Settlement Costs - Part I

What Happens and When

Suppose you have just found a home you would like to buy. In a typical situation, when you reach an agreement with the seller on the price, you then sign a sales contract. The terms of the sales contract relating to settlement costs can be negotiated to your benefit, as the booklet explains below.

Next you will probably seek a mortgage loan to finance the purchase. (A mortgage is known as a deed of trust or security deed in some areas.) This booklet suggests questions you should raise as you shop for a lender.

When you file your application for a loan, the lender is required by RESPA to provide a Good Faith Estimate of the costs of settlement services and copy of this booklet. The lender has three business days, after written loan application, to deliver or mail these materials to you.

Between loan application time and settlement, you usually have a chance to shop for settlement services, to ensure that you will obtain good value for your money.

Finally, one business day before settlement if you so request, the person conducting the settlement must allow you an opportunity to see a HUD-1 Settlement Statement that shows whatever figures are available at that time for settlement charges you will be required to pay. At settlement, the completed HUD-1 Settlement Statement will be given to you.

Note: In some parts of the country where there is no actual settlement meeting, or in cases where neither you nor your authorized agent attend the closing meeting, the person conducting settlement has the obligation to deliver the HUD-1 Settlement Statement to you as soon as practicable after settlement.

There is no standard settlement process followed in all localities; therefore, what you experience, involving many of the same services, will probably vary from the description in this booklet.

Shopping for Services

At the time of settlement, you are committed to complete the purchase of the property and may have made a partial payment, sometimes called earnest money, to the seller or his agent. Services may have been performed for which you are obligated to pay. Unless a seller fails to perform a legally binding promise or has acted in a fraudulent fashion, you are normally obligated to complete your part of the contract and pay settlement costs. Thus the time to decide the terms of sale, raise questions, and establish fair fees is not at time of settlement, but earlier, when you negotiate with the seller and providers of settlement services. By the time of settlement any changes in settlement costs and purchase terms may be difficult to negotiate.

You can also negotiate with the seller of the home about who pays various settlement fees and other charges. There are generally no fixed rules about which party pays which fees, although in many cases this is largely controlled by local custom.

Among the many factors that determine the amount you will pay for settlement costs are the location of your new home, the type of sales contract you negotiate, the arrangements made with the real estate broker, the lender you select, and your decisions in selecting the various firms that provide required settlement services. If the chosen home is located in a "special flood hazard area", identified as such by the Federal Emergency Management Agency (FEMA) on a flood insurance map, the lender may require you to purchase flood insurance pursuant to Federal law. Information on flood insurance availability, limits of coverage and copies of maps can be obtained through the National Flood Insurance Program (NFIP) by calling this toll- free number 800-638-6620 (in Maryland - 800-492-6605) or by writing to NFIP, P.O. Box 619, Lanham, Maryland 20706.

Role of the Broker

Although real estate brokers provide helpful advice on many aspects of home buying, they serve the interests of the seller, not you, the buyer. The broker's basic objective is to obtain a signed contract of sale which properly expresses the agreement of the parties, and to complete the sale. However, as State licensing laws require that the broker be Pair in his dealings with all parties to the transaction, you should feel free to point this out to the broker if you feel you are being treated unfairly. If you have any questions concerning the conduct of an agent or broker, you should contact your State Real Estate Commission or licensing department.

A broker may recommend that you deal with a particular lender, title company, attorney, or other provider of settlement services. Ask brokers why they recommend a particular company or firm in preference to others. Advise them that while you welcome their suggestions (and, indeed, they probably have good contacts), you reserve the right to pick your own providers of services.

Negotiating a Sales Contract

If you have obtained this booklet before you have signed a sales contract with the seller of the property, here are some important points to consider regarding that contract.

The sales agreement you and the seller sign can expressly state which settlement costs you will pay and which will be paid by the seller although some may be negotiable up to time of settlement. Buyers can and do negotiate with sellers as to which party is to pay for specific settlement costs. The success of such negotiations depends upon factors such as how eager the seller is to sell and you are to buy, the quality of the home itself, how long the home has been on the market whether other potential buyers are interested, and how willing you are to negotiate for lower costs. If the contract is silent on these costs, they are still open to negotiation.

There is no standard sales contract which you are required to sign. You are entitled to make any modifications or additions in any standard form contract to which the seller will agree. You should consider including the following clauses:

• The seller provides title, flee and clear of all liens and encumbrances except those which you specifically agree to in the contract or approve when the results of the title search are reported to you. You may negotiate as to who will pay for the title search service to determine whether the title is "clear".
• A refund of your deposit (earnest money) shall be made by the seller or escrow agent with cancellation of the sale if you are unable to secure from a lending institution a first mortgage or deed-of-trust loan with an amount interest rate, and length of term, as set forth in the contract within a stated time period, or if the Seller is unable to satisfy any other condition of the Sales Contract
• A certificate shall be provided at time of settlement, stating that the home is free from termites or termite damage.
• A certificate or other assurance shall be provided by the Seller at the time of settlement, stating that the plumbing, heating, electrical systems and appliances are in working order, and that the home is structurally sound. Negotiate who pays for any necessary inspections. There is no uniform custom in most areas. Most buyers prefer to pay for these inspections because they want to know that the inspector is conducting the service for them, not for the seller. (In many areas, you can also purchase a warranty to back up the inspection, if you wish.)
• An agreement on how taxes, water and sewer charges, condominium fees, premiums on existing transferable insurance policies, utility bills, interest on mortgages, and rent (if there are tenants) are to be divided between buyer and seller as of the date of the settlement.

Before you sign the sales contract, make sure that it correctly expresses your agreement with the seller on such important details as the sales price of the home, method of payment, the time set for your taking possession, what fixtures, appliances, and personal property are to be sold with the home, and the other items described above.

The above list is not complete, but does illustrate the importance of the sales agreement and its terms. Before you sign a sales contract you may want to ask an attorney to review the proposed agreement and determine if it protects your interests, for once signed, the contract is binding on you and the seller. If you do not know of an attorney, you may wish to consult the local bar association referral service or neighborhood legal service office.

Selecting an Attorney

If you seek the aid of an attorney, first ask what services will be performed for what fee. If the fee seems too high, shop for another lawyer. Does the attorney have substantial experience in real estate? The U.S. Supreme Court has said that it is illegal for bar associations to fix minimum fee schedules for attorneys, so do not be bashful about discussing and shopping for legal fees you can afford. Your attorney will understand.

Questions you may wish to ask the attorney include: What is the charge for reading documents and giving advice concerning them? For being present at settlement? Will the attorney represent any other party in the transaction in addition to you? In some areas attorneys act as closing agents handling the mechanical aspects of the settlement. A lawyer who does this may not fully represent your interests since, as closing agent, he would be representing the seller and other interests as well.

Selecting a Lender

Your choice of lender will influence not only your settlement costs, but also the monthly cost of your mortgage loan.

Lending institutions may require certain settlement services, such as a new survey or title insurance and they may charge you for other settlement-related services, such as the appraisal or credit report. You may find, in shopping for a lender, that other institutions may not have such requirements. Part Two of this booklet provides a description of the various kinds of services that may be required and fees that may be charged to you. You will also find a worksheet in Part Two, which you can use to compare requirements and cost estimates from different lenders.

Many lending institutions deal regularly with certain title companies, attorneys, appraisers, surveyors, and others in whom they have confidence. They may want to arrange for settlement services to be provided through these parties. This booklet discusses your rights in such a situation under the section below on Home Buyer's Rights. If you choose a lending institution which allows you a choice of settlement service providers, you should shop and compare among the providers in your area, to find the best service for the best price. Where the lender designates the use of particular firms, check with other firms to see if the lender's stated charges are competitive.

Questions you may want to ask the lender should include these:

• Are you required to carry life or disability insurance? Must you obtain it from a particular company? (You may prefer no insurance or may wish to obtain it at a better premium rate elsewhere.) Is private mortgage insurance required? (This is insurance sometimes required by lenders on low downpayment loans to protect the lender from excess risk.)
• Is there a late payment charge? How much? How late may your payment be before the charge is imposed? You should be aware that late payments may harm your credit rating.
• If you wish to pay off the loan in advance of maturity (for example, if you move and sell the house), must you pay a prepayment penalty? How much? If so, for how long a period will it apply?
• Will the lender permit assumption?
• Will the lender release you from personal liability if your loan is assumed by someone else when you sell your home.
• If you sell the home and the buyer assumes your loan, will the lender have the right to charge an assumption fee, raise the rate of interest, or require payment in full of the mortgage?
• If you have a financial emergency, will the terms of the loan include a future advances clause, permitting you to borrow additional money on the mortgage after you have paid off part of the original loan?
• Will you be required to pay monies into a special reserve (escrow or impound) account to cover taxes, hazard insurance or other charges? If so, how large a deposit will be required at the settlement? The amount of reserve deposits required is limited under RESPA. Some State laws require that these accounts bear interest for the benefit of the borrower (buyer). If reserve requirements can be waived, you will be responsible for paying the particular charges for taxes or insurance directly to the tax collector or insurance company. Further information is in "Reserve Accounts" in Part Two of this booklet.
• What are the terms and requirements of a private conventional loan versus a loan insured through the Federal Housing Administration or Farmers Home Administration or guaranteed by the Veterans Administration? The FHA, VA, and FmHA loans involve Federal ceilings on permissible charges for some settlement services, which may be of interest to you. Ask lenders' about these programs. Another source of information about the federally insured or guaranteed programs is from the agencies that administer these programs. The Appendix of this booklet lists some of these agencies.
• Can you take over the prior loan, in a transaction called "assumption"? Assumption can reduce settlement costs if the original lender agrees to transfer the mortgage to a new purchaser. An assumption can also save money over the life of the loan if the assumed loan (covering the seller's existing mortgage) carries a lower interest rate than those currently being offered. However, in times of housing market inflation, a higher downpayment might be required than if you had obtained a new loan. You may want to ask the seller whether he would be willing to "take back" a second mortgage to finance part of the difference between the assumed loan and the sales price.

Once you have selected a lender, you will probably visit its office and complete a loan application. The application will ask for information such as your place of employment, assets, liabilities, and other similar information which the lender will rely upon in judging whether you are an acceptable credit risk. Many defaults occur because homebuyers provide, either on their own or with the assistance of others, incomplete or false information when applying for their mortgage loan. False application data can lead to loss of your home, an adverse credit rating, and, in the case of a Government guaranteed or insured loan, criminal prosecution by the Government. It is important, therefore, that you Do Not:

• overstate your income;
• fail to list all debts and amounts you owe;
• make up or inflate assets;
• borrow the downpayment funds without disclosing the loan;
• provide false letters-of-credit or gift letters;
• make undisclosed financial arrangements on the side;
• accept downpayment funds from a real estate agent or broker;
• represent that you will occupy the property when, in fact, it is being purchased as an investment or
• sign any application document that you know to be false.

If you are applying for a mortgage loan that will be insured or guaranteed by the Federal Government, you should be aware that there are severe penalties for fraud. intentional misrepresentation or conspiracy to influence the issuance of mortgage insurance or guarantee by the Federal Government Providing false information on the loan application can subject you to a possible prison term and/or a fine of up to $10.000. If you are aware of any fraud in a Federal Government program, you should report it to the Office of Inspector General for that particular agency.

Selecting a Settlement Agent

Settlement practices vary from locality to locality, and even within the same county or city. In various areas, settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, and attorneys for the buyer or seller. By investigating and comparing practices and rates, you may find that the first suggested settlement agent may not be the least expensive. You might save money by tailing the initiative in arranging for settlement and selecting the firm and location which meets your needs.

Securing Title Services

A title search may take the form of an abstract a compilation of pertinent legal documents which provides a condensed history of the property ownership and related matters. In many areas title searches are performed by extracting information from the public record without assembling abstracts. In either situation, an expert examination is necessary to determine the status of title and this is normally made by attorneys or title company employees. In areas where both title insurance companies and attorneys perform these and other settlement services, compare fees for services (such as title certification, document preparation, notary fee, closing fee, etc.), provided by each to determine the better source for these services.

In many jurisdictions a few days or weeks prior to settlement the title insurance company will issue a binder (sometimes called a Commitment to Insure) or preliminary report a summary of findings based on the search or abstract It is usually sent to the lender for use until the title insurance policy is issued after the settlement The binder lists all the defects in and liens against the title identified by the search. You should arrange to have a copy sent to you (or to an attorney who represents you) so that you can raise an objection if there are matters affecting the title which you did not agree to accept when you signed the contract of sale.

Title insurance is often required to protect the lender against loss if a flaw in title is not found by the title search made when the home is purchased. You may also get an owner's title policy to protect yourself. In some States, attorneys provide bar-related title insurance as part of their services in examining title and providing a title opinion. In these States the attorney's fee may include the title insurance premium, although the total title-related charges in the transaction should be taken into account in determining whether you will realize any savings.

A title insurance policy issued only to the lender does not protect you. Similarly, the policy issued to a prior owner, such as the person from whom you are buying the home, does not protect you. If you want to protect yourself from loss because of a mistake made by the title searcher, or because of a legal defect of a type which does not appear on the public records, you will need an owner's policy. Such a mistake rarely occurs but when it does, it can be financially devastating to the uninsured. If you buy an owner's policy it is usually much less expensive if purchased simultaneously with a lender's policy.

To reduce title insurance costs, be sure to compare rates among various title insurance companies, and ask what services and limitations on coverage are provided by each policy so that you can decide whether a higher rate is consistent with your needs.

Depending upon practice in your jurisdiction, there may be no need for a full historical title search each time title to a home is transferred. If you are buying a new home or a home which has changed hands within the last several years, call the title company that issued the previous title insurance policy and ask about a "reissue rate", which would be a lower charge than for a new policy. If the title insurance policy of the previous owner is available, take it to the title insurer or lawyer whom you have selected to do your search.

To mark the boundaries of the property as set out in the title, lenders may require a survey. You may be able to avoid the cost of a repetitive complete survey of the property if you can locate the surveyor, who previously surveyed the property, and request an update. However, the requirements of investors who buy loans originated by your lender may limit the lender's discretion to negotiate this point Check with the lender or title company on this.

Home Buyer's Rights

Special Information Booklet When you submit or the lender prepares your written application for a loan, the lender is legally required, under RESPA to give you a copy of this booklet If the lender does not give it to you in person on the day of your loan application, it must deliver it to you or put it in the mail to you no later than three business days after your application is filed.

Good Faith Estimate

When you file your application for a loan, the lender must also, under the terms of RESPA, provide you with a Good Faith Estimate of settlement services charges you will likely incur. If the lender does not give it to you in person on the day of your loan application, it has three business days in which to put it in the mail or deliver it to you.

See Part Two of this booklet for a full item-by-item discussion of settlement services. On the form entitled "Settlement Statement", you will find Section L, which lists possible settlement services and charges you will encounter.

The lender is required to give you a Good Faith Estimate, based upon the lender's experience in the locality in which the property is located, for each settlement charge in Section i of the HUD-1 Settlement Statement that the lender anticipates you will pay, except for paid-in-advance hazard insurance premium (line 903) and other reserves deposited with the lender (all Section 1000 items). The Estimate may be stated as either a dollar amount or range for each charge. Where the lender designates the use of a particular firm, the lender must make its Good Faith estimate based upon the lender's knowledge of the amounts charged by the firm. The form used for this Good Faith Estimate must be concise and clear, and the estimates must bear a reasonable relationship to the costs you will likely incur. If the lender provides to you a Good Faith Estimate in the form of ranges, ask the lender what the total settlement costs will most likely be. While the lender is not obligated to provide this information under RESPA, it is important for you to know as you evaluate the different mortgage packages being offered you.

Lenders are not required to give a Good Faith Estimate for reserves deposited with them or for the prepaid hazard insurance premium because these charges require information not normally known to the lender at time of loan application. It is important for you to make these calculations because they can represent a sizeable cash payment you may have to make at settlement Calculation of the reserve items is presented later in this booklet under "Reserve Accounts". Ask the lender what its policies are in terms of reserve accounts, for what items the lender requires reserves and for what period of time. You may want to ask the lender to run through a hypothetical calculation for you based upon the date you will most likely close on the home. Other assumptions may be necessary, for example, the assessed value of the property for determining property taxes. The lender can probably be more specific on hazard insurance premiums, particularly for those coverages which a lender requires.

Once you have obtained these estimates from the lender be aware that they are only estimates. The final costs may not be the same. Estimates are subject to changing market conditions, and fees may change. Changes in the date of settlement may result in changes in escrow and proration requirements. In certain cases, it may not be possible for the lender to anticipate exactly the pricing policies of settlement firms. Moreover, Your own careful choice of settlement firms might result in higher costs. Remember that the lender's estimate is not a guarantee. Further, RESPA does not give a specific remedy to HUD to remedy material deviations from the Good Faith Estimate.

Lender Designation of Settlement Service Providers

Some lending institutions follow the practice of designating specific settlement service providers to be used for legal services. We examination services, title insurance, or the conduct of settlement.

Where this occurs the Good Faith Estimate must clearly state that use of the particular provider is required and that the estimate is based on charges of the particular provider, give the name, address and telephone number of each designated provider, and describe the nature of any relationship between each provider and the lender.

While designated firms often provide the service needed. a conflict of interest may exist. Take, for example, the situation where the provider must choose between your interests and those of the lender. Where legal services are involved, it is wise to employ your own attorney to ensure that your interests are properly protected. k is wise for you to contact other firms to determine whether their costs are competitive and their services are comparable.

A lender may not require use of a provider if the lender and provider are part of a "controlled business arrangement," which is discussed further under "Protection Against Unfair Practices."

Disclosure of Settlement Costs One Day Before Closing and Delivery

One business day before settlement you have the right to inspect the settlement form, called the HUD-1 Settlement Statement on which are itemized the services provided to you and fees charged to you. This form (developed by the U.S. Department of Housing and Urban Development) is filled out by the settlement agent who will conduct the settlement. Be sure you have the name, address, and telephone number of the settlement agent if you wish to inspect this form or if you have any questions.

The settlement agent may not have all costs available the day before closing, but is obligated to show you, upon request, what is available.

The HUD-1 Settlement Statement must be delivered or mailed to you (while another statement goes to the seller) at or before settlement If, however, you waive your right to delivery of the completed statement at settlement it will then be mailed at the earliest practicable date.

In parts of the country where the settlement agent does not require a meeting, or in cases where you or your agent do not attend the settlement, the statement will be mailed or delivered as soon as practicable after settlement and no advance inspection is required.

The HUD-1 Settlement Statement is not used in situations where: (1) there are no settlement charges to the buyer (because the seller has assumed all settlement-related expenses); or (2) the total amount the borrower is required to pay for all charges imposed at settlement is determined by a fixed amount and the borrower is informed of this fixed amount at the time of loan application. In the latter case, the lender is required to provide the borrower, within three business days of application. an itemized list of services rendered.

Escrow Closing

Settlement practices differ from State to State. In some parts of the country, settlement may be conducted by an escrow agent, which may be a lender, real estate agent title company representative, attorney, or an escrow company. After entering into a contract of sale, the parties sign an escrow agreement which requires them to deposit specified documents and funds with the agent Unlike other types of closing, in a so-called escrow closing the parties do not meet around a table to sign and exchange documents. The agent may request a title report and policy; draft a deed or other documents; obtain rent statements; pay off existing loans; adjust taxes, rents, and insurance between the buyer and seller. compute interest on loans; and acquire hazard insurance. All this may be authorized in the escrow agreement If all the papers and monies are deposited with the agent within the agreed time, the escrow is "closed".

The escrow agent then records the appropriate documents and gives each party the documents and money each is entitled to receive, including the completed HUD-1 Settlement Statement If one party has failed to fulfill its agreement, the escrow is not closed and legal complications may follow.

Truth-in-Lending

The lender is required, usually within three days of receiving your application, to give you or place in the mail to you a Truth-in-Lending statement that will disclose the "annual percentage rate" (APR). The APR reflects the cost of your mortgage loan as a yearly rate. This rate may be higher than the rate stated in your mortgage or deed of trust note because the APR includes. in addition to interest, loan discount or points (as defined below in Item 802 of the Section of this Booklet which discusses each specific settlement service), fees, and other credit costs. The Truth-in-Lending statement also discloses other useful information, such as the finance charge, schedule of payments, late payment charges, and whether or not additional charges will be assessed if you pay off the balance of your loan before it is due (prepayment penalty).

Some of the information that the lender is required to disclose may not be certain at the time the lender is required to give you the Truth-in-Lending statement If so, the lender will indicate that the uncertain disclosures are estimates. Should the actual APR differ by more than a small amount from the lender's estimate, the lender must give you a corrected Truth-in-Lending statement no later than at settlement. However, if the estimated APR proves to be correct, the lender need not give you a new Truth-in-Lending statement, even if other disclosures have changed. For this reason, you may want to ask the lender shortly before settlement if all the Truth-in-Lending disclosures are still accurate. For more detailed information regarding Truth-in-Lending, contact the Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551.

Protection Against Unfair Practices

A principal finding of Congress in the Real Estate Settlement Procedures Act of 1974 is that consumers need protection from "...unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country." The potential problems discussed below may not be applicable to most loan settlements, and the discussion is not intended to deter you from buying a home. Most professionals in the settlement business will give you good service. Nevertheless, you may save yourself money and worry by keeping the following considerations in mind:

Kickbacks: Kickbacks and referrals of business for gain are often tied together. The law prohibits anyone from giving or taking a fee, kickback, or anything of value under an agreement that business will be referred to a specific person or organization. It is also illegal to charge or accept a fee or part of a fee where no service has actually been performed. This requirement does not prevent title companies, attorneys, or others actually performing a service in connection with the mortgage loan or settlement transaction, from receiving compensation for their work. It also does not prohibit payments pursuant to cooperative brokerage, such as a multiple listings service, and referral arrangements or arrangements between real estate agents and brokers.

The prohibition is aimed primarily at eliminating the kind of arrangement in which one party agrees to return part of its fee in order to obtain business from the referring party. The danger is that some settlement fees can be inflated to cover payments to this additional party. resulting in a higher total cost to you. There are criminal penalties of both fine and imprisonment for any violation of these provisions of law and the Government may also seek injunctions against violators. There are also provisions for you to recover three times the amount of the charge for any settlement service, through a private lawsuit In any successful action to enforce your right the court may award you court costs together with a fee for your attorney.

In 1983, RESPA was amended to address "controlled business arrangements" which are arrangements in which the party referring a homebuyer to a particular provider of settlement services has a relationship with the provider which involves an ownership or franchise arrangement. Payments made by parties to a controlled business arrangement, such as dividends, may have the same effect as referral fees. Congress recognized a special status for such payments, however, and the law provides that such payments will not be illegal kickbacks or referral fees if the controlled business arrangement is disclosed, a written estimate of charges of the provider given and the borrower is not required to use that particular provider.

Title Companies. Under the law, the seller may not require, as a condition of sale, that title insurance be purchased by the buyer from any particular title company. A violation of this will make the seller liable to you in an amount equal to three times all charges made for the title insurance.

Fair Credit Reporting. There are credit reporting agencies around the Nation which are in the business of compiling credit reports on citizens, covering data such as how you pay your bills, if you have been sued, arrested, filed for bankruptcy, etc. In addition, this file may include your neighbors' and friends' views of your character, general reputation, or manner of living. This latter information is referred to as an "investigative consumer report".

The Fair Credit Reporting Act does not give you the right to inspect or physically handle your actual report at the credit reporting agency, nor to receive an exact copy of the report. But you are entitled to a summary of the report, showing the nature, substance, and sources of the information it contains.

If the terms of your financing have been adversely affected by a credit report you have the right to inspect the summary of that report free of charge or for a small fee. The accuracy of the report can also be challenged, and corrections required to be made. For more detailed information on your credit report rights, contact the Federal Trade Commission (FTC) in Washington, D.C. or the nearest FTC regional office. The FTC Buyer's Guide No.7: Fair Credit Reporting Act is a good summary of this Act.

Equal Credit Opportunity. The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided that the applicant has the capacity to enter into a binding contract) because all or part of the applicant’s income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. If you feel you have been discriminated against by any lender, you may have a private right of legal action against that lender and you may wish to consult an attorney; or you may wish to consult the Federal agency that administers compliance with this law. Inquire of the lender regarding the identity of that agency. You may also contact your regional Board of Governors of the Federal Reserve System about your rights under this Act.

The Right to File Complaints

As with any consumer problems, the place to start if you have a complaint is back at the source of the problem (the lender, settlement agent, broker, etc.).

If that initial effort brings no satisfaction and you think you have suffered damages through violations of the Real Estate Settlement Procedures Act of 1974, as amended, you may be entitled to bring a civil action in the U.S. District Court or in any other court of competent jurisdiction for the District in which the property is located, or where the violation is alleged to have occurred. This is a matter best determined by your lawyer. Any suit you file under RESPA must be brought within one year from the date of the occurrence of the alleged violation. You may have legal remedies under other State or Federal laws in addition to RESPA. RESPA provides for specific legal sanctions only under the provisions which prohibit kickbacks and unearned fees, and which prohibit the seller from requiring the buyer to use a particular title insurer. If you feel you should recover damages for violations of any provision of RESPA, you should consult your lawyer. Most settlement service providers are supervised by some governmental agency at the local, State and/or Federal level. Others are subject to the control of self-policing associations. If you feel a provider of settlement services has violated RESPA, you can address your complaint to the agency or association which has supervisory responsibility over the provider. For the names of such agencies or associations, you will have to check with local and State Governments or consumer agencies operating in your area. You are also encouraged to forward a copy of complaints regarding RESPA violations to the HUD Office of Housing, which has the primary responsibility for administering the RESPA program. Your complaints can lay the foundation for future legislative or administrative actions. Send copies of complaints, and inquiries to:

U.S. Department of Housing and Urban Development
Director, Office of Insured Single Family Housing
Attention: RESPA
451 Seventh Street S.W.
Washington, D.C. 20410

The Home Buyer's Obligations (Repayment of Loan and Maintenance of Home)

At settlement you will sign papers legally obligating you to pay the mortgage loan financing the purchase of your home. You must pay according to the terms of the loan interest rate, amount and due date of each monthly payment, repayment period - specified in the documents signed by you. You will probably sign at settlement a note or bond which is your promise to repay the loan for the unpaid balance of the purchase price. You will also sign a mortgage or deed of trust which pledges your home as security for repayment of the loan.

Failure to make monthly mortgage payments on time may lead to a late payment charge, if provided for in the documents. If you default on the loan by missing payments altogether and do not make them up within a period of time usually set by State law, the documents also specify certain actions which the lender may take to recover the amount owed. Ultimately, after required notice to you, a default could lead to foreclosure and sale of the home which secures your loan. You should also be careful to maintain your home in a proper state of repair, both for your own satisfaction and comfort as the occupant and because the home is security for your loan. The mortgage or deed of trust must in fact specifically obligate you to keep the property in good repair and not allow deterioration.

In the event you do get into financial difficulty you may wish to contact your local HUD office for a copy of two publications, Avoiding Mortgage Default (HUD426 (PA)(7)) and Equity Skimming (Mortgagee Letter 85- 21). The publication on equity skimming warns homeowners about various methods which unscrupulous investors have used to take advantage of homeowners under the pretense of offering to help them out of their financial difficulty. Read the documents carefully at or before settlement and be aware of your obligations as a homeowner.