As a homeowner, you have legal protections under the Real Estate Settlement and Procedures Act (RESPA) that give you the right to sue your lender if they make an error in loan servicing and refuse to fix it.
In this article, we will discuss what the Real Estate Settlement Procedures Act is and how you can hold your lender accountable if they violate RESPA compliance laws.
At Denbeaux & Denbeaux, we help New Jersey homeowners understand their rights and fight back against lenders and servicers who commit RESPA violations. If you’ve been harmed by your lender, contact us today to learn how we may be able to help.
What is RESPA & What Does RESPA Stand For?
RESPA stands for the Real Estate Settlement Procedures Act. It was passed in 1974 to protect homeowners with mortgages on one- to four-family homes. The purpose of RESPA is to stop unfair practices that increase costs and make sure lenders manage loans properly, so borrowers aren’t pushed toward wrongful foreclosure. Today, the Consumer Financial Protection Bureau (CFBP) is who enforces RESPA.
When RESPA first passed, the protections focused mainly on the closing process. In 1990, Section 6 of the Real Estate Settlement Procedures Act was added to give borrowers new protections after the loan closes. Section 6 is all about the handling of your mortgage, and it holds servicers accountable for how they manage your loan.
If you’re facing foreclosure, learning about Section 6 can help you understand if your lender has violated the law. If they did, you may be able to save your home.
What Loans Are Covered by RESPA?
RESPA applies to federally related mortgage loans. This means RESPA applies to the majority of mortgages on residential properties, refinances, and home equity lines of credit.
RESPA requirements do not apply to business loans, temporary financing (such as construction loans), or loans secured by vacant land. RESPA also does not apply to commercial loans.
RESPA Regulations
Below are some of the main RESPA requirements:
- RESPA Disclosures on Real Estate Transactions: These RESPA disclosure requirements are for helping you understand the true cost of your mortgage to avoid unexpected charges or fees.
- RESPA Disclosures on Affiliated Business Arrangements: If your lender refers you to a company they’re affiliated with, that relationship must be fully disclosed to you.
- Mortgage Loan Servicing: Lenders are responsible for accurate recordkeeping, timely payment processing, and proper escrow management.
- RESPA Escrow Requirements: Lenders can only keep a limited amount of excess funds in escrow (RESPA guidelines for escrow are no more than ⅙ of your annual payment) and must provide annual account statements to prevent over-collecting or mismanaging escrow funds.
- List of Homeownership Counseling Organizations: Borrowers must be given a list of HUD-approved housing counselors so they can get neutral, third-party advice
- Force-Placed Insurance: A lender must provide advance notice if they are placing you with a force-placed insurance policy. If you demonstrate you already have insurance coverage, they are required to cancel their policy and issue a refund.
- Error Resolution & Information Requests: If you dispute an error or request information, your lender is legally required to acknowledge the request, investigate it, and address any mistakes or violations.
- Loss Mitigation: Lenders are required to follow foreclosure rights guidelines when you are applying for foreclosure alternatives such as a forbearance, repayment plan or loan modification.
With all of these rules, the lender is the one who needs to comply and take the appropriate steps to stay compliant, which doesn’t always happen.
Common RESPA Violations for Lenders
Even though it is against the law, lenders and mortgage companies violate RESPA guidelines more often than most people realize. That’s why it’s important for you to be aware of what RESPA prohibits and common RESPA violations for lenders, so that if it happens to you, you can recognize it and take action.
Common RESPA violations include:
- Misapplied payments
- Kickbacks & referrals
- Large escrow requirements
- Not responding to complaints
- Not disclosing all costs
- Requiring title insurance
- Failing to disclose affiliation
- Overcharging for settlement services
If your lender violates RESPA guidelines, they will face RESPA violation penalties such as:
- Actual damages for any financial loss caused by the violation
- Legal costs
- Statutory damages (up to $2K per violation)
- Fines up to $10K and/or one year in prison for criminal charges
In addition to the penalties, if your lender has committed a RESPA violation, you may be able to sue. During a foreclosure, RESPA violations often are the main defense strategy we use to protect your home. As part of foreclosure proceedings, our legal team investigates for RESPA violations in your mortgage to build a strong defense against foreclosure.
Suing Your Mortgage Company for a RESPA Violation
If your lender breaks RESPA rules, you may be able to sue them. The process for taking legal action against your lender will vary based on the type of violation.
Servicing Errors or Information Request Violations
If you are suing for mistakes like misapplied payments, escrow errors, or not responding to your information request, you generally need to go through RESPA’s resolution process first before
suing.
This means you must first send a Notice of Error (NOE) or a Request for Information (RFI) to your servicer. Once they receive your letter, the servicer has five business days to acknowledge it and thirty business days to investigate and respond (they may take an additional fifteen days if they notify you). At the end of that process, the servicer must either correct the mistake and explain what was done or provide a written explanation of why they believe no error occurred. If they ignore your request, miss deadlines, or refuse to fix a legitimate mistake, you have grounds to sue.
Working with an attorney can help you through this process, especially if the errors are the cause of a wrongful foreclosure.
Direct RESPA Violations
Some RESPA violations are considered direct violations of the law. In these cases, you don’t need to go through the formal complaint and can sue immediately. Some common examples of direct RESPA violations include kickbacks, unearned fees, or undisclosed affiliate business arrangements. These are considered direct violations because the actions themselves are illegal under RESPA guidelines, regardless of the complaint process.
If you want to sue for a RESPA violation, you have up to one year to initiate a lawsuit for violations that occurred during the settlement process, and up to three years to bring a suit against the loan servicer.
Work with an Attorney Who Will Protect Your Rights
The Real Estate Settlement and Procedures Act was designed to protect homeowners from unfair practices and mistakes that could increase costs or lead to foreclosure. However, you have to be proactive to hold your lender accountable for any violations.
If you think your lender has violated your rights, don’t wait to act. Our team at Denbeaux & Denbeaux can help you understand your options, fight back against servicer misconduct, and protect your home from foreclosure.
Contact Denbeaux & Denbeaux today to schedule a free consultation to learn more.
