RESPA stands for "Real Estate Settlement Procedures Act." This is
the law that says that you should be given certain information when you are purchasing
a home. HUD enforces only what is covered under the RESPA law. Here are some questions
and answers that will help you to understand the law and your rights.
For A Loan And Before The Settlement
I made an application for a loan, but I did not get a Settlement Costs Booklet
or a Good Faith Estimate. What should I do?
You should contact the lender or mortgage broker and ask for them. The lender
or mortgage broker is required by RESPA to send these documents out within three
days of receiving the application. The lender is only required to give you a booklet
if you are purchasing a home. If the lender denies your application within three
days, it is not required to give you these documents.
the Good Faith Estimate
Should I expect the Good Faith Estimate to list the exact charges that I will
pay at settlement?
No. The Good Faith Estimate is only an estimate or range of charges. For example,
the lender may not know the costs for a settlement agent that you choose, or the
exact amount that will be collected for an escrow account for taxes and insurance.
What rights do I have if the charges I must pay at settlement are higher than
those listed on the Good Faith Estimate?
RESPA does not give a consumer the right to sue in this circumstance.
The best protection is to let the lender and settlement agent know that you will
want to see the HUD-1 Settlement Statement one day in advance. You should question
any amount that you do not understand.
10: Escrow Accounts
and Escrow Accounts in General
10 of the Real Estate Settlement Procedures Act (RESPA) limits the amount of money
a lender may require the borrower to hold in an escrow account for payment of
taxes, insurance, etc. RESPA also requires the lender to provide initial and annual
escrow account statements. The newest escrow account regulations became effective
in October 1997.
is covered under RESPA
Does RESPA require borrowers to maintain an escrow account?
Answer No. It is the lender's decision whether the borrower must maintain
an escrow account for the purpose of paying taxes and other items. The HUD regulations
only limit the maximum amount that a lender can require a borrower to maintain
in an account.
RESPA does NOT cover and who can help
following questions are frequently asked by consumers about the loan process,
but the issues are not covered under RESPA. For more information regarding
these issues, contact the agency that administers the governing law.
I applied for a loan at 7 1/2 percent, but when I got to settlement the lender
charged me 8 percent. Is this a RESPA violation?
No. However, the Truth-in Lending Act (TILA) requires that you get
a disclosure concerning the interest rate. TILA is administered
by the Board of Governors of the Federal Reserve System. (See
Consumer Complaint Reference List).
I asked my lender for a copy of the real estate appraisal but the lender has not
sent it. Is this covered under RESPA?
No. Under the Equal Credit Opportunity Act (ECOA) the mortgage broker or lender
must tell you how and when you can ask for a copy of your appraisal. ECOA is administered
by the Board of Governors of the Federal Reserve System. (See Consumer Complaint
My lender says the home I am buying is located in a flood zone and I must purchase
flood insurance. What can I do if I don't believe this information is correct?
The National Flood Insurance Reform Act of 1994 provides for lenders to purchase
flood insurance on behalf of borrowers/owners of properties in a special flood
hazard area. It is administered by the Federal Emergency Management Agency
(FEMA). If you disagree with the lender about whether the property is
located in a special flood hazard area, you may make a request to the FEMA Mapping
Assistance Center to determine whether the property is located in such an area.
The toll free number for requesting FEMA re-determination is 1-877-336-2627.
Escrow Account Cushions
Does RESPA require lenders to maintain a cushion?
Answer: No. The RESPA statute and regulations do not require
the lender to maintain a cushion. However, since 1976 the RESPA statute has allowed
lenders to maintain a cushion equal to one-sixth of the total amount
of items paid out of the account, or approximately two months of escrow payments.
If state law or mortgage documents allow for a lesser amount, the lesser amount
new accounting method generally requires borrowers to maintain lesser amount in
the account than the single-item method predominately used by lenders. However,
many lenders have recently increased the escrow account cushion to the maximum
allowed by law.
recent regulations require lenders to reduce the size of the cushion in some accounts.
Unfortunately, to avoid customer disapproval, some lenders may be giving their
customers the impression that the HUD regulations require them to make this increase.
This is a false impression. The lender, not HUD, has chosen to increase the cushion.
Can HUD require lenders to pay interest on escrow accounts?
1992 and 1993, legislation was introduced in Congress that would have required
lenders to pay interest on escrow account balances, but it never passed. Some
states do require interest to be paid on escrow account funds, but many do not.
How do I figure how much money the lender is allowed to require in my escrow account?
HUD cannot figure out your own escrow account cushion and payments.
Please use the following steps and example to help you estimate the amount of
money you may be required to put into your own escrow account, either a new or
existing account, under aggregate accounting:
all the payment amounts for items that will be paid out of your escrow account,
and when paid, for the next 12 months (e.g., taxes- $1200 -- $500 paid July 25
and $700 paid December 10; hazard insurance -- $360 paid September 20).
[If you have a payment like flood insurance, which is paid every 3 years, you
must project a trial balance over that 3-year period.]
this total amount by 12 monthly payments ($1560 divided by 12 = $130).
a trial running balance for the next 12 months listing all payments to the escrow
account and all payments out of the account, when these items are paid.
all the monthly balances to bring the lowest point in the account (December -$780)
up to 0.
3) bal ||
* -780 ||
* 0 |
any cushion your lender requires to the monthly balances. The cushion may be a
maximum of 1/6 of the total escrow charges (1/6 of $1560 = $260).
* 260 |
130 || 0
this example, $1040 is the maximum amount the lender should require in the account.
The account should fall to the cushion at least once during the year. In this
example, it is in December ($260).
New Accounts -- In this example, if you settled May 15, and the first payment
was due in July, $1040 would be the maximum amount you should be required to place
in an escrow account. If your lender requires less than the maximum cushion, the
amount would be less.
Existing Aggregate Accounts -- In this example, during escrow analysis, the lender
would compare the required amount of $1040 to the actual balance in your account
in June. For example:
If your balance is $1076, there is a surplus of $36. Your lender may choose to
apply any surplus less than $50 to future payments, reducing your monthly escrow
payment to $127, or may choose to return the surplus to you.
If your balance is $1090, there is a surplus of $50. The lender must return any
surplus of $50 or more to you within 30 days of the analysis.
If your balance was $940, there is a shortage of $100. This amount is less than
one month's escrow payment and the lender may ask you to pay this amount within
30 day or may spread it out over a year.
If your balance was $800, there is a shortage of $240. The lender must spread
the collection over at least 12 months. If the lender spreads the shortage over
12 months, your monthly escrow payment would increase to $150.
If you have a deficiency in your account (where the lender has to use his own
funds to pay a bill), you may have to reimburse the lender sooner than over 12
months. If the deficiency is less than one monthly escrow payment, you may have
to repay the lender in 30 days. If the deficiency is more than or equal to one
monthly escrow payment, the lender may require you to repay the amount over 2-12
in Escrow Accounts and Payments
My escrow account payments went up, rather than down. Why?
There could be a couple of reasons why your servicer is charging more for your
escrow account. First, your bills may have gone up and the account changed to
reflect that. Or, the servicer has changed the amount of cushion to the maximum
amount allowed by RESPA. Check your statement from the servicer. You may also
want to check your loan documents to figure out what is the appropriate cushion.
If the mortgage loan documents are silent on the amount of the cushion or pre-accrual
practices, then the RESPA "two month" limits apply, unless state law provides
for a lower amount.
What is the disbursement date for paying escrow account items?
The disbursement date means the date on which the lender actually pays an escrow
item from the escrow account. However, the lender must pay the items in a timely
manner, that is, on or before the deadline to avoid a penalty. This is required
as long as the borrower's payment is not more than 30 days overdue. Borrowers
should review their annual escrow statement to make certain the lender did not
make late payments and charge any penalties to the borrower's account. (See
with Your Lender or Insurance Company:
Taxes, Insurance, RESPA and Escrow
I got a notice from the county that my lender did not pay my taxes on time and
the county is assessing a penalty. Do I have to pay this bill?
Send the bill to the lender. The lender should pay the penalty for failing to
pay the taxes on time as long you were current in your mortgage payments. If the
lender refuses, you may wish to follow the guidelines for filing a complaint.
Are lenders required to pay taxes on an annual basis if a discount is offered
to the consumer?
Answer: No. The Department published a new rule in the Federal Register in January
1998. The rule clarifies what a lender should do when a taxing jurisdiction offers
a choice of payment on an installment basis or an annual basis. If there is a
discount to the consumer when disbursing on an annual basis or there is an additional
charge for disbursing on an installment basis, the lender may disburse on an annual
basis. Otherwise, the lender should disburse tax payments on an installment basis.
The borrower and the lender may mutually agree to another disbursement basis or
date. The Department encourages lenders to follow the preference of the borrower.
What steps should I take if the lender does not pay my hazard insurance on time
or at all and my insurance is canceled?
Lenders are required by Section 6 to make escrow account disbursements on time.
If a lender fails to do so, a borrower may bring a private law suit under this
Section. Therefore, if you incur any damages due to the lender's negligence, you
may wish to consult an attorney.
should also contact your lender immediately and send a copy of the bill. Some
lenders list a special address and/or FAX number for insurance and tax bills.
Keep checking with the insurance company to make certain the bill is paid. You
may wish to pay the insurance company directly to avoid cancellation of your policy
and then seek a refund from your lender. Keep copies of all your correspondence
and payments. If you incur any damages due to the lender's negligence, you may
wish to consult an attorney.
I got a notice that my hazard insurance has been canceled. My lender force-placed
hazard insurance with a different company and it costs a lot more. Can a lender
As long as your mortgage payment is not more than 30 days late, Section 6 of RESPA
requires the lender to make escrow payments, for taxes, insurance, etc., in a
timely manner. You should write to your lender and complain. If your lender does
not refund the difference or otherwise resolve your complaint satisfactorily,
you may wish to file a complaint with HUD or the Consumer Protection Office of
your State Attorney General's Office. You may also wish to consult an attorney.
My loan was transferred to a new lender. I made my loan payment on time, but to
the old lender. Can I be charged a late fee?
Answer: No. For 60 days, neither lender may charge a late fee as long
as you make your payment on time to the previous lender or to the new lender.
Your lender must send you a notification 15 days before your payment is due to
the new lender. Both lenders must provide you with certain information about the
loan transfer, including: when the payment is due to the new lender, the new lender's
address, toll-free telephone numbers, etc.
What steps should I take if I think the lender is requiring too much money in
my escrow account?
First, figure out the maximum amount RESPA allows to be required in your escrow
account from the example. If you still believe your lender is requiring too much
money, you should contact your lender for an explanation.
6 of RESPA provides that borrowers may make a "qualified written request" to the
lender concerning the servicing of their loan account. The request should not
be included with the monthly mortgage payment. The lender must acknowledge the
complaint within 20 business days and must resolve the complaint within 60 business
days by correcting the account or giving a statement of the reasons for its position.
If you do not get a satisfactory answer from the lender, you may wish to file
a complaint with HUD. You should continue to make your mortgage payment during
ask lenders what fees they charge, as well as the interest rate and points, when
shopping for a loan.
ask the builder whether you are required to use a certain provider in order to
get a special concession.
compare the costs of different settlement service providers before agreeing to
use one to whom you were referred.
ask to see the HUD-1 Settlement Statement a day before settlement, and compare
the charges with those listed on the Good Faith Estimate.
question the lender and settlement agent about any charges you do not understand.
making your mortgage payment on time, even if you have sent a complaint to your
forward any tax or insurance bills you receive, immediately to your lender. (If
the lender is supposed to pay the bill).
check your annual escrow account statement for mistakes.
make a "qualified written request" when asking your lender for information or
making a complaint.
read the FAQs about Escrow Accounts carefully before filing an escrow complaint
with a banking or government regulator.