RESPA Kicks Back on Kickbacks (If Interpreted Correctly)

by Isaac Benmergui, Esq on December 6, 2013

RESPA, also known as the Real Estate Settlement Procedures Act, does have a reputation for laying down the law hard. No room for wiggling here. In particular, Borders & Borders of Kentucky faces a major lawsuit against the Consumer Financial Protection Bureau. But are they really in trouble? Or is this bureau simply interpreting the law, stretching it to meet their goals in ensuring penalization of this firm? It would help to get a real inside look at what RESPA is all about.RESPA

This legal act in real estate law sought to eliminate anything involved in the buying and selling of real estate between entities, such as lenders, real estate agents, construction and title insurance companies, with regard to undisclosed kickbacks between those entities. For instance: let’s say a lender advertises a home loan at a 5% interest rate, but when an individual applies for it, that person is informed of the requirement to utilize the lender’s affiliated title insurance company at a rate of $5K versus the normal rate of $1K. It was, essentially, a practice in real estate allowing business partnerships to profit between each other. This was made illegal by RESPA.

RESPA-2The result of this law, too, is the ability to make prices a lot clearer to the customer, allowing for competition by consumer demand, driving down those prices and stimulating the real estate market. In essence, it’s not about what those entities can benefit from; rather, it’s about what the homeowner can receive in the effort of buying a dwelling. The CFPB is alleging that Borders & Borders broke that law. Keep in mind, though, that the law says the kickbacks have to be undisclosed. That means the customer wouldn’t know about it until signing off on the contract. In Borders & Borders’ case, they’re stating that all disclosures were made with complete consumer approval of title insurance, regardless of where that insurance came from.

This is a toss-up, in my opinion. What do you think, ladies and gentlemen? I guess the evidence will tell under real estate law if those ‘kickbacks’ were undisclosed or not. That, of course, doesn’t stop the Act from constantly being reviewed and utilized. Be wary, real estate industry.

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