Legal Issues: RESPA

Topic: Real Estate Settlement

Procedures Act (RESPA)

Answers Your Legal Questions

In 1974, Congress enacted the Real Estate Settlement Procedures Act (RESPA) to address problems in the real estate settlement process including: abusive practices that increased costs to homebuyers lack of understanding about the settlement process and its costs.

RESPA's purpose is twofold:

  • to provide consumers with information about the real estate mortgage transaction and the costs associated with it
  • to prohibit certain practices, such as referral fees between settlement service providers, that result in higher costs and reduced quality to consumers

Reminder about HUD Advisory Opinion under RESPA regarding agreements between Real Estate Practitioners and Home Warranty Companies.

This is just a reminder to IAR members that in February, 2008 HUD wrote an Advisory Opinion which seemed to indicate that there are no services, either administrative or marketing, that a real estate brokerage company or agent could provide on behalf of a home warranty company that would justify the home warranty company paying the real estate brokerage company or agent for those services. In other words, it appears that HUD believes any payment from a home warranty company to a real estate brokerage company or agent would violate RESPA provisions. NAR wrote a letter to HUD requesting a withdrawal or modification of that Advisory Opinion and to date has received no response from HUD. An Advisory Opinion is not necessarily binding but it certainly indicates the view of the regulator (HUD) if they are faced with such a situation. As a result, it is important for our members to be very careful and that they review any agreements and any work they are doing that relate to home warranty companies with their own attorneys and to analyze these activities in light of this Advisory Opinion. We will keep you posted as to any new developments on this issue as we follow the situation through NAR. As of December, 2011 there is legislation pending at the federal level that asks to remove home warranty companies from the settlement service provider category if it is not required by the lender. (IAR Legal Counsel, January 2012)


Home Warranty Clarification

Updated January 2013

Breakout Text: 

Copyright Illinois REALTORS®. This content cannot be reprinted in parts or in its entirety without expressed written consent to Illinois REALTORS®.