RESPA — the Real Estate Settlement Procedures Act — is a landmark federal consumer protection law enacted in 1974 that governs the real estate settlement (closing) process for residential mortgage transactions. Its primary goals are to help borrowers understand their closing costs, eliminate kickbacks and referral fees between settlement service providers, and ensure that escrow accounts are managed fairly. RESPA is enforced by the Consumer Financial Protection Bureau (CFPB) and applies to most residential mortgage loans.
RESPA's key borrower protections include: the requirement to provide a Loan Estimate within three business days of loan application (allowing borrowers to compare offers), the requirement to deliver the Closing Disclosure at least three business days before closing (giving time for review), cost tolerance rules (limiting how much certain fees can increase between estimate and closing), the right to shop for settlement services (borrowers can choose their own title company, attorney, or surveyor), and affiliated business arrangement disclosures (lenders must disclose when they have financial relationships with service providers they recommend).
RESPA strictly prohibits kickbacks and referral fees. A real estate agent cannot receive a payment for referring a buyer to a specific title company, and a lender cannot accept fees for steering borrowers to a particular insurance company. Violating this prohibition can result in criminal penalties (up to $10,000 fine and one year in prison) and civil penalties (the borrower can recover three times the amount of the kickback). These rules ensure that service providers are recommended based on quality and value, not financial arrangements.
RESPA also regulates escrow accounts. Lenders cannot require excessive deposits — the initial escrow deposit at closing is limited to what is needed to pay upcoming tax and insurance bills plus a two-month cushion. Annual escrow analyses must be performed, and any surplus over $50 must be refunded to the borrower. Shortages must be communicated in writing, and the borrower can choose to pay the shortage in a lump sum or spread over 12 months.
At Beycome Title, we comply with all RESPA requirements and go beyond minimum compliance to ensure our closing process is transparent, fair, and borrower-friendly. Our flat-fee pricing eliminates hidden costs, and our closing team explains every charge on the Closing Disclosure in plain language. We believe informed borrowers make better decisions. Get your free closing estimate.