It’s difficult to believe, but we are over halfway through 2022 and in a few short days students in our area will be returning to school. Vacations are wrapping up, school shopping is in full swing (don’t forget to take advantage of the tax-free weekend) and just around the corner is the Tennessee Primary Election slated for August 4. While we all are in the mode of dotting our i’s and crossing our t’s, and prudent Realtors are doing this daily as they assist buyers and sellers under the watchful eye of the Consumer Financial Protection Bureau (CFPB).
Signed into law in December of 1974, The Real Estate Settlement Procedures Act (RESPA) became effective on June 20, 1975 and at its core protects consumers by requiring transparency and disclosures from those who provide real estate settlement services. RESPA was introduced to eliminate abusive practices in the settlement process, prohibit illegal referral fees or kickbacks, and limit the use of escrow accounts, and is now regulated by the CFPB.
In short, RESPA exists to protect consumers buying and selling real estate. The rules and regulations are numerous, and often confusing even to those in the industry and many consumers are completely unaware RESPA exists and why.
So why should a buyer or seller care about RESPA? Because RESPA helps to ensure homeownership is affordable. A consumer protection statute, RESPA helps consumers “shop” for real estate settlement services and because of disclosure requirements, it helps eliminate hidden referral fees that unnecessarily increase the cost of certain settlement services. RESPA provides that buyers have choices when it comes to service providers such as title companies and lenders. While a seller may request closing to occur at a specific title company or that a buyer use a preferred lender, RESPA prohibits a seller requiring a specific person or company be used when the buyer is paying for the service.
RESPA also requires that borrowers receive timely disclosures designed to spell out the costs associated with the closing, outline the servicing and escrow account practices and describe business relationships between settlement service providers at least three days in advance of closing.
Often in real estate, people hear of referral fees. A referral fee is a portion of the commission paid to another real estate agent or broker in exchange for a client referral. Consumers should be aware of laws regarding referral fees, specifically Tennessee Real Estate License Law and the Real Estate Settlement Procedures Act (RESPA). The following explanations are based on information provided by the Tennessee Association of REALTORS® and the U.S. Department of Housing and Urban Development (HUD).
RESPA prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business to service providers (lenders, title companies, closing attorneys, appraisers, etc.) in conjunction with a federally related mortgage loan.
It’s important to note that Tennessee Real Estate License Law prohibits a licensee from paying a referral fee to a non-licensee. Consumers sometimes request a fee for referring a prospect to a licensee or for finding available property. Such requests are commonly referred to as birddog fees or finders fees, and these fees are illegal.
It is a RESPA violation for someone to receive money or a thing of value solely for sending someone settlement service business. Consumers should consider the following helpful tips:
•Compare the costs (fees, interest rate, points, etc.) of settlement service providers before agreeing to use one to whom you were referred.
•Ask for a Good Faith Estimate (GFE) before you agree to the loan and paying any fees.
•Ask the builder whether you are required to use a certain service provider in order to get special concessions.
•Ask your REALTOR® to verify the validity of fees being charged.
•Ask to see the HUD-1 Settlement Statement before going to closing. Compare the charges with the Good Faith Estimate and ask about any charges that have changed or that you do not understand.
•Forward any tax or insurance bills you receive, immediately to your lender (if the lender is supposed to pay the bill).
•Check your annual escrow account statement for mistakes.
•Make a “qualified written request” when asking your lender for information or making a complaint.
•Make your mortgage payment on time, even if you have sent a complaint to your lender.
Lastly, it’s important to read the FAQs about Escrow Accounts on www.hud.gov before filing an escrow complaint with a banking or government regulator.
Taking the time to revisit these topics is important because buying and selling property is complicated, but thankfully Realtors® work with their clients to help navigate the rules and the real estate transaction so that their best interests are being met. Realtors serve their community’s homebuying needs each day. That’s Who We R®.
Founded in 1912, Greater Chattanooga REALTORS® is a regional organization with more than 2,700 members servicing Hamilton and Sequatchie counties in southeast Tennessee and Catoosa, Dade, and Walker counties in northwest Georgia. The Association is one of approximately 1,100 local associations/board of REALTORS® nationwide that comprise the National Association of REALTORS®. Greater Chattanooga REALTORS® owns and operates a Multiple Listing Service (MLS), which is one of approximately 600 MLSs in the country and services more than 2,900 MLS users.