RESPA law, formally the Real Estate Settlement Procedures Act, is a 1974 federal statute that governs how lenders, servicers, and settlement providers handle residential mortgages. It protects borrowers in four main ways: it forces upfront disclosure of loan costs, bans kickbacks and referral fees between settlement service providers, caps the money a lender can hold in your escrow account, and gives you a formal process to challenge servicer errors.1Office of the Law Revision Counsel. 12 U.S.C. Ch. 27 – Real Estate Settlement Procedures Act The Consumer Financial Protection Bureau enforces it and writes the implementing rules, which live in Regulation X at 12 CFR Part 1024.
Which Mortgages RESPA Covers
RESPA applies to any “federally related mortgage loan,” a category that sweeps in most residential mortgages in the country. The loan has to be secured by a lien on a one-to-four-family residential property, including condominiums and cooperatives, and it needs a federal connection — a federally regulated lender, federal insurance or guarantee (such as FHA or VA), or an intent to sell the loan to Fannie Mae, Freddie Mac, or Ginnie Mae.2Office of the Law Revision Counsel. 12 U.S.C. 2602 – Definitions Purchase mortgages, refinances, and home equity loans all qualify.
Some situations fall outside the law. Cash purchases involve no mortgage. Commercial loans and loans on buildings with five or more units are excluded. Temporary construction financing is exempt unless it converts to a permanent mortgage. Seller-financed deals where the seller is an individual rather than a lender generally sit outside these rules too.
Cost Disclosures You Should Receive
The single most visible protection RESPA provides is that you get written, standardized cost disclosures before you sign anything. A 2015 rule replaced the older Good Faith Estimate and HUD-1 settlement statement with two combined documents that also fold in Truth in Lending Act requirements.
The Loan Estimate
Within three business days of receiving your mortgage application, the lender must deliver a Loan Estimate.3eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions It shows your projected interest rate, monthly payment, estimated closing costs, and cash needed at closing. Because the form is standardized, you can put estimates from different lenders side by side. You’re not committed to the lender after receiving one, and a lender cannot charge you fees beyond a reasonable credit report fee until you’ve received the Loan Estimate and told the lender you want to proceed.
The Closing Disclosure
At least three business days before the loan closes, you must receive a Closing Disclosure showing the actual terms and final costs line by line: lender fees, title charges, taxes, insurance, and prepaid items.3eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions The three-day buffer exists so you can compare it against your Loan Estimate and question anything that moved. Certain changes — an APR increase above the allowed tolerance, or a newly added prepayment penalty — reset the three-day clock.4Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs
The Kickback Ban
Section 8 of RESPA is the provision with the sharpest teeth. It prohibits anyone involved in a real estate settlement from paying or receiving anything of value in exchange for referring business.5Office of the Law Revision Counsel. 12 U.S.C. 2607 – Prohibition Against Kickbacks and Unearned Fees “Anything of value” is read broadly: cash, gifts, below-market services, marketing subsidies. The law also bans fee-splitting where one party collects a fee without doing any real work. A title company that charges you a closing fee and quietly hands half of it to the real estate agent who sent you its way is exactly what this section targets.
Not every payment between providers is illegal. Payments for services actually performed are fine, and so are cooperative brokerage arrangements between real estate agents. Employers can pay their own employees for referral activities. Settlement providers can offer you a discount or fee waiver directly, as long as it isn’t conditioned on you sending them other customers.6Consumer Financial Protection Bureau. Real Estate Settlement Procedures Act FAQs
Penalties are steep. Each criminal violation can bring a fine of up to $10,000, up to a year in prison, or both. On the civil side, a borrower charged for a tainted settlement service can sue for three times the amount of the charge. The catch is a one-year statute of limitations from the date of the violation, so anyone who suspects a kickback needs to move quickly.7Office of the Law Revision Counsel. 12 U.S.C. 2614 – Jurisdiction of Courts; Limitations
Affiliated Business Arrangements
Related companies often offer services together — a brokerage that owns a title company, a lender with an in-house appraisal firm. RESPA allows these arrangements but requires the person making the referral to give you a written disclosure describing the relationship and estimating the charges, at or before the time of the referral. You cannot be required to use the affiliated provider, and the referring party’s only financial benefit from the arrangement can be a return on its ownership interest, not a per-referral payment.8Consumer Financial Protection Bureau. 12 CFR 1024.15 – Affiliated Business Arrangements A lender can require you to use an attorney, credit reporting agency, or appraiser it selects to protect its own interests, but even then the disclosure must come no later than when you apply.
One boundary worth knowing: RESPA also gives buyers the right to choose their own title insurance company, and a seller cannot make the sale contingent on the buyer using a specific title insurer. A seller who violates that rule can be sued for three times the title insurance charge.9Office of the Law Revision Counsel. 12 U.S.C. 2608 – Title Companies; Liability of Seller The rule applies to sellers, not lenders; a lender can still require you to buy a lender’s title policy as a condition of the loan.
Escrow Account Limits
Most lenders require an escrow account for property taxes and homeowners insurance. RESPA caps how much they can stockpile. The maximum cushion a servicer can maintain is one-sixth of the estimated annual disbursements from the account.10eCFR. 12 CFR 1024.17 – Escrow Accounts If your annual property taxes and insurance come to $6,000, the servicer can hold up to $1,000 as a buffer on top of what’s needed for upcoming payments. The cap applies at settlement and throughout the life of the loan.11Office of the Law Revision Counsel. 12 U.S. Code 2609 – Limitation on Requirement of Advance Deposits in Escrow Accounts
Servicers must run an annual escrow analysis. If it turns up a surplus of $50 or more, they have to refund it within 30 days. Smaller surpluses can be refunded or credited toward next year’s payments. You should also receive an initial escrow statement at closing or within 45 calendar days after, and an annual statement within 30 days of the end of each computation year showing every deposit and withdrawal.12Consumer Financial Protection Bureau. 12 CFR 1024.17 – Escrow Accounts A miscalculated escrow balance is one of the most common billing disputes, so those annual statements are worth reading closely.
When Your Loan Is Sold
Servicing rights change hands often, and RESPA requires written notice from both sides. The outgoing servicer must send you a transfer notice at least 15 days before the effective date. The incoming servicer must send its own notice no later than 15 days after the transfer takes effect.13Office of the Law Revision Counsel. 12 U.S.C. 2605 – Servicing of Mortgage Loans and Administration of Escrow Accounts A single combined notice is allowed if it arrives at least 15 days before the transfer. If the transfer stems from servicer bankruptcy or a termination for cause, both notices can come up to 30 days after.14Consumer Financial Protection Bureau. 12 CFR 1024.33 – Mortgage Servicing Transfers
During the 60 days after a transfer, a payment sent in good faith to the old servicer cannot be treated as late by the new one. That grace period matters when a transfer notice arrives late or gets lost in the mail.
How to Force Your Servicer to Fix a Problem
If your servicer misapplies a payment, fails to pay your property taxes from escrow, or charges fees you don’t recognize, RESPA gives you a formal way to make them investigate. You submit a written notice of error, or a related tool called a Qualified Written Request (QWR), which asks for information about the servicing of your loan or asserts that the account is in error. The letter needs to explain what you need or why you believe there’s a mistake, and it has to go to the servicer’s designated address for such correspondence, which is usually not the payment address.15Consumer Financial Protection Bureau. What Is a Qualified Written Request (QWR)?
The servicer must acknowledge receipt within five business days and investigate within 30 business days. It can extend that by up to 15 additional days, but only if it tells you about the delay before the original deadline runs out.16eCFR. 12 CFR 1024.35 – Error Resolution Procedures The servicer cannot charge you a fee for responding.17Office of the Law Revision Counsel. 12 U.S.C. 2605 – Servicing of Mortgage Loans and Administration of Escrow Accounts
A phone call does not trigger any of this. Many borrowers spend weeks calling, get transferred repeatedly, and assume the dispute is on record — it isn’t. Only a written submission to the correct address starts the clock. Send it by certified mail with return receipt so you have proof of delivery.
Force-Placed Insurance
If your homeowners policy lapses, your servicer can buy a replacement policy and charge you for it. Force-placed insurance is almost always much more expensive than what you would buy yourself, and it covers only the lender’s interest in the property, not your belongings or liability. RESPA’s rules require the servicer to give you two chances to fix the situation first. A first written notice must go out at least 45 days before any charge is assessed, describing the proof of insurance you need to provide and warning that the force-placed policy will cost more. A reminder notice follows at least 30 days later, and must arrive at least 15 days before any charge. If you produce proof of coverage after force-placement, the servicer has to cancel the policy within 15 days and refund premiums for any overlapping coverage.18eCFR. 12 CFR 1024.37 – Force-Placed Insurance
Filing Deadlines and Where to Complain
RESPA’s filing deadlines depend on which section was violated. For kickbacks under Section 8 and title insurance violations under Section 9, you have one year from the violation to file a civil suit. For servicing violations under Section 6, including failures to respond to a QWR or improper escrow handling, the deadline is three years. Government enforcement actions carry the same three-year window.7Office of the Law Revision Counsel. 12 U.S.C. 2614 – Jurisdiction of Courts; Limitations
The Consumer Financial Protection Bureau is the primary federal enforcer. If you’d rather not hire an attorney, you can file a complaint through the CFPB at consumerfinance.gov/complaint or by calling (855) 411-2372.19Consumer Financial Protection Bureau. Real Estate Settlement Procedures Act (RESPA) A complaint doesn’t stop the statute of limitations clock, so if you’re near a filing deadline, talk to a lawyer at the same time.