04 Title and Closing Costs Flashcards

04 Title and Closing Costs (2) Flashcards Affiliated Business Arrangement (ABA)An affiliated business arrangement (previously known as a controlled business arrangement) exists when a real estate brokerage provides services related to closing transactions via subsidiary companies that operate under the corporate umbrella of that brokerage.Offering financing, title and hazard insurance, and other related services this way is possible without violating RESPA as long as certain conditions are met.Affiliated Business Arrangement RestrictionsIn order to operate within the RESPA regulations, an affiliated business arrangement

must:Provide consumers with written disclosure of the

affiliationProvide consumers with estimated charges for provided servicesCommunicate to consumers that they are free to obtain services elsewhereRefrain from charging or paying referral fees among the subsidiary companies Section 8(c) - Fees, Salaries, Compensation, or Other Payments "Nothing in this section shall be construed as prohibiting...the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed." RESPA - Choice of Title CompaniesIt is a violation of RESPA for a seller to require a buyer to purchase title insurance from a specific title company in order to purchase the property offered for sale.However, if the seller were to pay for all the costs for themselves and the buyer, then the seller would be free to choose the title company with whom they wish to do business.Section 8(a) - Business ReferralsSection 8(a) of RESPA specifically prohibits the giving and accepting of "any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." Exceptions to RESPAAs you can tell, RESPA covers a lot of residential mortgage

loans. But there are a few exceptions:Loans on property of

25 acres or moreLoans for business, commercial, or agricultural purposesTemporary construction loansLoans on vacant landAssumption without lender approvalConversion of a federally-related mortgage loan to different terms, if a new note is not requiredTransfer of a loan in the secondary market

Marketing Services AgreementsA Marketing Services Agreement (MSA) often involves providers of settlement services in a mortgage loan transaction, such as a lender, real estate agent or broker, or a title company. They may also involve third parties who are not settlement services providers, such as membership organizations.MSAs are usually framed as payments for advertising or promotional services, but in some cases the payments are actually disguised compensation for referrals

• which is what Section 8 is attempting to regulate

against.Impermissible actions that some MSAs attempt to disguise, such as the steering of business in connection with kickbacks and referral fees, may result in consumers paying higher prices for mortgages than would likely be the case without disguised kickback or referral fees. These practices also tend to indirectly undermine consumers' ability to shop for mortgages, which can raise costs for consumers.Loans Covered by RESPASo which loans does RESPA cover? RESPA applies to most loans that are secured by a mortgage lien placed on a one- to four-family residential property.These loans

include:Purchase loansAssumptionsProperty improvement

loansRefinancing loans and equity lines of credit (generally) RESPA Has You CoveredTo get a little more specific, RESPA covers these types of

federally-related loans:RefinancingFirst or subordinate

liensOne- to four-family structures, individual units of condos or cooperatives, or manufactured homesProperty where a new dwelling will be constructedInstallment sales contracts, land contracts, or contracts for deedsRESPA

rules apply to the following:Loans made by a lender,

creditor, or dealerLoans made or insured by an agency of the federal governmentLoans made in connection with a housing or urban development program administered by an agency ofthe federal governmentLoans made and intended to be sold by the originating lender or creditor to Fannie Mae, Ginnie Mae, or Freddie MacLoans that are the subject of a home equity conversion mortgage or reverse mortgage issued by a lender or creditor subject to the regulation Real Estate Settlement Procedures Act (RESPA) an act designed to protect consumers from predatory lending by requiring lending instruments to disclosure pertinent information on the real estate settlement processThe Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 by the U.S. Department of Housing and Urban Development (HUD). RESPA is a

consumer protection statute that aims to help educate consumers about closing and settlement services.Prohibition Against KickbacksRESPA explicitly prohibits the payment of kickbacks, or unearned fees, in any real estate settlement service. It prohibits referral fees when no services are actually rendered.For example, a mortgage lender would be prohibited from giving money or anything of value to a real

estate agent for the agent's referring one of their customers to the lender. A 2010 RESPA rule prohibits a broker or agent from receiving a fee for referring a particular homebuyer or seller to a home warranty company; such a payment would be an illegal kickbackProhibition against

kickbacks does NOT include:Fee splitting among

cooperating brokers or members of multiple listing servicesBrokerage referral arrangementsThe division of a commission between a broker and their sales agentsReferrals made by an employee to generate business for the company itself Purposes of RESPAThe federal Real Estate Settlement Procedures Act (RESPA), administered by the Consumer Financial Protection Bureau (CFPB), was enacted in 1974 to protect consumers from abusive lending practices. Specifically, the