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Flood Hazard Areas.
Most lenders will not lend you money to buy a home in a flood
hazard area unless you pay for flood insurance. Some government
loan programs will not allow you to purchase a home that is located
in a flood hazard area. Your lender may charge you a fee to check
for flood hazards. You should be notified if flood insurance
is required. If a change in flood insurance maps brings your
home within a flood hazard area after your loan is made, your
lender or servicer may require you to buy flood insurance at
that time. Selecting a Settlement Agent Settlement practices
vary from locality to locality, and even within the same county
or city. Settlements may be conducted by lenders, title insurance
companies, escrow companies, real estate brokers or attorneys
for the buyer or seller. You may save money by shopping for the
settlement agent.
In some parts of the country (particularly western states), settlement may be
conducted by an escrow agent. The parties sign an escrow agreement which requires
them to provide certain documents and funds to the agent. Unlike other types
of settlement, the parties do not meet around a table to sign documents. Ask
how your settlement will be handled.
Securing Title Services
Title insurance is usually required by the lender to protect the lender against
loss resulting from claims by others against your new home. In some states, attorneys
offer title insurance as part of their services in examining title and providing
a title opinion. The attorney's fee may include the title insurance premium.
In other states, a title insurance company or title agent directly provides the
itle insurance. Owners Policy. A lenders title insurance policy does not protect
you. Similarly, the prior owners policy does not protect you. If you want to
protect yourself from claims by others against your new home, you will need an
owner's policy. When a claim does occur, it can be financially devastating to
an owner who is uninsured. If you buy an owner's policy, it is usually much less
expensive if you buy it at the same time and with the same insurer as the lender's
policy.
Choice of Title Insurer. Under RESPA, the seller may not require
you, as a condition of the sale, to purchase title insurance from any particular
title company. Generally, your lender will require title insurance from a company
that is acceptable to it. In most cases you can shop for and choose a company
that meets the lenders standards.
Review Initial Title Report. In many areas, a few days or weeks before the settlement
or closing of the escrow, the title insurance company will issue a Commitment
to Insure or preliminary report or binder containing a summary of any defects
in title which have een identified by the title search, as well as any exceptions
from the title insurance policys coverage. The commitment is usually sent to
the lender for use until the title insurance policy is issued at or after the
settlement. You can arrange to have a copy sent to you (or to your attorney)
so that you can object if there are matters affecting the title which you did
not agree to accept when you signed the agreement of sale.
Coverage & Cost Savings. To save money on title insurance,
compare rates among various title insurance companies. Ask what services and
limitations on coverage are provided under each policy so that you can decide
whether coverage purchased at a higher rate may be better for your needs. However,
in many states, title insurance premium rates are established by the state and
may not be negotiable. If you are buying a home which has changed hands within
the last several years, ask your title company about a "reissue rate," which
would be cheaper. If you are buying a newly constructed home, make certain your
title insurance covers claims by contractors. These claims are known as mechanics
liens in some parts of the country. Survey. Lenders or title insurance companies
often require a survey to mark the boundaries of the property. A survey is a
drawing of the property showing the perimeter oundaries and marking the location
of the house and other improvements. You may be able to avoid the cost of a
complete survey if you can locate the person who previously surveyed the property
and request an update. Check with your lender or title insurance company on
whether an updated survey is acceptable.
RESPA Disclosures
One of the purposes of RESPA is to help consumers become better shoppers for
settlement services. RESPA requires that borrowers receive disclosures at various
times. Some disclosures spell out the costs associated with the settlement, outline
lender ervicing and escrow account practices and describe business relationships
between settlement service providers.
Good Faith Estimate of Settlement Costs. RESPA requires
that, when you apply for a loan, the lender or mortgage broker give
you a Good Faith Estimate of settlement service charges you will likely
have to pay. If you do not get this Good Faith Estimate when you apply,
the lender or mortgage broker must mail or deliver it to you within
the next three business days.
Be aware that the amounts listed on the Good Faith Estimate are only estimates.
Actual costs may vary. Changing market conditions can affect prices. Remember
that the lender's estimate is not a guarantee. Keep your Good Faith Estimate
so you can compare it with the final settlement costs and ask the lender questions
about any changes. Servicing Disclosure Statement. RESPA requires the lender
or mortgage broker to tell you in writing, when you apply for a loan or within
the next three business days, whether it expects hat someone else will be servicing
your loan (collecting your payments).
Affiliated Business Arrangements. Sometimes, several
businesses that offer settlement services are owned or controlled by
a common corporate parent. These businesses are known as affiliates.
When a lender, real estate broker, or other participant in your settlement
refers you to an affiliate for a settlement service (such as when a
real estate broker refers you to a mortgage broker affiliate), RESPA
requires the referring party to give you an Affiliated Business Arrangement
Disclosure. This form will remind you that you are generally not required,
with certain exceptions, to use the affiliate and are free to shop
for other providers.
HUD-1 Settlement Statement. One business day before the settlement, you have
the right to inspect the HUD-1 Settlement Statement. This statement itemizes
the services provided to you and the fees charged to you. This form 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. The fully completed HUD-1 Settlement Statement generally must
be delivered or mailed to you at or before the settlement. In cases where there
is no settlement meeting, the escrow agent will mail you the HUD-1 after settlement,
and you ave no right to inspect it one day before settlement.
Escrow Account Operation & Disclosures. Your lender
may require you to establish an escrow or impound account to insure
that your taxes and insurance premiums are paid on time. If so, you
will probably have to pay an initial amount at the settlement to start
the account and an additional amount with each months regular payment.
Your escrow account payments may include a cushion or an extra amount
to ensure that the lender has enough money to make the payments when
due. RESPA limits the amount of the cushion to a maximum of two months
of escrow payments.
At the settlement or within the next 45 days, the person servicing your loan
must give you an initial escrow account statement. That form will show all of
the payments which are expected to be deposited into the escrow account and all
of the disbursements which re expected to be made from the escrow account during
the year ahead. Your lender or servicer will review the escrow account annually
and send you a disclosure each year which shows the prior years activity and
any adjustments necessary in the escrow payments that you will make in the forthcoming
year.
Processing Your Loan Application
Here are several federal laws which provide you with protection during the processing
of your loan. The Equal Credit Opportunity Act (ECOA), the Fair Housing Act,
and the Fair Credit Reporting Act (FCRA) prohibit discrimination and provide
you with the right to certain credit information. No Discrimination. ECOA prohibits
lenders from discriminating against credit applicants on the basis of race, color,
religion, national rigin, sex, marital status, age, the fact that all or part
of the applicant's income comes from any public assistance program, or the fact
that the applicant has exercised any right under any federal consumer credit
protection law. To help government agencies monitor ECOA compliance, your lender
or mortgage broker must request certain information regarding your race, sex,
marital status and age when taking your loan application.
The Fair Housing Act also prohibits discrimination in residential real estate
transactions on the basis of race, color, religion, sex, handicap, familial status
or national origin. This prohibition applies to both the sale of a home to you
and the decision by a lender to give you a loan to help pay for that home. Finally,
your locality or state may also have a law which prohibits discrimination.
Frequently, there are differences in the types and amounts of settlement costs
charged to the borrower -- for example, some borrowers are charged greater fees
for mortgages depending on their credit worthiness. These differences may be
justified or they ay be unlawfully discriminatory. It is important that you examine
your settlement documents closely and do not hesitate to compare your settlement
costs with those of your friends and neighbors.
If you feel you have been discriminated against by a lender or anyone else in
the home buying process, you may file a private legal action against that person
or complain to a state, local or federal administrative agency. You may want
to talk to an attorney or you may want to ask the federal agency that enforces
ECOA (the Board of Governors of the Federal Reserve System) or the Fair Housing
Act (HUD) about your rights under these laws.
Prompt Action/Notification of Action Taken. Your lender
or mortgage broker must act on your application and inform you of the
action taken no later than 30 days after it receives your completed application.
Your application will not be considered complete, and the 30 day period
will not begin, until you provide to your lender or mortgage broker all
of the material and information requested.
Statement of Reasons for Denial. If your application
is denied, ECOA requires your lender or mortgage broker to give you a
statement of the specific reasons why it denied your application or tell
you how you can obtain such a statement. The notice will also tell you
which federal agency to contact if you think the lender or mortgage broker
has illegally discriminated against you. Obtaining Your Credit Report.
The Fair Credit Reporting Act (FCRA) requires a lender or mortgage broker
that denies your loan application to tell you whether it based its decision
on information contained in your credit report. If that information was
a reason for the denial, the notice will tell you where you can get a
free copy of the credit report. You have the right to dispute the accuracy
or completeness of any information in your credit report. If you dispute
any information, the credit reporting agency that prepared the report
must investigate free of charge and notify you of the results of the
investigation.
Obtaining Your Appraisal. The lender needs to know
if the value of your home is enough to secure the loan. To get this
information, the lender typically hires an appraiser, who gives a professional
opinion about the value of your home. ECOA requires your lender or
mortgage broker to tell you that you have a right to get a copy of
the appraisal report. The notice will also tell you how and when you
can ask for a copy. RESPA Protection Against Illegal Referral Fees
ESPA was enacted because Congress felt that consumers needed protection
from "... unnecessarily high settlement charges caused by certain
abusive practices that have developed in some areas of the country." Some
of the practices Congress was concerned about are discussed below.
Most professionals in the settlement business provide good service
and do not engage in these practices.
Prohibited Fees. It is illegal under RESPA for anyone
to pay or receive a fee, kickback or anything of value because they
agree to refer settlement service business to a particular person or
organization. For example, your mortgage lender may not pay your real
estate broker $250 for referring you to the lender. It is also illegal
for anyone to accept a fee or part of a fee for services if that person
has not actually performed settlement services for the fee. For example,
a lender may not add to a third partys fee, such as an appraisal fee,
and keep the difference.
Permitted Payments. RESPA does not prevent title companies,
mortgage brokers, appraisers, attorneys, settlement/closing agents
and others, who actually perform a service in connection with the mortgage
loan or the settlement, from being paid for the reasonable value of
their work. If a participant in your settlement appears to be taking
a fee without having done any work, you should advise that person or
company of the RESPA referral fee prohibitions. You may also speak
with your attorney or complain to a regulator.
Penalties. It is a crime for someone to pay or receive
an illegal referral fee. The penalty can be a fine, imprisonment or
both. You may be entitled to recover three times the amount of the
charge for any settlement service by bringing a private lawsuit. If
you are successful, the court may also award you court costs and your
attorneys fees.
Private Lawsuits. If you have a problem, the best
place to have it fixed is at its source (the lender, settlement agent,
broker, etc.). If that approach fails and you think you have suffered
because of a violation of RESPA, ECOA or any other law, you may be
entitled to sue in a federal or state court. This is a matter you should
discuss with your attorney.
Government Agencies. Most settlement service providers
are supervised by a governmental agency at the local, state and/or
federal level, some of which are listed in the Appendix to this Booklet.
Your states Attorney General may have a consumer affairs division.
If you feel that a provider of settlement services has violated RESPA
or any other law, you can complain to that agency or association. You
may also send a copy of your complaint to the HUD Office of Consumer & Regulatory
Affairs.
Servicing Errors. If you have a question any time
during the life of your loan, RESPA requires the company collecting
your loan payments (your servicer) to respond to you. Write to your
servicer and call it a qualified written request under Section 6 of
RESPA. A qualified written request should be a separate letter and
not mailed with the payment coupon. Describe the problem and include
your name and account number. The servicer must investigate and make
appropriate corrections within 60 business days.
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