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How Much Do You Know About
RESPA?
The
Real Estate Settlement Procedures Act (RESPA) is a consumer disclosure and
anti-kickback statute designed to inform consumers of their settlement costs and
to prohibit kickbacks that can increase the cost of obtaining a mortgage. The
Department of Housing and Urban Development currently has a proposal to simplify
real estate closing and promote competition and they have an open comment period
to May 13, 2008. While HUD desires to allow packaging fees with new
disclosures, many in the real estate industry strongly oppose the changes and
the proposal may be far from being complete.
While
changes may be coming, how well do you know the current law? Take this quiz
prepared by NAR’s legal department to find out how well you understand your
rights and obligations under this federal statute as you help customers and
clients.
1.
Which of the following is NOT a settlement service that is covered by RESPA?
a. Mortgage loan origination
b. Furniture moving
c. Real estate brokerage services
d. Lender’s credit report
2.
Under RESPA, a real estate professional may give in return for the referral of
real estate settlement service business:
a. A thank you
b. A thing of value
c. A kickback
d. A fee
3.
To provide consumers with cost information about the mortgage process, RESPA
created the good faith estimate (GFE) and the HUD-1 closing document. RESPA
requires that the HUD-1 form be provided to the:
a. Tax assessor
b. Next-door neighbor
c. Real estate salesperson
d. Buyer
4.
RESPA rules do NOT cover this type of transaction:
a. Purchase of a small warehouse financed with a Small Business
Administration loan
b. Purchase of a condominium with a Federal Housing Administration mortgage
c. Purchase of a single-family home with a Veteran’s Administration loan
d. Purchase of a two-flat that the owners plan to live in and rent out the
other unit financed with a conventional loan
5.
To combat higher costs in real estate transactions, Section 8 of RESPA makes it
a criminal act for settlement service providers to pay fees for the referral of
business. One exception to this rule allows a real estate professional to pay a
referral fee to:
a. A mortgage broker who refers a buyer who has been pre-approved
b. A previous customer who refers a neighbor
c. Another licensed real estate broker who refers a buyer from another part
of the country
d. A relative who overhears a customer saying he or she is moving
6.
Another exception to the RESPA rules contained in Section 8 allows real estate
professionals to receive compensation for:
a. Filling out a mortgage application
b. Telling the home inspector the address of the property to be inspected
c. The reasonable value of goods and services actually provided or performed
d. Doing the same thing they have been paid to do as a real estate
professional
7.
RESPA allows title companies to provide real estate professionals:
a. $50 for every client referred to the title company by the real estate
professional
b. An entry in a contest to win a car for every $1,000 in premiums paid by
the real estate professional’s clients
c. Tickets to a baseball game once a week for the entire season
d. Notepads that have been imprinted with the title company’s name and phone
number
8.
Two companies that provide settlement services and have some degree of common
ownership are considered affiliated businesses under RESPA. When there is a
referral from one of these companies to the other, RESPA requires the customer
receive an affiliated business disclosure that contains specific information,
including:
a. A statement that use of referred service is not required
b. Names of other providers of the same service
c. A statement that the property is pest-free
d. The commission being paid by the property seller
9.
The affiliated business provision, which is an exception to the general RESPA
rule regarding compensation for referrals, allows:
a. The real estate professional making the referral to receive a small
referral fee
b. The party making the referral to receive a return on its ownership
interest in the company receiving the referral
c. The buyer to avoid having to pay real property transfer tax
d. The seller to require buyers to use the seller’s attorney
10.
A borrower may be required to pay for the ______ selected by the lender to
represent the lender’s interests:
a. Title company
b. Attorney
c. Real estate broker
d. Home inspector
11.
RESPA is interpreted and enforced by the:
a. U.S. Department of Justice
b. Local U.S. Attorney
c. U.S. Department of Housing and Urban Development
d. State Association of REALTORS®
12.
The penalty for illegally giving or receiving a kickback, which is covered in
Section 8 of RESPA, is:
a. Up to 90 hours of community service
b. Loss of real estate license
c. Requirement to attend a RESPA education program
d. A fine of up to $10,000 or up to one year in prison or both
Answers:
1.
Which of the following is NOT a settlement service that is covered by RESPA?
b: Furniture moving
Settlement services relate to the making of the federally-related mortgages that
are covered under RESPA. Services that are provided after closing typically are
not covered by RESPA and are not considered settlement services.
2.
Under RESPA, a real estate professional may give in return for the referral of
real estate settlement service business:
a: A thank you
RESPA
prohibits any person from giving or receiving a fee, kickback, or “a thing of
value” for referring business to a mortgage broker or banker, or a title
company. Saying thank you is not considered a thing of value for purposes of the
Act.
3. To
provide consumers with cost information about the mortgage process, RESPA
created the good faith estimate (GFE) and the HUD-1 closing document. RESPA
requires that the HUD-1 form be provided to the:
d: Buyer
The
person conducting the settlement needs to make the HUD-1 form available for
inspection to the buyer (borrower) at or before settlement. The Act does not
require that copies be provided to real estate professionals.
4.
RESPA rules do NOT cover this type of transaction:
a.: Purchase of a small warehouse financed with a Small Business
Administration loan
RESPA’s coverage is limited to transactions involving a federally-related
mortgage with a first or subordinate lien on residential real property
(including individual units of condominiums and cooperatives) designed
principally for the occupancy of one to four families. This includes any loan
that is used to prepay or pay off an existing loan secured by the same property.
Properties used for business purposes are not covered by RESPA.
5. To
combat higher costs in real estate transactions, Section 8 of RESPA makes it a
criminal act for settlement service providers to pay fees for the referral of
business. One exception to this rule allows a real estate professional to pay a
referral fee to:
c: Another licensed real estate broker who refers a buyer from another
part of the country.
Section 8(c) of RESPA includes an exception to the general prohibition on the
payment of referral fees for payments pursuant to cooperative brokerage and
referral arrangements or agreements between real estate salespeople and brokers.
6.
Another exception to the RESPA rules contained in Section 8 allows real estate
professionals to receive compensation for:
c: The reasonable value of goods and services actually provided or
performed
Section 8(c) of RESPA states that nothing in the section prohibiting the payment
of referral fees shall be construed as prohibiting the payment to any person of
a bona fide salary or compensation or other payment for goods or facilities
actually furnished or for services actually performed.
7.
RESPA allows title companies to provide real estate professionals:
d: Notepads that have been imprinted with the title company’s name and
phone number
The
RESPA provision prohibiting the payment of a referral fee does not include
normal educational and marketing activities that are not contingent on the
referral of business. Since the notepads were not contingent on the referral of
business and are typical marketing materials for a title company, they are not
prohibited.
8.
Two companies that provide settlement services and have some degree of common
ownership are considered affiliated businesses under RESPA. When there is a
referral from one of these companies to the other, RESPA requires the customer
receive an affiliated business disclosure that contains specific information,
including:
a: A statement that use of referred service is not required
The
disclosure must state the existence of an affiliated business arrangement
between you and the company to which you are referring your clients. As part of
the disclosure, your clients must be provided a written estimate of the charge
or range of charges made by the company to which the clients are being referred
and information that makes clear that your clients are not required to use that
company.
9.
The affiliated business provision, which is an exception to the general RESPA
rule regarding compensation for referrals, allows:
b: The party making the referral to receive a return on its ownership
interest in the company receiving the referral
The
only thing of value that can be received from an affiliated business
arrangement, other than the payments permitted under other subsections of
Section 8 of the Act, is a return on the ownership interest.
10. A
borrower may be required to pay for the ______ selected by the lender to
represent the lender’s interests:
b: Attorney
The
Act states that "any arrangement that requires a buyer, borrower, or seller to
pay for the services of an attorney, credit reporting agency, or real estate
appraiser chosen by the lender to represent the lender's interest in a real
estate transaction" is not a violation of the Act.
11.
RESPA is interpreted and enforced by the:
c: U.S. Department of Housing and Urban Development
The
Act vests the HUD Secretary with the authority to interpret the Act, conduct
investigations into violations, and bring actions for violations of the Act.
Parties other than the HUD Secretary, such as customers, also may be authorized
to sue for violations of certain provisions of the Act.
12.
The penalty for illegally giving or receiving a kickback, which is covered in
Section 8 of RESPA, is:
d: A fine of up to $10,000 or up to one year in prison or both
Penalties for violation of Section 8 of the Act may include a fine of up to
$10,000 or up to one year in prison, or both. |
