What is real estate settlement procedures act (RESPA)?

What Does RESPA Protect?

RESPA applies to federally related mortgage loans — which covers the vast majority of residential mortgages in the United States. A loan is federally related if it is made by a federally insured institution, involves a federal mortgage insurance program (FHA, VA, USDA), is purchased by Fannie Mae or Freddie Mac, or is made by a creditor that makes more than $1 million a year in residential real estate loans. In practice, this means nearly every home purchase or refinance falls under RESPA.

RESPA has two broad phases: the origination phase (covering disclosures and settlement costs) and the servicing phase (covering ongoing servicer obligations). For homeowners in financial distress, the servicing phase provisions are most directly relevant.

RESPA Section 6: Servicer Obligations and Borrower Rights

Section 6 is the most important provision for borrowers dealing with a problematic servicer. It creates three distinct rights:

• Transfer notice: When your loan is transferred from one servicer to another, the old servicer generally must notify you at least 15 days before the transfer, and the new servicer no later than 15 days after it (a single combined notice must come at least 15 days before). For 60 days after a transfer, a payment the old servicer receives on or before its due date can't be treated as late.
• Qualified Written Request: You can send a written letter to your servicer identifying your account and describing an error or requesting information. This triggers a 5-business-day acknowledgment, a response within 30 business days for most requests (a few have shorter deadlines, and the servicer can add 15 business days with written reasons), and, for a payment dispute, a 60-day bar on reporting adverse information about that payment. See the Qualified Written Request glossary entry for the complete process.
• Damages: If the servicer fails to comply with Section 6, you can sue for actual damages (losses you suffered), additional damages up to $2,000 for a pattern or practice of noncompliance, and attorney fees. A class action can recover actual damages plus, for a pattern or practice of noncompliance, additional damages up to $2,000 per member, with total additional damages capped at the lesser of $1 million or 1% of the servicer's net worth.

RESPA Section 8: Kickback Prohibition

Section 8 prohibits anyone in the settlement transaction from receiving or paying a "thing of value" in exchange for referring settlement service business. This applies to:

• Lenders paying referral fees to real estate agents for directing buyers to their mortgage products
• Title companies paying kickbacks to lenders for choosing them as the settlement agent
• Builder-affiliated lenders requiring buyers to use their affiliated title, escrow, or insurance companies, even with proper disclosure
• "Captive reinsurance" arrangements where lenders receive referral kickbacks or payments for services not actually performed through lender-affiliated reinsurance companies

Section 8 has a specific exemption for affiliated business arrangements (AfBAs) — if a lender has an ownership stake in a title company, for example, they can still refer to it, but only if they provide an affiliated business disclosure and do not require the borrower to use the affiliate. A lender may still require you to pay for an attorney, credit reporting agency or appraiser it chooses to protect its own interest.

RESPA Section 10: Escrow Account Limits

Many mortgages require an escrow account for property taxes and insurance. Servicers collect monthly escrow payments and disburse them when taxes and insurance come due. Section 10 limits how much cushion the servicer can hold:

• Maximum cushion: 1/6 of the total annual escrow disbursements (roughly two months of escrow payments)
• Annual analysis: Servicers must perform an escrow analysis each year and send you the results
• Surplus return: If the escrow analysis shows a surplus of $50 or more and you are current, the servicer must return it within 30 days
• Shortage repayment: If there is a shortage (taxes or insurance went up), the rules depend on its size. A shortage smaller than one month's escrow payment can be collected within 30 days. A larger one, if the servicer requires repayment, must be spread over at least 12 months

RESPA and Loss Mitigation: Regulation X

The CFPB's 2013 Regulation X rules dramatically expanded RESPA's servicing protections. These rules — now codified at 12 CFR Part 1024 — require servicers to:

• Assign staff, either one person or a team, to help a borrower seeking loss mitigation by the 45th day of delinquency
• Acknowledge loss mitigation applications in writing within 5 business days when received at least 45 days before a foreclosure sale or when no sale is scheduled
• Evaluate complete applications for all available options within 30 days, when the application arrives more than 37 days before a foreclosure sale
• State the specific reasons for a loan modification denial and, when the application arrived 90 days or more before a sale or during the first 120 days of delinquency, allow an appeal within 14 days
• Prohibit dual tracking once a complete application is received more than 37 days before a scheduled sale
• Respond to Notices of Error (12 CFR § 1024.35) within 30 business days for most errors

Violations of these Regulation X rules — not just the underlying statute — can give rise to private lawsuits for damages. This is the mechanism that makes RESPA's servicing protections practically enforceable.