enforces only what is covered under the RESPA law. Here are some
questions and answers that will help you to understand the law and
your rights.
- Applying for a loan and Before the Settlement
- About the Good Faith Estimate
- Example Situation
- Escrow Accounts
- RESPA and Escrow Accounts in General
- What is covered under RESPA
- What RESPA does NOT cover and who can help
- About Escrow Account Cushions
- Figuring Escrow Accounts
- Variations in Escrow Accounts and Payments
- Disbursement Date
- Dealing with Your Lender or Insurance Company:
Taxes, Insurance, Force-Placement, Escrow and RESPA
- Consumer Tips: Do's
Applying For A Loan And Before The
Settlement
Question: I made an application for a loan,
but I did not get a Settlement Costs Booklet or a Good Faith Estimate.
What should I do?
Answer: You should contact the lender or mortgage
broker and ask for them. The lender or mortgage broker is required
by RESPA to send these documents out within three days of receiving
the application. The lender is only required to give you a booklet
if you are purchasing a home. If the lender denies your application
within three days, it is not required to give you these documents.
About the Good Faith Estimate
Question: Should I expect the Good Faith Estimate
to list the exact charges that I will pay at settlement?
Answer: No. The Good Faith Estimate is only
an estimate or range of charges. For example, the lender may not
know the costs for a settlement agent that you choose, or the exact
amount that will be collected for an escrow account for taxes and
insurance.
Question: What rights do I have if the charges
I must pay at settlement are higher than those listed on the Good
Faith Estimate?
Answer: RESPA does not give a consumer the
right to sue in this circumstance. The best protection is to let
the lender and settlement agent know that you will want to see the
HUD-1 Settlement Statement one day in advance. You should question
any amount that you do not understand.
Example Situation
Question: A builder is offering to pay my closing
costs or give me an upgrade package only if I agree to use his mortgage
company. Is this legal under RESPA?
Answer: Yes. While a builder cannot require
you to use a mortgage company with whom he is affiliated, a builder
is allowed to offer you a discount if you use a specific company.
Under RESPA, the builder cannot charge you more for the home if
you do not use his affiliated mortgage company.
section 10: Escrow Accounts
RESPA and Escrow Accounts in General
Section 10 of the Real Estate Settlement Procedures
Act (RESPA) limits the amount of money a lender may require the
borrower to hold in an escrow account for payment of taxes, insurance,
etc. RESPA also requires the lender to provide initial and annual
escrow account statements. The newest escrow account regulations
became effective in October 1997.
What is covered under RESPA
Question: Does RESPA require borrowers to maintain
an escrow account?
Answer No. It is the lender's decision whether
the borrower must maintain an escrow account for the purpose of
paying taxes and other items. The HUD regulations only limit the
maximum amount that a lender can require a borrower to maintain
in an account.
What RESPA does NOT cover and who can
help
The following questions are frequently asked
by consumers about the loan process, but the issues are not covered
under RESPA. For more information regarding these issues, contact
the agency that administers the governing law.
Question: I applied for a loan at 7 1/2 percent,
but when I got to settlement the lender charged me 8 percent. Is
this a RESPA violation?
Answer: No. However, the Truth-in Lending Act
(TILA) requires that you get a disclosure concerning the interest
rate. TILA is administered by the Board of Governors of the Federal
Reserve System. (See Consumer Complaint Reference List).
Question: I asked my lender for a copy of the
real estate appraisal but the lender has not sent it. Is this covered
under RESPA?
Answer: No. Under the Equal Credit Opportunity
Act (ECOA) the mortgage broker or lender must tell you how and when
you can ask for a copy of your appraisal. ECOA is administered by
the Board of Governors of the Federal Reserve System. (See Consumer
Complaint Reference List).
Question: My lender says the home I am buying
is located in a flood zone and I must purchase flood insurance.
What can I do if I don't believe this information is correct?
Answer: The National Flood Insurance Reform
Act of 1994 provides for lenders to purchase flood insurance on
behalf of borrowers/owners of properties in a special flood hazard
area. It is administered by the Federal Emergency Management Agency
(FEMA). If you disagree with the lender about whether the property
is located in a special flood hazard area, you may make a request
to the FEMA Mapping Assistance Center to determine whether the property
is located in such an area. The toll free number for requesting
FEMA re-determination is 1-877-336-2627.
About Escrow Account Cushions
Question: Does RESPA require lenders to maintain
a cushion?
Answer: No. The RESPA statute and regulations
do not require the lender to maintain a cushion. However, since
1976 the RESPA statute has allowed lenders to maintain a cushion
equal to one-sixth of the total amount of items paid out of the
account, or approximately two months of escrow payments. If state
law or mortgage documents allow for a lesser amount, the lesser
amount prevails.
The new accounting method generally requires
borrowers to maintain lesser amount in the account than the single-item
method predominately used by lenders. However, many lenders have
recently increased the escrow account cushion to the maximum allowed
by law.
The recent regulations require lenders to reduce
the size of the cushion in some accounts. Unfortunately, to avoid
customer disapproval, some lenders may be giving their customers
the impression that the HUD regulations require them to make this
increase. This is a false impression. The lender, not HUD, has chosen
to increase the cushion.
Question: Can HUD require lenders to pay interest
on escrow accounts?
Answer: No. In 1992 and 1993, legislation was
introduced in Congress that would have required lenders to pay interest
on escrow account balances, but it never passed. Some states do
require interest to be paid on escrow account funds, but many do
not.
Figuring Escrow Accounts
Question: How do I figure how much money the
lender is allowed to require in my escrow account?
Answer: HUD cannot figure out your own escrow
account cushion and payments. Please use the following steps and
example to help you estimate the amount of money you may be required
to put into your own escrow account, either a new or existing account,
under aggregate accounting:
1. List all the payment amounts for items
that will be paid out of your escrow account, and when paid, for
the next 12 months (e.g., taxes- $1200 -- $500 paid July 25 and
$700 paid December 10; hazard insurance -- $360 paid September 20).
[If you have a payment like flood insurance,
which is paid every 3 years, you must project a trial balance over
that 3-year period.]
2. Divide this total amount by 12 monthly
payments ($1560 divided by 12 = $130).
3. Create a trial running balance for the
next 12 months listing all payments to the escrow account and all
payments out of the account, when these items are paid.
4. Increase all the monthly balances to bring
the lowest point in the account (December -$780) up to 0.
pmt dis 3) bal 4) bal
Jun - - 0 780
Jul 130 500 -370 410
Aug 130 0 -240 540
Sep 130 360 -470 310
Oct 130 0 -340 440
Nov 130 0 -210 570
Dec 130 700 * -780 * 0
Jan 130 0 -650 130
Feb 130 0 -520 260
Mar 130 0 -390 390
Apr 130 0 -260 520
May 130 0 -130 650
Jun 130 0 0 780
Add any cushion your lender requires to the
monthly balances. The cushion may be a maximum of 1/6 of the total
escrow charges (1/6 of $1560 = $260).
pmt dis bal
Jun - - 1040
Jul 130 500 670
Aug 130 0 800
Sep 130 360 570
Oct 130 0 700
Nov 130 0 830
DEC 130 700 * 260
Jan 130 0 390
Feb 130 0 520
Mar 130 0 650
APR 130 300 780
May 130 0 910
Jun 130 0 1040
In this example, $1040 is the maximum amount
the lender should require in the account. The account should fall
to the cushion at least once during the year. In this example, it
is in December ($260).
New Accounts -- In this example, if you settled
May 15, and the first payment was due in July, $1040 would be the
maximum amount you should be required to place in an escrow account.
If your lender requires less than the maximum cushion, the amount
would be less.
Existing Aggregate Accounts -- In this example,
during escrow analysis, the lender would compare the required amount
of $1040 to the actual balance in your account in June. For example:
If your balance is $1076, there is a surplus
of $36. Your lender may choose to apply any surplus less than $50
to future payments, reducing your monthly escrow payment to $127,
or may choose to return the surplus to you.
If your balance is $1090, there is a surplus
of $50. The lender must return any surplus of $50 or more to you
within 30 days of the analysis.
If your balance was $940, there is a shortage
of $100. This amount is less than one month's escrow payment and
the lender may ask you to pay this amount within 30 day or may spread
it out over a year.
If your balance was $800, there is a shortage
of $240. The lender must spread the collection over at least 12
months. If the lender spreads the shortage over 12 months, your
monthly escrow payment would increase to $150.
If you have a deficiency in your account (where
the lender has to use his own funds to pay a bill), you may have
to reimburse the lender sooner than over 12 months. If the deficiency
is less than one monthly escrow payment, you may have to repay the
lender in 30 days. If the deficiency is more than or equal to one
monthly escrow payment, the lender may require you to repay the
amount over 2-12 months.
Variations in Escrow Accounts and
Payments
Question: My escrow account payments went
up, rather than down. Why?
Answer: There could be a couple of reasons
why your servicer is charging more for your escrow account. First,
your bills may have gone up and the account changed to reflect that.
Or, the servicer has changed the amount of cushion to the maximum
amount allowed by RESPA. Check your statement from the servicer.
You may also want to check your loan documents to figure out what
is the appropriate cushion. If the mortgage loan documents are silent
on the amount of the cushion or pre-accrual practices, then the
RESPA "two month" limits apply, unless state law provides
for a lower amount.
Disbursement Date
Question: What is the disbursement date for
paying escrow account items?
Answer: The disbursement date means the date
on which the lender actually pays an escrow item from the escrow
account. However, the lender must pay the items in a timely manner,
that is, on or before the deadline to avoid a penalty. This is required
as long as the borrower's payment is not more than 30 days overdue.
Borrowers should review their annual escrow statement to make certain
the lender did not make late payments and charge any penalties to
the borrower's account.
Dealing with Your Lender or Insurance
Company: Taxes, Insurance, RESPA and Escrow
Question: I got a notice from the county that
my lender did not pay my taxes on time and the county is assessing
a penalty. Do I have to pay this bill?
Answer: Send the bill to the lender. The lender
should pay the penalty for failing to pay the taxes on time as long
you were current in your mortgage payments. If the lender refuses,
you may wish to follow the guidelines for filing a complaint.
Question: Are lenders required to pay taxes
on an annual basis if a discount is offered to the consumer?
Answer: No. The Department published a new
rule in the Federal Register in January 1998. The rule clarifies
what a lender should do when a taxing jurisdiction offers a choice
of payment on an installment basis or an annual basis. If there
is a discount to the consumer when disbursing on an annual basis
or there is an additional charge for disbursing on an installment
basis, the lender may disburse on an annual basis. Otherwise, the
lender should disburse tax payments on an installment basis. The
borrower and the lender may mutually agree to another disbursement
basis or date. The Department encourages lenders to follow the preference
of the borrower.
Question: What steps should I take if the
lender does not pay my hazard insurance on time or at all and my
insurance is canceled?
Answer: Lenders are required by Section 6
to make escrow account disbursements on time. If a lender fails
to do so, a borrower may bring a private law suit under this Section.
Therefore, if you incur any damages due to the lender's negligence,
you may wish to consult an attorney.
You should also contact your lender immediately
and send a copy of the bill. Some lenders list a special address
and/or FAX number for insurance and tax bills. Keep checking with
the insurance company to make certain the bill is paid. You may
wish to pay the insurance company directly to avoid cancellation
of your policy and then seek a refund from your lender. Keep copies
of all your correspondence and payments. If you incur any damages
due to the lender's negligence, you may wish to consult an attorney.
Question: I got a notice that my hazard insurance
has been canceled. My lender force-placed hazard insurance with
a different company and it costs a lot more. Can a lender do this?
Answer: As long as your mortgage payment is
not more than 30 days late, Section 6 of RESPA requires the lender
to make escrow payments, for taxes, insurance, etc., in a timely
manner. You should write to your lender and complain. If your lender
does not refund the difference or otherwise resolve your complaint
satisfactorily, you may wish to file a complaint with HUD or the
Consumer Protection Office of your State Attorney General's Office.
You may also wish to consult an attorney.
Question: My loan was transferred to a new
lender. I made my loan payment on time, but to the old lender. Can
I be charged a late fee?
Answer: No. For 60 days, neither lender may
charge a late fee as long as you make your payment on time to the
previous lender or to the new lender. Your lender must send you
a notification 15 days before your payment is due to the new lender.
Both lenders must provide you with certain information about the
loan transfer, including: when the payment is due to the new lender,
the new lender's address, toll-free telephone numbers, etc.
Question: What steps should I take if I think
the lender is requiring too much money in my escrow account?
Answer: First, figure out the maximum amount
RESPA allows to be required in your escrow account from the example.
If you still believe your lender is requiring too much money, you
should contact your lender for an explanation.
Section 6 of RESPA provides that borrowers
may make a "qualified written request" to the lender concerning
the servicing of their loan account. The request should not be included
with the monthly mortgage payment. The lender must acknowledge the
complaint within 20 business days and must resolve the complaint
within 60 business days by correcting the account or giving a statement
of the reasons for its position. If you do not get a satisfactory
answer from the lender, you may wish to file a complaint with HUD.
You should continue to make your mortgage payment during this time.
Consumer Tips: Do's
* Do ask lenders what fees they charge, as
well as the interest rate and points, when shopping for a loan.
* Do ask the builder whether you are required
to use a certain provider in order to get a special concession.
* Do compare the costs of different settlement
service providers before agreeing to use one to whom you were referred.
* Do ask to see the HUD-1 Settlement Statement
a day before settlement, and compare the charges with those listed
on the Good Faith Estimate.
* Do question the lender and settlement agent
about any charges you do not understand.
* Keep making your mortgage payment on time,
even if you have sent a complaint to your lender.
* Do forward any tax or insurance bills you
receive, immediately to your lender. (If the lender is supposed
to pay the bill).
* Do check your annual escrow account statement
for mistakes.
* Do make a "qualified written request"
when asking your lender for information or making a complaint.
* Do read the FAQs about Escrow Accounts carefully
before filing an escrow complaint with a banking or government regulator.
|
