Chapter 8-3 The Real Estate and Settlement Procedures Act (RESPA)

8-3 The Real Estate and Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act of 1974 (RESPA)33 requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. RESPA also provides that those making or servicing mortgage loans must make certain disclosures relating to the servicing of the loan.34

The lender must disclose, at the time of application, whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding.35 Further, the loan servicer must generally notify the borrower of any assignment, sale or transfer of the servicing of the loan within 15 days before the effective date of the transfer.36 RESPA does not require notice when the underlying note or mortgage is transferred.37

In addition to these automatic disclosures, RESPA requires that a loan servicer respond to a qualified written request (QWR)38 from borrowers and to written requests of "information relating to the servicing of such loan."39 Servicing is defined as "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan . . . and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan."40 Courts have ruled that loan modifications do not relate to the servicing of mortgage loans so that loan servicers are not obligated to respond to QWRs related to a loan modification.41 Similarly, courts have ruled that once a borrower defaults on a loan and the servicer is no longer accepting scheduled periodic payments, the servicer is no longer a "servicer" of the loan as defined by RESPA and is not obligated to respond to QWRs.42

8-3:1 RESPA Claims

RESPA creates a private right of action for only three types of wrongful acts: (1) payment of a kickback and unearned fees for real estate settlement services,43 (2) requiring a buyer to use a title insurer selected by the seller,44 and (3) the failure by a loan servicer to give proper notice of a transfer of servicing rights or to respond to a QWR for information about a loan.45 RESPA claims brought under 12 U.S.C. §§ 2607 or 2608 are subject to a one-year statute of limitation, while claims under 12 U.S.C. § 2605 are governed by a three-year statute of limitations, which begins running when...

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