Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act (RESPA) of 1974 became effective on June 20, 1975. It is a law protecting consumers against abusive practices during a residential real estate purchase and loan process by requiring * lenders, * mortgage brokers, or servicers of home loans to * disclose all settlement costs, practices, and relationships. It protects consumers from unnecessarily high real estate settlement costs by prohibiting certain business practices, such as outlawing * kickbacks and referral fees, and places limitations upon the use of escrow accounts. This applies when you take out or * refinance a loan secured by real estate such as a mortgage loan or a * home equity loan.

Since its enactment, the Real Estate Settlement Procedures Act (RESPA) has been amended several times to cover, among other things, subordinate loans; required disclosures for the transfer, sale, or assignment of mortgage servicing; rules for mortgage escrow accounts, including the accounting method to be used for these accounts; required disclosures; and the established formats and procedures for initial and annual escrow statements.

For more information on federal credit regulations and consumer rights go to the Federal Trade Commission (FTC) website at www.ftc.gov or www.federalreserve.gov
Some state laws may provide you with additional rights. For information go to the website of the National Association of Attorneys General (NAAG) at www.naag.org.

Glossary For This Page
(In Alphabetical Order)

* Default
Failure to perform a legal obligation; a default includes failure to make the payments on a financial obligation, but may also be a failure to perform some action or service that is non monetary (not relating to money).

* Disclose
Information that must be released to you about your financial dealings that is required by law, such as terms, fees, finance charges and conditions associated with a loan or credit card agreement, etc., or, in real estate, the seller revealing information about a property to a potential buyer which may affect the decision of the buyer, example, defects in the property such as the presence of radon (a toxic gas found in the soil beneath a house that, if occurring in strong enough concentrations, can cause health problems) or lead paint, etc.

* Equity
Equity is the difference between the market value of your property and home, and the claims held against it. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.

* Home Equity Loan
A loan allowing owners to borrow against the * equity in their home, usually a * second mortgage.

* Interest Rate
The percentage of a sum of money charged to the borrower by the lender for borrowing the lender's money.

* Kickback
Money, fee, commission, credit, gift, gratuity, a thing of value, or compensation of any kind which can be received or paid, directly or indirectly, from one individual to another in order to influence their decision in a particular situation, which is usually a secret illegal agreement between the parties involved.

* Lender
The lender may be a bank, finance company, credit union or other financial institution or a government agency that provides loan funds to the borrower (you).

* Lien
A claim or charge on property for payment of some debt. With respect to a mortgage, it is the right of the lender to take the title to your property if you do not make the payments due on the mortgage.

* Mortgage
A mortgage is a legal document you sign to show that you have granted the lender a * lien on your property as security for repayment of a loan, giving the lender the right to take your property if you * default on the terms of the loan. Some states call it a deed of trust instead of a mortgage.

* Mortgage Broker
A person or company engaged in the arrangement of mortgages for buyers. The broker is usually paid a commission by the lender.

* Refinance
Obtaining a new * mortgage which replaces the current mortgage, usually to receive better loan terms, a lower * interest rate and a lower monthly payment.

* Second Mortgage
A Second Mortgage is a second loan on a piece of property. It often carries a shorter term and a higher interest rate than the original mortgage. The original mortgage and the second mortgage are secured on your property, but the legal charge of a second mortgage ranks behind or second to the original mortgage, making it a higher risk for the lender.

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