RESPA applies to all federally related mortgage loans. A "federally related mortgage loan" is any loan which is secured by a lien on residential real property designed principally for the occupancy of from one to four families and made in whole or part by any lender insured by an agency of the federal government or regulated by the federal government. RESPA, however, does not apply to credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes or extensions of credit to government or governmental agencies.
In addition, the regulations exempt from RESPA: loans on property of 25 acres or more, business purpose loans, temporary financing, vacant land, assumptions without lender approval, loan conversions and secondary market transactions. The booklets are intended to help people borrowing money to finance the purchase of residential real estate to better understand the nature and costs of real estate settlement services.
The booklets must contain the following: 1 a description and explanation of the nature and purpose of each cost in a real estate settlement; 2 an explanation and sample of the standard real estate settlement form prescribed under section ; 3 a description of the nature and purpose of escrow accounts when used in connection with loans secured by residential real estate; 4 an explanation of choices available to buyers of residential real estate in selecting persons to provide necessary services; and 5 an explanation of the unfair practices and unreasonable or unnecessary charges to be avoided by the prospective buyer with respect to a real estate settlement.
The lender must provide or mail the booklet no more than three days after receiving the application. Good-Faith Estimate Along with the special information booklet, the lender must provide a good faith estimate of the amount or range of charges of the specific settlement services that the borrower is likely to incur. The estimate must consist of a dollar amount or range of each charge the borrower is likely to incur at or before settlement based upon common practice in the locality of the mortgaged property.
Each estimate must be made in good faith and have a rational relationship to the charge a borrower is likely to be required to pay in settlement. The estimate must be provided within three days of when the application is received or repaired.
However, if the loan is denied within three days, then there is no duty to disclose. Mortgage Servicing Disclosure Statement Each person who makes a federally related mortgage loan must disclose to each person who applies for the loan, at the time of the application for the loan, whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding.
Affiliated Business Arrangement Disclosure RESPA defines an "affiliated business arrangement" as an arrangement in which a person who is in a position to refer business incidental to a real estate settlement service involving a federally related mortgage loan, has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a provider of settlement services.
If a person directly or indirectly refers business to that provider or affirmatively influences the selection of the affiliated business, they must disclose the nature of the relationship they have with the provider of the settlement services and of an estimated range of charges made by the provider.
The disclosure must be made no later than the time the referral is made. HUD-1 Settlement Statement The person conducting the settlement must provide a standard form for the statement of settlement costs that will itemize all charges imposed upon the buyer and seller in connection with the settlement and will indicate whether any title insurance premium included in the charges covers or insures the lender's interest in the property, the borrowers, or both. However, RESPA does not require that the part of the standard form that relates to the borrower's transaction be furnished to the seller and the part relating to the seller be furnished to the buyer.
Commercial business owners are generally much savvier and knowledgeable about real estate and transactions. If they aren't, they are hiring professionals to help them due to the large size of the transactions. There is often a team of professionals involved, from real estate agents to attorneys and project managers. They each have a specific job to do in evaluating a prospective commercial real estate purchase for suitability.
This team and the higher sophistication level of the investors, buyers, and sellers are in stark contrast to the first time home buyer or someone who has only purchased a couple of homes in their lifetime. The commercial owners and buyers have their protection hired. When a loan is made to purchase vacant land , and none of the proceeds of the loan will be used to construct a covered residential structure, the loan is exempt from RESPA oversight.
This is another case of the relative experience and knowledge of the participants in the transaction. If a developer is buying the land to subdivide it, they have their subdivision plans, one or more attorneys to deal with the local laws and zoning, and construction people ready to advise in order to get the work of laying in streets and utilities.
If a parcel of vacant land is to be used as the location for an industrial or manufacturing facility, the same expertise and knowledge of the players come into play. If a large corporation wants a new warehouse or manufacturing facility, they already know precisely what that looks like, the parcel size they need for the facility, parking, and the local zoning laws.
Land tracts of 25 or more acres, whether there is a residence or not, are not covered. The previous section applies here, but now we can throw in land purchased for a ranch or farm where a residence will also be constructed or is already present. The buyer is likely an experienced rancher or farmer, often adding to their adjacent ranch or farm.
There is less need for oversight to protect their interests due to their knowledge of how the land will be used.
When a loan is assumed, and the lender has no rights to approve future persons for the assumption, then the loan is not covered.
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