HUD has published revised RESPA regulations, effective in 2010, which will affect closing or settlements practices. The Real Estate Settlement Procedures Act [or "RESPA"],12 U.S.C. §§2601 et seq., governs one-to-four family residential real estate closing procedures where financing is provided by an institutional lender in connection with a purchase or refinance or a subordinate mortgage. The statute has been supplemented by a comprehensive series of administrative regulations, known as Reg. X. The Department of Housing and Urban Development [“HUD”] is charged with promulgating administrative regulations which supplement the statute. HUD is also responsible for enforcement of RESPA and its regulations. Failure to comply with the statute or regulations may subject one to civil or criminal fines or other penalties.
RESPA regulations require lenders to prepare and distribute to borrowers prior to closing a Good Faith Estimate [“GFE”] of costs anticipated to be incurred in connection with the transaction. 12 U.S.C. §2604; Reg. X,
§3500.7. RESPA also requires the use of the HUD-1 Uniform Settlement Statement (the so- called “RESPA Statement”) for closings covered by the Act. Thus, the HUD-1 form or HUD-1A form (for refinance and other non-purchase closings) is required in most residential real estate sales transactions. The HUD-1 is not required, however, in the case of commercial transactions; where there is no mortgage financing; where only private financing (such as a mortgage “taken back” by the seller) is involved; or in certain other instances.12 U.S.C. §2603; Reg. X, §3500.8.
Earlier this year, HUD published an extensive set of revised regulations (collectively known as the new RESPA Final Rule), most of which pertain to the use of the GFE and HUD-1 and 1A forms. HUD has supplemented the Rule with a series of Frequently Asked Questions [FAQs]. Under the Rule, additional disclosures must be made to borrowers through the GFE, so a revised GFE form has been created. Because the information contained in the HUD-1 and 1A forms must be consistent with the revised GFE, the HUD-1 and 1A have been revised as well. It is the lender’s responsibility to prepare the GFE and to provide the settlement agent with the information needed to complete the HUD-1 or 1A so that it conforms with the GFE.
Among the changes introduced by the Final Rule is the concept of tolerances, or variations between the anticipated charges for certain settlement services (as reflected on the GFE) and the actual costs of same (as shown on the HUD-1 or 1A.) In cases where the lender has identified a settlement service provider in the GFE, the Rule places a limitation on the amount the price quoted in the GFE may vary from the actual cost shown on the HUD-1 or 1A.
Although the RESPA Final Rule goes into effect on January 1, 2010, lenders may choose to use the revised GFE form during 2009. If this occurs, the revised HUD-1 or 1A form must be completed, so that the HUD-1 or 1A conforms with the GFE.
In South Jersey, the settlement agent is typically the title company; in North Jersey, it is the attorney representing the purchaser or borrower. In either case, the settlement agent should make every effort to comply with the RESPA Final Rule and other applicable RESPA regulations when conducting the settlement and completing the HUD-1 or 1A form. From the standpoint of HUD, the primary task of the settlement agent is to ensure that the HUD-1 or 1A reflects a complete and accurate summary of the transaction. As noted above, the HUD-1 or 1A is expected to conform with the GFE. Every effort should be made to comply with this principle. Nevertheless, in a case where it is not possible to do so, it is more important that the HUD-1 or 1A is complete and accurate, than that it conforms with the GFE.
For example, assume the lender has identified a particular title company as a settlement service provider in the GFE, but has erroneously under-quoted the premium. In order to avoid a violation of the tolerance rule (discussed above), the lender may request the title company to reduce the premium charged and reflect the lower amount on the HUD-1. However, reducing the premium is a violation of the Title Insurance Act, so the title company may not comply with the lender’s request. This example illustrates the principle that RESPA does not supersede local laws where the same impose greater restrictions on the parties to the transaction.
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