Title 24--Housing and Urban Development CHAPTER XX--OFFICE OF ASSISTANT SECRETARY OF HOUSING--FEDERAL HOUSING COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT PART 3500--REAL ESTATE SETTLEMENT PROCEDURE ACT |
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This part may be referred to as Regulation X. |
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(a) Statutory terms. All terms defined in RESPA (12 U.S.C. 2602) are
used in accordance with their statutory meaning unless otherwise defined
in paragraph (b) of this section or elsewhere in this part.
(b) Other terms. As used in this part:
Application means the submission of a borrower's financial
information in anticipation of a credit decision, whether written or
computer-generated, relating to a federally related mortgage loan. If
the submission does not state or identify a specific property, the
submission is an application for a pre-qualification and not an
application for a federally related mortgage loan under this part. The
subsequent addition of an identified property to the submission converts
the submission to
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an application for a federally related mortgage loan.
Business day means a day on which the offices of the business entity
are open to the public for carrying on substantially all of the entity's
business functions.
Dealer means, in the case of property improvement loans, a seller,
contractor, or supplier of goods or services. In the case of
manufactured home loans, ``dealer'' means one who engages in the
business of manufactured home retail sales.
Dealer loan or dealer consumer credit contract means, generally, any
arrangement in which a dealer assists the borrower in obtaining a
federally related mortgage loan from the funding lender and then assigns
the dealer's legal interests to the funding lender and receives the net
proceeds of the loan. The funding lender is the lender for the purposes
of the disclosure requirements of this part. If a dealer is a
``creditor'' as defined under the definition of ``federally related
mortgage loan'' in this part, the dealer is the lender for purposes of
this part.
Effective date of transfer is defined in section 6(i)(1) of RESPA
(12 U.S.C. 2605(i)(1)). In the case of a home equity conversion mortgage
or reverse mortgage as referenced in this section, the effective date of
transfer is the transfer date agreed upon by the transferee servicer and
the transferor servicer.
Federally related mortgage loan or mortgage loan means as follows:
(1) Any loan (other than temporary financing, such as a construction
loan):
(i) That is secured by a first or subordinate lien on residential
real property, including a refinancing of any secured loan on
residential real property upon which there is either:
(A) Located or, following settlement, will be constructed using
proceeds of the loan, a structure or structures designed principally for
occupancy of from one to four families (including individual units of
condominiums and cooperatives and including any related interests, such
as a share in the cooperative or right to occupancy of the unit); or
(B) Located or, following settlement, will be placed using proceeds
of the loan, a manufactured home; and
(ii) For which one of the following paragraphs applies. The loan:
(A) Is made in whole or in part by any lender that is either
regulated by or whose deposits or accounts are insured by any agency of
the Federal Government;
(B) Is made in whole or in part, or is insured, guaranteed,
supplemented, or assisted in any way:
(1) By the Secretary or any other officer or agency of the Federal
Government; or
(2) Under or in connection with a housing or urban development
program administered by the Secretary or a housing or related program
administered by any other officer or agency of the Federal Government;
(C) Is intended to be sold by the originating lender to the Federal
National Mortgage Association, the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation (or its
successors), or a financial institution from which the loan is to be
purchased by the Federal Home Loan Mortgage Corporation (or its
successors);
(D) Is made in whole or in part by a ``creditor'', as defined in
section 103(f) of the Consumer Credit Protection Act (15 U.S.C.
1602(f)), that makes or invests in residential real estate loans
aggregating more than $1,000,000 per year. For purposes of this
definition, the term ``creditor'' does not include any agency or
instrumentality of any State, and the term ``residential real estate
loan'' means any loan secured by residential real property, including
single-family and multifamily residential property;
(E) Is originated either by a dealer or, if the obligation is to be
assigned to any maker of mortgage loans specified in paragraphs (1)(ii)
(A) through (D) of this definition, by a mortgage broker; or
(F) Is the subject of a home equity conversion mortgage, also
frequently called a ``reverse mortgage,'' issued by any maker of
mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this
definition.
(2) Any installment sales contract, land contract, or contract for
deed on otherwise qualifying residential property is a federally related
mortgage
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loan if the contract is funded in whole or in part by proceeds of a loan
made by any maker of mortgage loans specified in paragraphs (1)(ii) (A)
through (D) of this definition.
(3) If the residential real property securing a mortgage loan is not
located in a State, the loan is not a federally related mortgage loan.
Good faith estimate means an estimate, prepared in accordance with
section 5 of RESPA (12 U.S.C. 2604), of charges that a borrower is
likely to incur in connection with a settlement.
HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) means
the statement that is prescribed by the Secretary in this part for
setting forth settlement charges in connection with either the purchase
or the refinancing (or other subordinate lien transaction) of 1- to 4-
family residential property.
Lender means, generally, the secured creditor or creditors named in
the debt obligation and document creating the lien. For loans originated
by a mortgage broker that closes a federally related mortgage loan in
its own name in a table funding transaction, the lender is the person to
whom the obligation is initially assigned at or after settlement. A
lender, in connection with dealer loans, is the lender to whom the loan
is assigned, unless the dealer meets the definition of creditor as
defined under ``federally related mortgage loan'' in this section. See
also Sec. 3500.5(b)(7), secondary market transactions.
Managerial employee means an employee of a settlement service
provider who does not routinely deal directly with consumers, and who
either hires, directs, assigns, promotes, or rewards other employees or
independent contractors, or is in a position to formulate, determine, or
influence the policies of the employer. Neither the term ``managerial
employee'' nor the term ``employee'' includes independent contractors,
but a managerial employee may hold a real estate brokerage or agency
license.
Manufactured home is defined in Sec. 3280.2 of this title.
Mortgage broker means a person (not an employee or exclusive agent
of a lender) who brings a borrower and lender together to obtain a
federally related mortgage loan, and who renders services as described
in the definition of ``settlement services'' in this section. A loan
correspondent approved under Sec. 202.8 of this title for Federal
Housing Administration programs is a mortgage broker for purposes of
this part.
Mortgaged property means the real property that is security for the
federally related mortgage loan.
Person is defined in section 3(5) of RESPA (12 U.S.C. 2602(5)).
Public Guidance Documents means documents that HUD has published in
the Federal Register, and that it may amend from time-to-time by
publication in the Federal Register. These documents are also available
from HUD at the address indicated in 24 CFR 3500.3.
Refinancing means a transaction in which an existing obligation that
was subject to a secured lien on residential real property is satisfied
and replaced by a new obligation undertaken by the same borrower and
with the same or a new lender. The following shall not be treated as a
refinancing, even when the existing obligation is satisfied and replaced
by a new obligation with the same lender (this definition of
``refinancing'' as to transactions with the same lender is similar to
Regulation Z, 12 CFR 226.20(a)):
(1) A renewal of a single payment obligation with no change in the
original terms;
(2) A reduction in the annual percentage rate as computed under the
Truth in Lending Act with a corresponding change in the payment
schedule;
(3) An agreement involving a court proceeding;
(4) A workout agreement, in which a change in the payment schedule
or change in collateral requirements is agreed to as a result of the
consumer's default or delinquency, unless the rate is increased or the
new amount financed exceeds the unpaid balance plus earned finance
charges and premiums for continuation of allowable insurance; and
(5) The renewal of optional insurance purchased by the consumer that
is added to an existing transaction, if disclosures relating to the
initial purchase were provided.
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Regulation Z means the regulations issued by the Board of Governors
of the Federal Reserve System (12 CFR part 226) to implement the Federal
Truth in Lending Act (15 U.S.C. 1601 et seq.), and includes the
Commentary on Regulation Z.
Required use means a situation in which a person must use a
particular provider of a settlement service in order to have access to
some distinct service or property, and the person will pay for the
settlement service of the particular provider or will pay a charge
attributable, in whole or in part, to the settlement service. However,
the offering of a package (or combination of settlement services) or the
offering of discounts or rebates to consumers for the purchase of
multiple settlement services does not constitute a required use. Any
package or discount must be optional to the purchaser. The discount must
be a true discount below the prices that are otherwise generally
available, and must not be made up by higher costs elsewhere in the
settlement process.
RESPA means the Real Estate Settlement Procedures Act of 1974, 12
U.S.C. 2601 et seq.
Servicer means the person responsible for the servicing of a
mortgage loan (including the person who makes or holds a mortgage loan
if such person also services the mortgage loan). The term does not
include:
(1) The Federal Deposit Insurance Corporation (FDIC) or the
Resolution Trust Corporation (RTC), in connection with assets acquired,
assigned, sold, or transferred pursuant to section 13(c) of the Federal
Deposit Insurance Act or as receiver or conservator of an insured
depository institution; and
(2) The Federal National Mortgage Corporation (FNMA); the Federal
Home Loan Mortgage Corporation (Freddie Mac); the RTC; the FDIC; HUD,
including the Government National Mortgage Association (GNMA) and the
Federal Housing Administration (FHA) (including cases in which a
mortgage insured under the National Housing Act (12 U.S.C. 1701 et seq.)
is assigned to HUD); the National Credit Union Administration (NCUA);
the Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA); and the Department of Veterans Affairs (VA), in any case
in which the assignment, sale, or transfer of the servicing of the
mortgage loan is preceded by termination of the contract for servicing
the loan for cause, commencement of proceedings for bankruptcy of the
servicer, or commencement of proceedings by the FDIC or RTC for
conservatorship or receivership of the servicer (or an entity by which
the servicer is owned or controlled).
Servicing means receiving any scheduled periodic payments from a
borrower pursuant to the terms of any mortgage loan, including amounts
for escrow accounts under section 10 of RESPA (12 U.S.C. 2609), and
making the payments to the owner of the loan or other third parties of
principal and interest and such other payments with respect to the
amounts received from the borrower as may be required pursuant to the
terms of the mortgage servicing loan documents or servicing contract. In
the case of a home equity conversion mortgage or reverse mortgage as
referenced in this section, servicing includes making payments to the
borrower.
Settlement means the process of executing legally binding documents
regarding a lien on property that is subject to a federally related
mortgage loan. This process may also be called ``closing'' or ``escrow''
in different jurisdictions.
Settlement service means any service provided in connection with a
prospective or actual settlement, including, but not limited to, any one
or more of the following:
(1) Origination of a federally related mortgage loan (including, but
not limited to, the taking of loan applications, loan processing, and
the underwriting and funding of such loans);
(2) Rendering of services by a mortgage broker (including
counseling, taking of applications, obtaining verifications and
appraisals, and other loan processing and origination services, and
communicating with the borrower and lender);
(3) Provision of any services related to the origination, processing
or funding of a federally related mortgage loan;
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(4) Provision of title services, including title searches, title
examinations, abstract preparation, insurability determinations, and the
issuance of title commitments and title insurance policies;
(5) Rendering of services by an attorney;
(6) Preparation of documents, including notarization, delivery, and
recordation;
(7) Rendering of credit reports and appraisals;
(8) Rendering of inspections, including inspections required by
applicable law or any inspections required by the sales contract or
mortgage documents prior to transfer of title;
(9) Conducting of settlement by a settlement agent and any related
services;
(10) Provision of services involving mortgage insurance;
(11) Provision of services involving hazard, flood, or other
casualty insurance or homeowner's warranties;
(12) Provision of services involving mortgage life, disability, or
similar insurance designed to pay a mortgage loan upon disability or
death of a borrower, but only if such insurance is required by the
lender as a condition of the loan;
(13) Provision of services involving real property taxes or any
other assessments or charges on the real property;
(14) Rendering of services by a real estate agent or real estate
broker; and
(15) Provision of any other services for which a settlement service
provider requires a borrower or seller to pay.
Special information booklet means the booklet prepared by the
Secretary pursuant to section 5 of RESPA (12 U.S.C. 2604) to help
persons understand the nature and costs of settlement services. The
Secretary publishes the form of the special information booklet in the
Federal Register. The Secretary may issue or approve additional booklets
or alternative booklets by publication of a Notice in the Federal
Register.
State means any State of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, and any territory or
possession of the United States.
Table funding means a settlement at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan to
the person advancing the funds. A table-funded transaction is not a
secondary market transaction (see Sec. 3500.5(b)(7)).
Title company means any institution, or its duly authorized agent,
that is qualified to issue title insurance.
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 29252, June 7, 1996; 61
FR 58475, Nov. 15, 1996; 62 FR 20088, Apr. 24, 1997]
Effective Date Note: At 61 FR 29252, June 7, 1996, Sec. 3500.2(b)
was amended by adding a definition of ``managerial employee'', effective
Oct. 7, 1996. At 61 FR 51782, Oct. 4, 1996, the effective date was
delayed until further notice.
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Sec. 3500.3 Questions or suggestions from public and copies of public guidance documents. |
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Any questions or suggestions from the public regarding RESPA, or requests for copies of HUD Public Guidance Documents, should be directed to the Director, Office of Consumer and Regulatory Affairs, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410-8000, rather than to HUD field offices. Legal questions may be directed to the Assistant General Counsel, GSE/RESPA Division, at this address. |
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Sec. 3500.4 Reliance upon rule, regulation or interpretation by HUD. |
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(a) Rule, regulation or interpretation. (1) For purposes of sections
19 (a) and (b) of RESPA (12 U.S.C. 2617 (a) and (b)) only the following
constitute a rule, regulation or interpretation of the Secretary:
(i) All provisions, including appendices, of this part. Any other
document referred to in this part is not incorporated in this part
unless it is specifically set out in this part;
(ii) Any other document that is published in the Federal Register by
the Secretary and states that it is an ``interpretation,''
``interpretive rule,'' ``commentary,'' or a ``statement of policy'' for
purposes of section 19(a) of RESPA. Such documents will be prepared by
HUD staff and counsel. Such documents may be revoked or amended by a
subsequent document published in the Federal Register by the Secretary.
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(2) A ``rule, regulation, or interpretation thereof by the
Secretary'' for purposes of section 19(b) of RESPA (12 U.S.C. 2617(b))
shall not include the special information booklet prescribed by the
Secretary or any other statement or issuance, whether oral or written,
by an officer or representative of the Department of Housing and Urban
Development (HUD), letter or memorandum by the Secretary, General
Counsel, any Assistant Secretary or other officer or employee of HUD,
preamble to a regulation or other issuance of HUD, Public Guidance
Document, report to Congress, pleading, affidavit or other document in
litigation, pamphlet, handbook, guide, telegraphic communication,
explanation, instructions to forms, speech or other material of any
nature which is not specifically included in paragraph (a)(1) of this
section.
(b) Unofficial interpretations; staff discretion. In response to
requests for interpretation of matters not adequately covered by this
part or by an official interpretation issued under paragraph (a)(1)(ii)
of this section, unofficial staff interpretations may be provided at the
discretion of HUD staff or counsel. Written requests for such
interpretations should be directed to the address indicated in
Sec. 3500.3. Such interpretations provide no protection under section
19(b) of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or counsel will
not issue unofficial interpretations on matters adequately covered by
this part or by official interpretations or commentaries issued under
paragraph (a)(1)(ii) of this section.
(c) All informal counsel's opinions and staff interpretations issued
before November 2, 1992, were withdrawn as of that date. Courts and
administrative agencies, however, may use previous opinions to determine
the validity of conduct under the previous Regulation X.
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(a) Applicability. RESPA and this part apply to all federally
related mortgage loans, except for the exemptions provided in paragraph
(b) of this section.
(b) Exemptions. (1) A loan on property of 25 acres or more.
(2) Business purpose loans. An extension of credit primarily for a
business, commercial, or agricultural purpose, as defined by Regulation
Z, 12 CFR 226.3(a)(1). Persons may rely on Regulation Z in determining
whether the exemption applies.
(3) Temporary financing. Temporary financing, such as a construction
loan. The exemption for temporary financing does not apply to a loan
made to finance construction of 1- to 4-family residential property if
the loan is used as, or may be converted to, permanent financing by the
same lender or is used to finance transfer of title to the first user.
If a lender issues a commitment for permanent financing, with or without
conditions, the loan is covered by this part. Any construction loan for
new or rehabilitated 1- to 4-family residential property, other than a
loan to a bona fide builder (a person who regularly constructs 1- to 4-
family residential structures for sale or lease), is subject to this
part if its term is for two years or more. A ``bridge loan'' or ``swing
loan'' in which a lender takes a security interest in otherwise covered
1- to 4-family residential property is not covered by RESPA and this
part.
(4) Vacant land. Any loan secured by vacant or unimproved property,
unless within two years from the date of the settlement of the loan, a
structure or a manufactured home will be constructed or placed on the
real property using the loan proceeds. If a loan for a structure or
manufactured home to be placed on vacant or unimproved property will be
secured by a lien on that property, the transaction is covered by this
part.
(5) Assumption without lender approval. Any assumption in which the
lender does not have the right expressly to approve a subsequent person
as the borrower on an existing federally related mortgage loan. Any
assumption in which the lender's permission is both required and
obtained is covered by RESPA and this part, whether or not the lender
charges a fee for the assumption.
(6) Loan conversions. Any conversion of a federally related mortgage
loan to different terms that are consistent with provisions of the
original mortgage instrument, as long as a new note
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is not required, even if the lender charges an additional fee for the
conversion.
(7) Secondary market transactions. A bona fide transfer of a loan
obligation in the secondary market is not covered by RESPA and this
part, except as set forth in section 6 of RESPA (12 U.S.C. 2605) and
Sec. 3500.21. In determining what constitutes a bona fide transfer, HUD
will consider the real source of funding and the real interest of the
funding lender. Mortgage broker transactions that are table-funded are
not secondary market transactions. Neither the creation of a dealer loan
or dealer consumer credit contract, nor the first assignment of such
loan or contract to a lender, is a secondary market transaction (see
Sec. 3500.2.)
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 58475, Nov. 15, 1996]
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Sec. 3500.6 Special information booklet at time of loan application. |
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(a) Lender to provide special information booklet. Subject to the
exceptions set forth in this paragraph, the lender shall provide a copy
of the special information booklet to a person from whom the lender
receives, or for whom the lender prepares, a written application for a
federally related mortgage loan. When two or more persons apply together
for a loan, the lender is in compliance if the lender provides a copy of
the booklet to one of the persons applying.
(1) The lender shall provide the special information booklet by
delivering it or placing it in the mail to the applicant not later than
three business days (as that term is defined in Sec. 3500.2) after the
application is received or prepared. However, if the lender denies the
borrower's application for credit before the end of the three-business-
day period, then the lender need not provide the booklet to the
borrower. If a borrower uses a mortgage broker, the mortgage broker
shall distribute the special information booklet and the lender need not
do so. The intent of this provision is that the applicant receive the
special information booklet at the earliest possible date.
(2) In the case of a federally related mortgage loan involving an
open-ended credit plan, as defined in Sec. 226.2(a)(20) of Regulation Z
(12 CFR), a lender or mortgage broker that provides the borrower with a
copy of the brochure entitled ``When Your Home is On the Line: What You
Should Know About Home Equity Lines of Credit'', or any successor
brochure issued by the Board of Governors of the Federal Reserve System,
is deemed to be in compliance with this section.
(3) In the categories of transactions set forth at the end of this
paragraph, the lender or mortgage broker does not have to provide the
booklet to the borrower. Under the authority of section 19(a) of RESPA
(12 U.S.C. 2617(a)), the Secretary may issue a revised or separate
special information booklet that deals with these transactions, or the
Secretary may chose to endorse the forms or booklets of other Federal
agencies. In such an event, the requirements for delivery by lenders and
the availability of the booklet or alternate materials for these
transactions will be set forth in a Notice in the Federal Register. This
paragraph shall apply to the following transactions:
(i) Refinancing transactions;
(ii) Closed-end loans, as defined in 12 CFR 226.2(a)(10) of
Regulation Z, when the lender takes a subordinate lien;
(iii) Reverse mortgages; and
(iv) Any other federally related mortgage loan whose purpose is not
the purchase of a 1- to 4-family residential property.
(b) Revision. The Secretary may from time to time revise the special
information booklet by publishing a notice in the Federal Register.
(c) Reproduction. The special information booklet may be reproduced
in any form, provided that no change is made other than as provided
under paragraph (d) of this section. The special information booklet may
not be made a part of a larger document for purposes of distribution
under RESPA and this section. Any color, size and quality of paper, type
of print, and method of reproduction may be used so long as the booklet
is clearly legible.
(d) Permissible changes. (1) No changes to, deletions from, or
additions to the special information booklet currently prescribed by the
Secretary shall be made other than those specified in this paragraph (d)
or any others approved in
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writing by the Secretary. A request to the Secretary for approval of any
changes shall be submitted in writing to the address indicated in
Sec. 3500.3, stating the reasons why the applicant believes such
changes, deletions or additions are necessary.
(2) The cover of the booklet may be in any form and may contain any
drawings, pictures or artwork, provided that the words ``settlement
costs'' are used in the title. Names, addresses and telephone numbers of
the lender or others and similar information may appear on the cover,
but no discussion of the matters covered in the booklet shall appear on
the cover.
(3) The special information booklet may be translated into languages
other than English.
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(a) Lender to provide. Except as provided in this paragraph (a) or
paragraph (f) of this section, the lender shall provide all applicants
for a federally related mortgage loan with a good faith estimate of the
amount of or range of charges for the specific settlement services the
borrower is likely to incur in connection with the settlement. The
lender shall provide the good faith estimate required under this section
(a suggested format is set forth in appendix C of this part) either by
delivering the good faith estimate or by placing it in the mail to the
loan applicant, not later than three business days after the application
is received or prepared.
(1) If the lender denies the application for a federally related
mortgage loan before the end of the three-business-day period, the
lender need not provide the denied borrower with a good faith estimate.
(2) For ``no cost'' or ``no point'' loans, the charges to be shown
on the good faith estimate include any payments to be made to affiliated
or independent settlement service providers. These payments should be
shown as P.O.C. (Paid Outside of Closing) on the Good Faith Estimate and
the HUD-1 or HUD-1A.
(3) In the case of dealer loans, the lender is responsible for
provision of the good faith estimate, either directly or by the dealer.
(4) If a mortgage broker is the exclusive agent of the lender,
either the lender or the mortgage broker shall provide the good faith
estimate within three business days after the mortgage broker receives
or prepares the application.
(b) Mortgage broker to provide. In the event an application is
received by a mortgage broker who is not an exclusive agent of the
lender, the mortgage broker must provide a good faith estimate within
three days of receiving a loan application based on his or her knowledge
of the range of costs (a suggested format is set forth in appendix C of
this part). As long as the mortgage broker has provided the good faith
estimate, the funding lender is not required to provide an additional
good faith estimate, but the funding lender is responsible for
ascertaining that the good faith estimate has been delivered. If the
application for mortgage credit is denied before the end of the three-
business-day period, the mortgage broker need not provide the denied
borrower with a good faith estimate.
(c) Content of good faith estimate. A good faith estimate consists
of an estimate, as a dollar amount or range, of each charge which:
(1) Will be listed in section L of the HUD-1 or HUD-1A in accordance
with the instructions set forth in appendix A to this part; and
(2) That the borrower will normally pay or incur at or before
settlement based upon common practice in the locality of the mortgaged
property. Each such estimate must be made in good faith and bear a
reasonable relationship to the charge a borrower is likely to be
required to pay at settlement, and must be based upon experience in the
locality of the mortgaged property. As to each charge with respect to
which the lender requires a particular settlement service provider to be
used, the lender shall make its estimate based upon the lender's
knowledge of the amounts charged by such provider.
(d) Form of good faith estimate. A suggested good faith estimate
form is set forth in appendix C to this part and is in compliance with
the requirements of the Act except for any additional requirements of
paragraph (e) of this section. The good faith estimate may be
[[Page 256]]
provided together with disclosures required by the Truth in Lending Act,
15 U.S.C. 1601 et seq., so long as all required material for the good
faith estimate is grouped together. The lender may include additional
relevant information, such as the name/signature of the applicant and
loan officer, date, and information identifying the loan application and
property, as long as the form remains clear and concise and the
additional information is not more prominent than the required material.
(e) Particular providers required by lender. (1) If the lender
requires the use (see Sec. 3500.2, ``required use'') of a particular
provider of a settlement service, other than the lender's own employees,
and also requires the borrower to pay any portion of the cost of such
service, then the good faith estimate must:
(i) Clearly state that use of the particular provider is required
and that the estimate is based on the charges of the designated
provider;
(ii) Give the name, address, and telephone number of each provider;
and
(iii) Describe the nature of any relationship between each such
provider and the lender. Plain English references to the relationship
should be utilized, e.g., ``X is a depositor of the lender,'' ``X is a
borrower from the lender,'' ``X has performed 60% of the lender's
settlements in the past year.'' (The lender is not required to keep
detailed records of the percentages of use. Similar language, such as
``X was used [regularly] [frequently] in our settlements the past year''
is also sufficient for the purposes of this paragraph.) In the event
that more than one relationship exists, each should be disclosed.
(2) For purposes of paragraph (e)(1) of this section, a
``relationship'' exists if:
(i) The provider is an associate of the lender, as that term is
defined in 12 U.S.C. 2602(8);
(ii) Within the last 12 months, the provider has maintained an
account with the lender or had an outstanding loan or credit arrangement
with the lender; or
(iii) The lender has repeatedly used or required borrowers to use
the services of the provider within the last 12 months.
(3) Except for a provider that is the lender's chosen attorney,
credit reporting agency, or appraiser, if the lender is in an affiliated
business relationship (see Sec. 3500.15) with a provider, the lender may
not require the use of that provider.
(4) If the lender maintains a controlled list of required providers
(five or more for each discrete service) or relies on a list maintained
by others, and at the time of application the lender has not yet decided
which provider will be selected from that list, then the lender may
satisfy the requirements of this section if the lender:
(i) Provides the borrower with a written statement that the lender
will require a particular provider from a lender-controlled or -approved
list; and
(ii) Provides the borrower in the Good Faith Estimate the range of
costs for the required provider(s), and provides the name of the
specific provider and the actual cost on the HUD-1 or HUD-1A.
(f) Open-end lines of credit (home-equity plans) under Truth in
Lending Act. In the case of a federally related mortgage loan involving
an open-end line of credit (home-equity plan) covered under the Truth in
Lending Act and Regulation Z, a lender or mortgage broker that provides
the borrower with the disclosures required by 12 CFR 226.5b of
Regulation Z at the time the borrower applies for such loan shall be
deemed to satisfy the requirements of this section.
(Approved by the Office of Management and Budget under control number
2502-0265)
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 58476, Nov. 15, 1996]
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(a) Use by settlement agent. The settlement agent shall use the HUD-
1 settlement statement in every settlement involving a federally related
mortgage loan in which there is a borrower and a seller. For
transactions in which there is a borrower and no seller, such as
refinancing loans or subordinate lien loans, the HUD-1 may be utilized
by using the borrower's side of the HUD-1 statement. Alternatively, the
form HUD-1A may be used for these transactions. Either the HUD-1 or the
HUD-
[[Page 257]]
1A, as appropriate, shall be used for every RESPA-covered transaction,
unless its use is specifically exempted, but the HUD-1 or HUD-1A may be
modified as permitted under this part. The use of the HUD-1 or HUD-1A is
exempted for open-end lines of credit (home-equity plans) covered by the
Truth in Lending Act and Regulation Z.
(b) Charges to be stated. The settlement agent shall complete the
HUD-1 or HUD-1A in accordance with the instructions set forth in
appendix A to this part.
(c) Aggregate accounting at settlement. (1) After itemizing
individual deposits in the 1000 series using single-item accounting, the
servicer shall make an adjustment based on aggregate accounting. This
adjustment equals the difference in the deposit required under aggregate
accounting and the sum of the deposits required under single-item
accounting. The computation steps for both accounting methods are set
out in Sec. 3500.17(d). The adjustment will always be a negative number
or zero (-0-). The settlement agent shall enter the aggregate adjustment
amount on a final line in the 1000 series of the HUD-1 or HUD-1A
statement.
(2) During the phase-in period, as defined in Sec. 3500.17(b), an
alternative procedure is available. The settlement agent may initially
calculate the 1000 series deposits for the HUD-1 and HUD-1A settlement
statement using single-item analysis with only a one-month cushion
(unless the mortgage loan documents indicate a smaller amount). In the
escrow account analysis conducted within 45 days of settlement, however,
the servicer shall adjust the escrow account to reflect the aggregate
accounting balance. Appendix E to this part sets out examples of
aggregate analysis. Appendix A to this part contains instructions for
completing the HUD-1 or HUD-1A settlement statements using an aggregate
analysis adjustment and the alternative process during the phase-in
period.
(Approved by the Office of Management and Budget under control numbers
2502-0265 and 2502-0491)
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 58476, Nov. 15, 1996]
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(a) Permissible changes--HUD-1. The following changes and insertions
are permitted when the HUD-1 settlement statement is reproduced:
(1) The person reproducing the HUD-1 may insert its business name
and logotype in section A and may rearrange, but not delete, the other
information that appears in section A.
(2) The name, address, and other information regarding the lender
and settlement agent may be printed in sections F and H, respectively.
(3) Reproduction of the HUD-1 must conform to the terminology,
sequence, and numbering of line items as presented in lines 100-1400.
However, blank lines or items listed in lines 100-1400 that are not used
locally or in connection with mortgages by the lender may be deleted,
except for the following: Lines 100, 120, 200, 220, 300, 301, 302, 303,
400, 420, 500, 520, 600, 601, 602, 603, 700, 800, 900, 1000, 1100, 1200,
1300, and 1400. The form may be shortened correspondingly. The number of
a deleted item shall not be used for a substitute or new item, but the
number of a blank space on the HUD-1 may be used for a substitute or new
item.
(4) Charges not listed on the HUD-1, but that are customary locally
or pursuant to the lender's practice, may be inserted in blank spaces.
Where existing blank spaces on the HUD-1 are insufficient, additional
lines and spaces may be added and numbered in sequence with spaces on
the HUD-1.
(5) The following variations in layout and format are within the
discretion of persons reproducing the HUD-1 and do not require prior HUD
approval: size of pages; tint or color of pages; size and style of type
or print; vertical spacing between lines or provision for additional
horizontal space on lines (for example, to provide sufficient space for
recording time periods used in prorations); printing of the HUD-1
contents on separate pages, on the front and back of a single page, or
on one continuous page; use of multicopy tear-out sets; printing on
rolls for computer purposes; reorganization of sections B through I,
when necessary to accommodate computer printing; and manner of placement
of the HUD number, but
[[Page 258]]
not the OMB approval number, neither of which may be deleted. The
designation of the expiration date of the OMB number may be deleted. Any
changes in the HUD number or OMB approval number may be announced by
notice in the Federal Register, rather than by amendment of this part.
(6) The borrower's information and the seller's information may be
provided on separate pages.
(7) Signature lines may be added.
(8) The HUD-1 may be translated into languages other than English.
(9) An additional page may be attached to the HUD-1 for the purpose
of including customary recitals and information used locally in real
estate settlements; for example, breakdown of payoff figures, a
breakdown of the borrower's total monthly mortgage payments, check
disbursements, a statement indicating receipt of funds, applicable
special stipulations between buyer and seller, and the date funds are
transferred. If space permits, such information may be added at the end
of the HUD-1.
(10) As required by HUD/FHA in FHA-insured loans.
(11) As allowed by Sec. 3500.17, relating to an initial escrow
account statement.
(b) Permissible changes--HUD-1A. The changes and insertions on the
HUD-1 permitted under paragraph (a) of this section are also permitted
when the HUD-1A settlement statement is reproduced, except the changes
described in paragraphs (a)(3) and (6) of this section.
(c) Written approval. Any other deviation in the HUD-1 or HUD-1A
forms is permissible only upon receipt of written approval of the
Secretary. A request to the Secretary for approval shall be submitted in
writing to the address indicated in Sec. 3500.3 and shall state the
reasons why the applicant believes such deviation is needed. The
prescribed form(s) must be used until approval is received.
(Approved by the Office of Management and Budget under control numbers
2502-0265 and 2502-0491)
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Sec. 3500.10 One-day advance inspection of HUD-1 or HUD-1A settlement statement; delivery; recordkeeping. |
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(a) Inspection one day prior to settlement upon request by the
borrower. The settlement agent shall permit the borrower to inspect the
HUD-1 or HUD-1A settlement statement, completed to set forth those items
that are known to the settlement agent at the time of inspection, during
the business day immediately preceding settlement. Items related only to
the seller's transaction may be omitted from the HUD-1.
(b) Delivery. The settlement agent shall provide a completed HUD-1
or HUD-1A to the borrower, the seller (if there is one), the lender (if
the lender is not the settlement agent), and/or their agents. When the
borrower's and seller's copies of the HUD-1 or HUD-1A differ as
permitted by the instructions in appendix A to this part, both copies
shall be provided to the lender (if the lender is not the settlement
agent). The settlement agent shall deliver the completed HUD-1 or HUD-1A
at or before the settlement, except as provided in paragraphs (c) and
(d) of this section.
(c) Waiver. The borrower may waive the right to delivery of the
completed HUD-1 or HUD-1A no later than at settlement by executing a
written waiver at or before settlement. In such case, the completed HUD-
1 or HUD-1A shall be mailed or delivered to the borrower, seller, and
lender (if the lender is not the settlement agent) as soon as
practicable after settlement.
(d) Exempt transactions. When the borrower or the borrower's agent
does not attend the settlement, or when the settlement agent does not
conduct a meeting of the parties for that purpose, the transaction shall
be exempt from the requirements of paragraphs (a) and (b) of this
section, except that the HUD-1 or HUD-1A shall be mailed or delivered as
soon as practicable after settlement.
(e) Recordkeeping. The lender shall retain each completed HUD-1 or
HUD-1A and related documents for five years after settlement, unless the
lender disposes of its interest in the mortgage and does not service the
mortgage. In that case, the lender shall provide its copy of the HUD-1
or HUD-1A to the owner or servicer of the mortgage as a part of the
transfer of the loan file. Such owner or servicer shall retain the HUD-1
or HUD-1A for the remainder of the five-year period. The Secretary
[[Page 259]]
shall have the right to inspect or require copies of records covered by
this paragraph (e).
(Approved by the Office of Management and Budget under control number
2502-0265)
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The provisions of this part requiring or permitting mailing of documents shall be deemed to be satisfied by placing the document in the mail (whether or not received by the addressee) addressed to the addresses stated in the loan application or in other information submitted to or obtained by the lender at the time of loan application or submitted or obtained by the lender or settlement agent, except that a revised address shall be used where the lender or settlement agent has been expressly informed in writing of a change in address. |
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No fee shall be imposed or charge made upon any other person, as a part of settlement costs or otherwise, by a lender in connection with a federally related mortgage loan made by it (or a loan for the purchase of a manufactured home), or by a servicer (as that term is defined under 12 U.S.C. 2605(i)(2)) for or on account of the preparation and distribution of the HUD-1 or HUD-1A settlement statement, escrow account statements required pursuant to section 10 of RESPA (12 U.S.C. 2609), or statements required by the Truth in Lending Act, 15 U.S.C. 1601 et seq. |
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(a) State laws that are inconsistent with RESPA or this part are
preempted to the extent of the inconsistency. However, RESPA and these
regulations do not annul, alter, affect, or exempt any person subject to
their provisions from complying with the laws of any State with respect
to settlement practices, except to the extent of the inconsistency.
(b) Upon request by any person, the Secretary is authorized to
determine if inconsistencies with State law exist; in doing so, the
Secretary shall consult with appropriate Federal agencies.
(1) The Secretary may not determine that a State law or regulation
is inconsistent with any provision of RESPA or this part, if the
Secretary determines that such law or regulation gives greater
protection to the consumer.
(2) In determining whether provisions of State law or regulations
concerning affiliated business arrangements are inconsistent with RESPA
or this part, the Secretary may not construe those provisions that
impose more stringent limitations on affiliated business arrangements as
inconsistent with RESPA so long as they give more protection to
consumers and/or competition.
(c) Any person may request the Secretary to determine whether an
inconsistency exists by submitting to the address indicated in
Sec. 3500.3, a copy of the State law in question, any other law or
judicial or administrative opinion that implements, interprets or
applies the relevant provision, and an explanation of the possible
inconsistency. A determination by the Secretary that an inconsistency
with State law exists will be made by publication of a notice in the
Federal Register. ``Law'' as used in this section includes regulations
and any enactment which has the force and effect of law and is issued by
a State or any political subdivision of a State.
(d) A specific preemption of conflicting State laws regarding
notices and disclosures of mortgage servicing transfers is set forth in
Sec. 3500.21(h).
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 58476, Nov. 15, 1996]
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Sec. 3500.14 Prohibition against kickbacks and unearned fees. |
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(a) Section 8 violation. Any violation of this section is a
violation of section 8 of RESPA (12 U.S.C. 2607) and is subject to
enforcement as such under Sec. 3500.19.
(b) No referral fees. No person shall give and no person shall
accept any fee, kickback or other thing of value pursuant to any
agreement or understanding, oral or otherwise, that business incident to
or part of a settlement service involving a federally related mortgage
loan shall be referred to any person. Any referral of a settlement
service is not a compensable service, except as set forth in
Sec. 3500.14(g)(1). A
[[Page 260]]
company may not pay any other company or the employees of any other
company for the referral of settlement service business.
(c) No split of charges except for actual services performed. No
person shall give and no person shall accept any portion, split, or
percentage of any charge made or received for the rendering of a
settlement service in connection with a transaction involving a
federally related mortgage loan other than for services actually
performed. A charge by a person for which no or nominal services are
performed or for which duplicative fees are charged is an unearned fee
and violates this section. The source of the payment does not determine
whether or not a service is compensable. Nor may the prohibitions of
this part be avoided by creating an arrangement wherein the purchaser of
services splits the fee.
(d) Thing of value. This term is broadly defined in section 3(2) of
RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies,
things, discounts, salaries, commissions, fees, duplicate payments of a
charge, stock, dividends, distributions of partnership profits,
franchise royalties, credits representing monies that may be paid at a
future date, the opportunity to participate in a money-making program,
retained or increased earnings, increased equity in a parent or
subsidiary entity, special bank deposits or accounts, special or unusual
banking terms, services of all types at special or free rates, sales or
rentals at special prices or rates, lease or rental payments based in
whole or in part on the amount of business referred, trips and payment
of another person's expenses, or reduction in credit against an existing
obligation. The term ``payment'' is used throughout Secs. 3500.14 and
3500.15 as synonymous with the giving or receiving any ``thing of
value'' and does not require transfer of money.
(e) Agreement or understanding. An agreement or understanding for
the referral of business incident to or part of a settlement service
need not be written or verbalized but may be established by a practice,
pattern or course of conduct. When a thing of value is received
repeatedly and is connected in any way with the volume or value of the
business referred, the receipt of the thing of value is evidence that it
is made pursuant to an agreement or understanding for the referral of
business.
(f) Referral. (1) A referral includes any oral or written action
directed to a person which has the effect of affirmatively influencing
the selection by any person of a provider of a settlement service or
business incident to or part of a settlement service when such person
will pay for such settlement service or business incident thereto or pay
a charge attributable in whole or in part to such settlement service or
business.
(2) A referral also occurs whenever a person paying for a settlement
service or business incident thereto is required to use (see
Sec. 3500.2, ``required use'') a particular provider of a settlement
service or business incident thereto.
(g) Fees, salaries, compensation, or other payments. (1) Section 8
of RESPA permits:
(i) A payment to an attorney at law for services actually rendered;
(ii) A payment by a title company to its duly appointed agent for
services actually performed in the issuance of a policy of title
insurance;
(iii) A payment by a lender to its duly appointed agent or
contractor for services actually performed in the origination,
processing, or funding of a loan;
(iv) A 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;
(v) A payment pursuant to cooperative brokerage and referral
arrangements or agreements between real estate agents and real estate
brokers. (The statutory exemption restated in this paragraph refers only
to fee divisions within real estate brokerage arrangements when all
parties are acting in a real estate brokerage capacity, and has no
applicability to any fee arrangements between real estate brokers and
mortgage brokers or between mortgage brokers.);
(vi) Normal promotional and educational activities that are not
conditioned on the referral of business and
[[Page 261]]
that do not involve the defraying of expenses that otherwise would be
incurred by persons in a position to refer settlement services or
business incident thereto; or
(vii) An employer's payment to its own employees for any referral
activities.
(2) The Department may investigate high prices to see if they are
the result of a referral fee or a split of a fee. If the payment of a
thing of value bears no reasonable relationship to the market value of
the goods or services provided, then the excess is not for services or
goods actually performed or provided. These facts may be used as
evidence of a violation of section 8 and may serve as a basis for a
RESPA investigation. High prices standing alone are not proof of a RESPA
violation. The value of a referral (i.e., the value of any additional
business obtained thereby) is not to be taken into account in
determining whether the payment exceeds the reasonable value of such
goods, facilities or services. The fact that the transfer of the thing
of value does not result in an increase in any charge made by the person
giving the thing of value is irrelevant in determining whether the act
is prohibited.
(3) Multiple services. When a person in a position to refer
settlement service business, such as an attorney, mortgage lender, real
estate broker or agent, or developer or builder, receives a payment for
providing additional settlement services as part of a real estate
transaction, such payment must be for services that are actual,
necessary and distinct from the primary services provided by such
person. For example, for an attorney of the buyer or seller to receive
compensation as a title agent, the attorney must perform core title
agent services (for which liability arises) separate from attorney
services, including the evaluation of the title search to determine the
insurability of the title, the clearance of underwriting objections, the
actual issuance of the policy or policies on behalf of the title
insurance company, and, where customary, issuance of the title
commitment, and the conducting of the title search and closing.
(h) Recordkeeping. Any documents provided pursuant to this section
shall be retained for five (5) years from the date of execution.
(i) Appendix B of this part. Illustrations in appendix B of this
part demonstrate some of the requirements of this section.
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 29252, June 7, 1996; 61
FR 58476, Nov. 15, 1996]
Effective Date Note: At 61 FR 29252, June 7, 1996, Sec. 3500.14 was
amended by revising the last sentence of paragraph (b), the heading of
paragraph (g), and paragraph (g)(1), effective Oct. 7, 1996. At 61 FR
51782, Oct. 4, 1996, the effective date was delayed until further
notice. For the convenience of the user, the new text is set forth as
follows:
Sec. 3500.14 Prohibition against kickbacks and unearned fees.
* * * * *
(b) * * * A business entity (whether or not in an affiliate
relationship) may not pay any other business entity or the employees of
any other business entity for the referral of settlement service
business.
* * * * *
(g) Exemptions for fees, salaries, compensation, or other payments.
(1) The following are permissible:
(i) A payment to an attorney at law for services actually rendered;
(ii) A payment by a title company to its duly appointed agent for
services actually performed in the issuance of a policy of title
insurance;
(iii) A payment by a lender to its duly appointed agent or
contractor for services actually performed in the origination,
processing, or funding of a loan;
(iv) A 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;
(v) A payment pursuant to cooperative brokerage and referral
arrangements or agreements between real estate agents and real estate
brokers. (The statutory exemption restated in this paragraph refers only
to fee divisions within real estate brokerage arrangements when all
parties are acting in a real estate brokerage capacity, and has no
applicability to any fee arrangements between real estate brokers and
mortgage brokers or between mortgage brokers.)
(vi) Normal promotional and educational activities that are not
conditioned on the referral of business and do not involve the defraying
of expenses that otherwise would be
[[Page 262]]
incurred by persons in a position to refer settlement services or
business incident thereto;
(vii) A payment by an employer to its own bona fide employee for
generating business for that employer;
(viii) In a controlled business arrangement, a payment by an
employer of a bonus to a managerial employee based on criteria relating
to performance (such as profitability, capture rate, or other
thresholds) of a business entity in the controlled business arrangement.
However, the amount of such bonus may not be calculated as a multiple of
the number or value of referrals of settlement service business to a
business entity in a controlled business arrangement; and
(ix)(A) A payment by an employer to its bona fide employee for the
referral of settlement service business to a settlement service provider
that has an affiliate relationship with the employer or in which the
employer has a direct or beneficial ownership interest of more than 1
percent, if the following conditions are met:
(1) The employee does not perform settlement services in any
transaction; and
(2) Before the referral, the employee provides to the person being
referred a written disclosure in the format of the Controlled Business
Arrangement Disclosure Statement, set forth in appendix D to this part.
(B) For purposes of this paragraph (g)(1)(ix), the marketing of a
settlement service or product of an affiliated entity, including the
collection and conveyance of information or the taking of an application
or order for an affiliated entity, does not constitute the performance
of a settlement service. Under this paragraph (g)(1)(ix), marketing of a
settlement service or product may include incidental communications with
the consumer after the application or order, such as providing the
consumer with information about the status of an application or order;
marketing shall not include serving as the ongoing point of contact for
coordinating the delivery and provision of settlement services. |
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(a) General. An affiliated business arrangement is defined in
section 3(7) of RESPA (12 U.S.C. 2602(7)).
(b) Violation and exemption. An affiliated business arrangement is
not a violation of section 8 of RESPA (12 U.S.C. 2607) and of
Sec. 3500.14 if the conditions set forth in this section are satisfied.
Paragraph (b)(1) of this section shall not apply to the extent it is
inconsistent with section 8(c)(4)(A) of RESPA (12 U.S.C. 2607(c)(4)(A)).
(1) The person making each referral has provided to each person
whose business is referred a written disclosure, in the format of the
Affiliated Business Arrangement Disclosure Statement set forth in
appendix D of this part, of the nature of the relationship (explaining
the ownership and financial interest) between the provider of settlement
services (or business incident thereto) and the person making the
referral and of an estimated charge or range of charges generally made
by such provider (which describes the charge using the same terminology,
as far as practical, as section L of the HUD-1 settlement statement).
The disclosures must be provided on a separate piece of paper no later
than the time of each referral or, if the lender requires use of a
particular provider, the time of loan application, except that:
(i) Where a lender makes the referral to a borrower, the condition
contained in paragraph (b)(1) of this section may be satisfied at the
time that the good faith estimate or a statement under Sec. 3500.7(d) is
provided; and
(ii) Whenever an attorney or law firm requires a client to use a
particular title insurance agent, the attorney or law firm shall provide
the disclosures no later than the time the attorney or law firm is
engaged by the client. Failure to comply with the disclosure
requirements of this section may be overcome if the person making a
referral can prove by a preponderance of the evidence that procedures
reasonably adopted to result in compliance with these conditions have
been maintained and that any failure to comply with these conditions was
unintentional and the result of a bona fide error. An error of legal
judgment with respect to a person's obligations under RESPA is not a
bona fide error. Administrative and judicial interpretations of section
130(c) of the Truth in Lending Act shall not be binding interpretations
of the preceding sentence or section 8(d)(3) of RESPA (12 U.S.C.
2607(d)(3)).
(2) No person making a referral has required (as defined in
Sec. 3500.2, ``required use'') any person to use any particular provider
of settlement services
[[Page 263]]
or business incident thereto, except if such person is a lender, for
requiring a buyer, borrower or seller to pay for the services of an
attorney, credit reporting agency, or real estate appraiser chosen by
the lender to represent the lender's interest in a real estate
transaction, or except if such person is an attorney or law firm for
arranging for issuance of a title insurance policy for a client,
directly as agent or through a separate corporate title insurance agency
that may be operated as an adjunct to the law practice of the attorney
or law firm, as part of representation of that client in a real estate
transaction.
(3) The only thing of value that is received from the arrangement
other than payments listed in Sec. 3500.14(g) is a return on an
ownership interest or franchise relationship.
(i) In an affiliated business arrangement:
(A) Bona fide dividends, and capital or equity distributions,
related to ownership interest or franchise relationship, between
entities in an affiliate relationship, are permissible; and
(B) Bona fide business loans, advances, and capital or equity
contributions between entities in an affiliate relationship (in any
direction), are not prohibited--so long as they are for ordinary
business purposes and are not fees for the referral of settlement
service business or unearned fees.
(ii) A return on an ownership interest does not include:
(A) Any payment which has as a basis of calculation no apparent
business motive other than distinguishing among recipients of payments
on the basis of the amount of their actual, estimated or anticipated
referrals;
(B) Any payment which varies according to the relative amount of
referrals by the different recipients of similar payments; or
(C) A payment based on an ownership, partnership or joint venture
share which has been adjusted on the basis of previous relative
referrals by recipients of similar payments.
(iii) Neither the mere labelling of a thing of value, nor the fact
that it may be calculated pursuant to a corporate or partnership
organizational document or a franchise agreement, will determine whether
it is a bona fide return on an ownership interest or franchise
relationship. Whether a thing of value is such a return will be
determined by analyzing facts and circumstances on a case by case basis.
(iv) A return on franchise relationship may be a payment to or from
a franchisee but it does not include any payment which is not based on
the franchise agreement, nor any payment which varies according to the
number or amount of referrals by the franchisor or franchisee or which
is based on a franchise agreement which has been adjusted on the basis
of a previous number or amount of referrals by the franchiser or
franchisees. A franchise agreement may not be constructed to insulate
against kickbacks or referral fees.
(c) Definitions. As used in this section:
(1) Associate is defined in section 3(8) of RESPA (12 U.S.C.
2602(8)).
(2) Affiliate relationship means the relationship among business
entities where one entity has effective control over the other by virtue
of a partnership or other agreement or is under common control with the
other by a third entity or where an entity is a corporation related to
another corporation as parent to subsidiary by an identity of stock
ownership.
(3) Beneficial ownership means the effective ownership of an
interest in a provider of settlement services or the right to use and
control the ownership interest involved even though legal ownership or
title may be held in another person's name.
(4) Control, as used in the definitions of ``associate'' and
``affiliate relationship,'' means that a person:
(i) Is a general partner, officer, director, or employer of another
person;
(ii) Directly or indirectly or acting in concert with others, or
through one or more subsidiaries, owns, holds with power to vote, or
holds proxies representing, more than 20 percent of the voting interests
of another person;
(iii) Affirmatively influences in any manner the election of a
majority of the directors of another person; or
(iv) Has contributed more than 20 percent of the capital of the
other person.
[[Page 264]]
(5) Direct ownership means the holding of legal title to an interest
in a provider of settlement service except where title is being held for
the beneficial owner.
(6) Franchise is defined in 16 CFR 436.2(a).
(7) Franchisor is defined in 16 CFR 436.2(c).
(8) Franchisee is defined in 16 CFR 436.2(d).
(9) Person who is in a position to refer settlement service business
means any real estate broker or agent, lender, mortgage broker, builder
or developer, attorney, title company, title agent, or other person
deriving a significant portion of his or her gross income from providing
settlement services.
(d) Recordkeeping. Any documents provided pursuant to this section
shall be retained for 5 years after the date of execution.
(e) Appendix B of this part. Illustrations in appendix B of this
part demonstrate some of the requirements of this section.
[61 FR 13233, Mar. 26, 1996, as amended at 61 FR 29252, June 7, 1996; 61
FR 58476, Nov. 15, 1996]
Effective Date Note: At 61 FR 29252, June 7, 1996, Sec. 3500.15 was
amended by revising the introductory text of paragraph (b)(1), effective
Oct. 7, 1996. At 61 FR 51782, Oct. 4, 1996, the effective date was
delayed until further notice. For the convenience of the user, the new
text is set forth as follows:
Sec. 3500.15 Controlled business arrangements.
* * * * *
(b) * * *
(1) Prior to the referral, the person making a referral has provided
to each person whose business is referred a written disclosure, in the
format of the Controlled Business Arrangement Disclosure Statement set
forth in appendix D of this part. This disclosure shall specify the
nature of the relationship (explaining the ownership and financial
interest) between the person performing settlement services (or business
incident thereto) and the person making the referral, and shall describe
the estimated charge or range of charges (using the same terminology, as
far as practical, as section L of the HUD-1 or HUD-1A settlement
statement) generally made by the provider of settlement services. The
disclosure must be provided on a separate piece of paper no later than
the time of each referral or, if the lender requires the use of a
particular provider, the time of loan application, except that:
|
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No seller of property that will be purchased with the assistance of a federally related mortgage loan shall violate section 9 of RESPA (12 U.S.C. 2608). Section 3500.2 defines ``required use'' of a provider of a settlement service. Section 3500.19(c) explains the liability of a seller for a violation of this section. |
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(a) General. This section sets out the requirements for an escrow
account that a lender establishes in connection with a federally related
mortgage loan. It sets limits for escrow accounts using calculations
based on monthly payments and disbursements within a calendar year. If
an escrow account involves biweekly or any other payment period, the
requirements in this section shall be modified accordingly. A HUD Public
Guidance Document entitled ``Biweekly Payments--Example'' provides
examples of biweekly accounting and a HUD Public Guidance Document
entitled ``Annual Escrow Account Disclosure Statement--Example''
provides examples of a 3-year accounting cycle that may be used in
accordance with paragraph (c)(9) of this section. A HUD Public Guidance
Document entitled ``Consumer Disclosure for Voluntary Escrow Account
Payments'' provides a model disclosure format that originators and
servicers are encouraged, but not required, to provide to consumers when
the originator or servicer anticipates a substantial increase in
disbursements from the escrow account after the first year of the loan.
The disclosures in that model format may be combined with or included in
the Initial Escrow Account Statement required in Sec. 3500.17(g).
(b) Definitions. As used in this section:
Acceptable accounting method means an accounting method that a
servicer uses to conduct an escrow account analysis for an escrow
account subject to the provisions of Sec. 3500.17(c).
[[Page 265]]
Aggregate (or) composite analysis, hereafter called aggregate
analysis, means an accounting method a servicer uses in conducting an
escrow account analysis by computing the sufficiency of escrow account
funds by analyzing the account as a whole. Appendix E to this part sets
forth examples of aggregate escrow account analyses.
Annual escrow account statement means a statement containing all of
the information set forth in Sec. 3500.17(i). As noted in
Sec. 3500.17(i), a servicer shall submit an annual escrow account
statement to the borrower within 30 calendar days of the end of the
escrow account computation year, after conducting an escrow account
analysis.
Conversion date means the date three years after the publication
date of the rule adding this section (i.e., October 27, 1997) by which
date all servicers shall use aggregate analysis.
Cushion or reserve (hereafter cushion) means funds that a servicer
may require a borrower to pay into an escrow account to cover
unanticipated disbursements or disbursements made before the borrower's
payments are available in the account, as limited by Sec. 3500.17(c).
Deficiency is the amount of a negative balance in an escrow account.
As noted in Sec. 3500.17(f), if a servicer advances funds for a
borrower, then the servicer must perform an escrow account analysis
before seeking repayment of the deficiency.
Delivery means the placing of a document in the United States mail,
first-class postage paid, addressed to the last known address of the
recipient. Hand delivery also constitutes delivery.
Disbursement date means the date on which the servicer actually pays
an escrow item from the escrow account.
Escrow account means any account that a servicer establishes or
controls on behalf of a borrower to pay taxes, insurance premiums
(including flood insurance), or other charges with respect to a
federally related mortgage loan, including charges that the borrower and
servicer have voluntarily agreed that the servicer should collect and
pay. The definition encompasses any account established for this
purpose, including a ``trust account'', ``reserve account'', ``impound
account'', or other term in different localities. An ``escrow account''
includes any arrangement where the servicer adds a portion of the
borrower's payments to principal and subsequently deducts from principal
the disbursements for escrow account items. For purposes of this
section, the term ``escrow account'' excludes any account that is under
the borrower's total control.
Escrow account analysis means the accounting that a servicer
conducts in the form of a trial running balance for an escrow account
to:
(1) Determine the appropriate target balances;
(2) Compute the borrower's monthly payments for the next escrow
account computation year and any deposits needed to establish or
maintain the account; and
(3) Determine whether shortages, surpluses or deficiencies exist.
Escrow account computation year is a 12-month period that a servicer
establishes for the escrow account beginning with the borrower's initial
payment date. The term includes each 12-month period thereafter, unless
a servicer chooses to issue a short year statement under the conditions
stated in Sec. 3500.17(i)(4).
Escrow account item or separate item means any separate expenditure
category, such as ``taxes'' or ``insurance'', for which funds are
collected in the escrow account for disbursement. An escrow account item
with installment payments, such as local property taxes, remains one
escrow account item regardless of multiple disbursement dates to the tax
authority.
Initial escrow account statement means the first disclosure
statement that the servicer delivers to the borrower concerning the
borrower's escrow account. The initial escrow account statement shall
meet the requirements of Sec. 3500.17(g) and be in substantially the
format set forth in Sec. 3500.17(h).
Installment payment means one of two or more payments payable on an
escrow account item during an escrow account computation year. An
example of an installment payment is where a jurisdiction bills
quarterly for taxes.
Payment due date means the date each month when the borrower's
[[Page 266]]
monthly payment to an escrow account is due to the servicer. The initial
payment date is the borrower's first payment due date to an escrow
account.
Penalty means a late charge imposed by the payee for paying after
the disbursement is due. It does not include any additional charge or
fee imposed by the payee associated with choosing installment payments
as opposed to annual payments or for choosing one installment plan over
another.
Phase-in period means the period beginning on May 24, 1995, and
ending on the conversion date, i.e., October 27, 1997, by which date all
servicers shall use the aggregate accounting method in conducting escrow
account analyses.
Post-rule account means an escrow account established in connection
with a federally related mortgage loan whose settlement date is on or
after May 24, 1995.
Pre-accrual is a practice some servicers use to require borrowers to
deposit funds, needed for disbursement and maintenance of a cushion, in
the escrow account some period before the disbursement date. Pre-accrual
is subject to the limitations of Sec. 3500.17(c).
Pre-rule account is an escrow account established in connection with
a federally related mortgage loan whose settlement date is before May
24, 1995.
Shortage means an amount by which a current escrow account balance
falls short of the target balance at the time of escrow analysis.
Single-item analysis means an accounting method servicers use in
conducting an escrow account analysis by computing the sufficiency of
escrow account funds by considering each escrow item separately.
Appendix E to this part sets forth examples of single-item analysis.
Submission (of an escrow account statement) means the delivery of
the statement.
Surplus means an amount by which the current escrow account balance
exceeds the target balance for the account.
System of recordkeeping means the servicer's method of keeping
information that reflects the facts relating to that servicer's handling
of the borrower's escrow account, including, but not limited to, the
payment of amounts from the escrow account and the submission of initial
and annual escrow account statements to borrowers.
Target balance means the estimated month end balance in an escrow
account that is just sufficient to cover the remaining disbursements
from the escrow account in the escrow account computation year, taking
into account the remaining scheduled periodic payments, and a cushion,
if any.
Trial running balance means the accounting process that derives the
target balances over the course of an escrow account computation year.
Section 3500.17(d) provides a description of the steps involved in
performing a trial running balance.
(c) Limits on payments to escrow accounts; acceptable accounting
methods to determine limits. (1) A lender or servicer (hereafter
servicer) shall not require a borrower to deposit into any escrow
account, created in connection with a federally related mortgage loan,
more than the following amounts:
(i) Charges at settlement or upon creation of an escrow account. At
the time a servicer creates an escrow account for a borrower, the
servicer may charge the borrower an amount sufficient to pay the charges
respecting the mortgaged property, such as taxes and insurance, which
are attributable to the period from the date such payment(s) were last
paid until the initial payment date. The ``amount sufficient to pay'' is
computed so that the lowest month end target balance projected for the
escrow account computation year is zero (-0-) (see Step 2 in appendix E
to this part). In addition, the servicer may charge the borrower a
cushion that shall be no greater than one-sixth (\1/6\) of the estimated
total annual payments from the escrow account.
(ii) Charges during the life of the escrow account. Throughout the
life of an escrow account, the servicer may charge the borrower a
monthly sum equal to one-twelfth (\1/12\) of the total annual escrow
payments which the servicer reasonably anticipates paying from the
account. In addition, the servicer may add an amount to maintain a
cushion no greater than one-sixth (\1/6\) of the estimated total annual
payments from the account. However,
[[Page 267]]
if a servicer determines through an escrow account analysis that there
is a shortage or deficiency, the servicer may require the borrower to
pay additional deposits to make up the shortage or eliminate the
deficiency, subject to the limitations set forth in Sec. 3500.17(f).
(2) Escrow analysis at creation of escrow account. Before
establishing an escrow account, the servicer must conduct an escrow
account analysis to determine the amount the borrower must deposit into
the escrow account (subject to the limitations of paragraph (c)(1)(i) of
this section), and the amount of the borrower's periodic payments into
the escrow account (subject to the limitations of paragraph (c)(1)(ii)
of this section). In conducting the escrow account analysis, the
servicer must estimate the disbursement amounts according to paragraph
(c)(7) of this section. Pursuant to paragraph (k) of this section, the
servicer must use a date on or before the deadline to avoid a penalty as
the disbursement date for the escrow item and comply with any other
requirements of paragraph (k) of this section. Upon completing the
initial escrow account analysis, the servicer must prepare and deliver
an initial escrow account statement to the borrower, as set forth in
paragraph (g) of this section. The servicer must use the escrow account
analysis to determine whether a surplus, shortage, or deficiency exists
and must make any adjustments to the account pursuant to paragraph (f)
of this section.
(3) Subsequent escrow account analyses. For each escrow account, the
servicer must conduct an escrow account analysis at the completion of
the escrow account computation year to determine the borrower's monthly
escrow account payments for the next computation year, subject to the
limitations of paragraph (c)(1)(ii) of this section. In conducting the
escrow account analysis, the servicer must estimate the disbursement
amounts according to paragraph (c)(7) of this section. Pursuant to
paragraph (k) of this section, the servicer must use a date on or before
the deadline to avoid a penalty as the disbursement date for the escrow
item and comply with any other requirements of paragraph (k) of this
section. The servicer must use the escrow account analysis to determine
whether a surplus, shortage, or deficiency exists, and must make any
adjustments to the account pursuant to paragraph (f) of this section.
Upon completing an escrow account analysis, the servicer must prepare
and submit an annual escrow account statement to the borrower, as set
forth in paragraph (i) of this section.
(4) Acceptable accounting methods to determine escrow limits. The
following are acceptable accounting methods that servicers may use in
conducting an escrow account analysis.
(i) Pre-rule accounts. For pre-rule accounts, servicers may use
either single-item analysis or aggregate-analysis during the phase-in
period. In conducting the escrow account analysis, servicers shall use
``month-end'' accounting. Under month-end accounting, the timing of the
disbursements and payments within the month is irrelevant. As of the
conversion date, all pre-rule accounts shall comply with the
requirements for post-rule accounts in paragraph (c)(4)(ii) of this
section. During the phase-in period, the transfer of servicing of a pre-
rule account to another servicer does not convert the account to a post-
rule account. After May 24, 1995, refinancing transactions (as defined
in Sec. 3500.2) shall comply with the requirements for post-rule
accounts.
(ii) Post-rule accounts. For post-rule accounts, servicers shall use
aggregate accounting to conduct an escrow account analysis. In
conducting the escrow account analysis, servicers shall use ``month-
end'' accounting. Under month-end accounting, the timing of the
disbursements and payments within the month is irrelevant.
(5) Cushion. For post-rule accounts, the cushion shall be no greater
than one-sixth (\1/6\) of the estimated total annual disbursements from
the escrow account using aggregate analysis accounting. For pre-rule
accounts, the cushion may not exceed the total of one-sixth of the
estimated annual disbursements for each escrow account item using
single-item analysis accounting. In determining the cushion using
single-item analysis, a servicer
[[Page 268]]
shall not divide an escrow account item into sub-accounts, even if the
payee requires installment payments.
(6) Restrictions on pre-accrual. For pre-rule accounts, a servicer
shall not require any pre-accrual that results in the escrow account
balance exceeding the limits of paragraph (c)(1) of this section. In
addition, if the mortgage documents in a pre-rule account are silent
about the amount of pre-accrual, the servicer shall not require in
excess of one month of pre-accrual, subject to the additional
limitations provided in paragraph (c)(8) of this section. For post-rule
accounts, a servicer shall not practice pre-accrual.
(7) Servicer estimates of disbursement amounts. To conduct an escrow
account analysis, the servicer shall estimate the amount of escrow
account items to be disbursed. If the servicer knows the charge for an
escrow item in the next computation year, then the servicer shall use
that amount in estimating disbursement amounts. If the charge is unknown
to the servicer, the servicer may base the estimate on the preceding
year's charge, or the preceding year's charge as modified by an amount
not exceeding the most recent year's change in the national Consumer
Price Index for all urban consumers (CPI, all items). In cases of
unassessed new construction, the servicer may base an estimate on the
assessment of comparable residential property in the market area.
(8) Provisions in mortgage documents. The servicer shall examine the
mortgage loan documents to determine the applicable cushion and
limitations on pre-accrual for each escrow account. If the mortgage loan
documents provide for lower cushion limits or less pre-accrual than this
section, then the terms of the loan documents apply. Where the terms of
any mortgage loan document allow greater payments to an escrow account
than allowed by this section, then this section controls the applicable
limits. Where the mortgage loan documents do not specifically establish
an escrow account, whether a servicer may establish an escrow account
for the loan is a matter for determination by State law. If the mortgage
loan document is silent on the escrow account limits (for cushion or
pre-accrual) and a servicer establishes an escrow account under State
law, then the limitations of this section apply unless State law
provides for a lower amount. If the loan documents provide for escrow
accounts up to the RESPA limits, then the servicer may require the
maximum amounts consistent with this section, unless an applicable State
law sets a lesser amount.
(9) Assessments for periods longer than one year. Some escrow
account items may be billed for periods longer than one year. For
example, servicers may need to collect flood insurance or water
purification escrow funds for payment every three years. In such cases,
the servicer shall estimate the borrower's payments for a full cycle of
disbursements. For a flood insurance premium payable every 3 years, the
servicer shall collect the payments reflecting 36 equal monthly amounts.
For two out of the three years, however, the account balance may not
reach its low monthly balance because the low point will be on a three-
year cycle, as compared to an annual one. The annual escrow account
statement shall explain this situation (see example in the HUD Public
Guidance Document entitled ``Annual Escrow Account Disclosure
Statement--Example'', available in accordance with Sec. 3500.3).
(d) Methods of escrow account analysis. Paragraph (c) of this
section prescribes acceptable accounting methods. The following sets
forth the steps servicers shall use to determine whether their use of an
acceptable accounting method conforms with the limitations in
Sec. 3500.17(c)(1). The steps set forth in this section derive maximum
limits. Servicers may use accounting procedures that result in lower
target balances. In particular, servicers may use a cushion less than
the permissible cushion or no cushion at all. This section does not
require the use of a cushion.
(1) Aggregate analysis. (i) When a servicer uses aggregate analysis
in conducting the escrow account analysis, the target balances may not
exceed the balances computed according to the following arithmetic
operations:
(A) The servicer first projects a trial balance for the account as a
whole over
[[Page 269]]
the next computation year (a trial running balance). In doing so the
servicer assumes that it will make estimated disbursements on or before
the earlier of the deadline to take advantage of discounts, if
available, or the deadline to avoid a penalty. The servicer does not use
pre-accrual on these disbursement dates. The servicer also assumes that
the borrower will make monthly payments equal to one-twelfth of the
estimated total annual escrow account disbursements.
(B) The servicer then examines the monthly trial balances and adds
to the first monthly balance an amount just sufficient to bring the
lowest monthly trial balance to zero, and adjusts all other monthly
balances accordingly.
(C) The servicer then adds to the monthly balances the permissible
cushion. The cushion is two months of the borrower's escrow payments to
the servicer or a lesser amount specified by State law or the mortgage
document (net of any increases or decreases because of prior year
shortages or surpluses, respectively).
(ii) Lowest monthly balance. Under aggregate analysis, the lowest
monthly target balance for the account shall be less than or equal to
one-sixth of the estimated total annual escrow account disbursements or
a lesser amount specified by State law or the mortgage document. The
target balances that the servicer derives using these steps yield the
maximum limit for the escrow account. Appendix E to this part
illustrates these steps.
(2) Single-item or other non-aggregate analysis method. (i) When a
servicer uses single-item analysis or any hybrid accounting method in
conducting an escrow account analysis during the phase-in period, the
target balances may not exceed the balances computed according to the
following arithmetic operations:
(A) The servicer first projects a trial balance for each item over
the next computation year (a trial running balance). In doing so the
servicer assumes that it will make estimated disbursements on or before
the earlier of the deadline to take advantage of discounts, if
available, or the deadline to avoid a penalty. The servicer does not use
pre-accrual on these disbursement dates. The servicer also assumes that
the borrower will make periodic payments equal to one-twelfth of the
estimated total annual escrow account disbursements.
(B) The servicer then examines the monthly trial balance for each
escrow account item and adds to the first monthly balance for each
separate item an amount just sufficient to bring the lowest monthly
trial balance for that item to zero, and then adjusts all other monthly
balances accordingly.
(C) The servicer then adds the permissible cushion, if any, to the
monthly balance for the separate escrow account item. The permissible
cushion is two months of escrow payments for the escrow account item
(net of any increases or decreases because of prior year shortages or
surpluses, respectively) or a lesser amount specified by State law or
the mortgage document.
(D) The servicer then examines the balances for each item to make
certain that the lowest monthly balance for that item is less than or
equal to one-sixth of the estimated total annual escrow account
disbursements for that item or a lesser amount specified by State law or
the mortgage document.
(ii) In performing an escrow account analysis using single-item
analysis, servicers may account for each escrow account item separately,
but servicers shall not further divide accounts into sub-accounts, even
if the payee of a disbursement requires installment payments. The target
balances that the servicer derives using these steps yield the maximum
limit for the escrow account. Appendix F to this part illustrates these
steps.
(e) Transfer of servicing. (1) If the new servicer changes either
the monthly payment amount or the accounting method used by the
transferor (old) servicer, then the new servicer shall provide the
borrower with an initial escrow account statement within 60 days of the
date of servicing transfer.
(i) Where a new servicer provides an initial escrow account
statement upon the transfer of servicing, the new servicer shall use the
effective date of the transfer of servicing to establish the new escrow
account computation year.
[[Page 270]]
(ii) Where the new servicer retains the monthly payments and
accounting method used by the transferor servicer, then the new servicer
may continue to use the escrow account computation year established by
the transferor servicer or may choose to establish a different
computation year using a short-year statement. At the completion of the
escrow account computation year or any short year, the new servicer
shall perform an escrow analysis and provide the borrower with an annual
escrow account statement.
(2) The new servicer shall treat shortages, surpluses and
deficiencies in the transferred escrow account according to the
procedures set forth in Sec. 3500.17(f).
(3) A pre-rule account remains a pre-rule account upon the transfer
of servicing to a new servicer so long as the transfer occurs before the
conversion date.
(f) Shortages, surpluses, and deficiencies requirements--(1) Escrow
account analysis. For each escrow account, the servicer shall conduct an
escrow account analysis to determine whether a surplus, shortage or
deficiency exists.
(i) As noted in Sec. 3500.17(c)(2) and (3), the servicer shall
conduct an escrow account analysis upon establishing an escrow account
and at completion of the escrow account computation year.
(ii) The servicer may conduct an escrow account analysis at other
times during the escrow computation year. If a servicer advances funds
in paying a disbursement, which is not the result of a borrower's
payment default under the underlying mortgage document, then the
servicer shall conduct an escrow account analysis to determine the
extent of the deficiency before seeking repayment of the funds from the
borrower under this paragraph (f).
(2) Surpluses. (i) If an escrow account analysis discloses a
surplus, the servicer shall, within 30 days from the date of the
analysis, refund the surplus to the borrower if the surplus is greater
than or equal to 50 dollars ($50). If the surplus is less than 50
dollars ($50), the servicer may refund such amount to the borrower, or
credit such amount against the next year's escrow payments.
(ii) These provisions regarding surpluses apply if the borrower is
current at the time of the escrow account analysis. A borrower is
current if the servicer receives the borrower's payments within 30 days
of the payment due date. If the servicer does not receive the borrower's
payment within 30 days of the payment due date, then the servicer may
retain the surplus in the escrow account pursuant to the terms of the
mortgage loan documents.
(iii) After an initial or annual escrow analysis has been performed,
the servicer and the borrower may enter into a voluntary agreement for
the forthcoming escrow accounting year for the borrower to deposit funds
into the escrow account for that year greater than the limits
established under paragraph (c) of this section. Such an agreement shall
cover only one escrow accounting year, but a new voluntary agreement may
be entered into after the next escrow analysis is performed. The
voluntary agreement may not alter how surpluses are to be treated when
the next escrow analysis is performed at the end of the escrow
accounting year covered by the voluntary agreement.
(3) Shortages. (i) If an escrow account analysis discloses a
shortage of less than one month's escrow account payment, then the
servicer has three possible courses of action:
(A) The servicer may allow a shortage to exist and do nothing to
change it;
(B) The servicer may require the borrower to repay the shortage
amount within 30 days; or
(C) The servicer may require the borrower to repay the shortage
amount in equal monthly payments over at least a 12-month period.
(ii) If an escrow account analysis discloses a shortage that is
greater than or equal to one month's escrow account payment, then the
servicer has two possible courses of action:
(A) The servicer may allow a shortage to exist and do nothing to
change it; or
(B) The servicer may require the borrower to repay the shortage in
equal monthly payments over at least a 12-month period.
[[Page 271]]
(4) Deficiency. If the escrow account analysis confirms a
deficiency, then the servicer may require the borrower to pay additional
monthly deposits to the account to eliminate the deficiency.
(i) If the deficiency is less than one month's escrow account
payment, then the servicer:
(A) May allow the deficiency to exist and do nothing to change it;
(B) May require the borrower to repay the deficiency within 30 days;
or
(C) May require the borrower to repay the deficiency in 2 or more
equal monthly payments.
(ii) If the deficiency is greater than or equal to 1 month's escrow
payment, the servicer may allow the deficiency to exist and do nothing
to change it or may require the borrower to repay the deficiency in two
or more equal monthly payments.
(iii) These provisions regarding deficiencies apply if the borrower
is current at the time of the escrow account analysis. A borrower is
current if the servicer receives the borrower's payments within 30 days
of the payment due date. If the servicer does not receive the borrower's
payment within 30 days of the payment due date, then the servicer may
recover the deficiency pursuant to the terms of the mortgage loan
documents.
(5) Notice of shortage or deficiency in escrow account. The servicer
shall notify the borrower at least once during the escrow account
computation year if there is a shortage or deficiency in the escrow
account. The notice may be part of the annual escrow account statement
or it may be a separate document.
(g) Initial escrow account statement. (1) Submission at settlement,
or within 45 calendar days of settlement. As noted in
Sec. 3500.17(c)(2), the servicer shall conduct an escrow account
analysis before establishing an escrow account to determine the amount
the borrower shall deposit into the escrow account, subject to the
limitations of Sec. 3500.17(c)(1)(i). After conducting the escrow
account analysis for each escrow account, the servicer shall submit an
initial escrow account statement to the borrower at settlement or within
45 calendar days of settlement for escrow accounts that are established
as a condition of the loan.
(i) The initial escrow account statement shall include the amount of
the borrower's monthly mortgage payment and the portion of the monthly
payment going into the escrow account and shall itemize the estimated
taxes, insurance premiums, and other charges that the servicer
reasonably anticipates to be paid from the escrow account during the
escrow account computation year and the anticipated disbursement dates
of those charges. The initial escrow account statement shall indicate
the amount that the servicer selects as a cushion. The statement shall
include a trial running balance for the account.
(ii) Pursuant to Sec. 3500.17(h)(2), the servicer may incorporate
the initial escrow account statement into the HUD-1 or HUD-1A settlement
statement. If the servicer does not incorporate the initial escrow
account statement into the HUD-1 or HUD-1A settlement statement, then
the servicer shall submit the initial escrow account statement to the
borrower as a separate document.
(2) Time of submission of initial escrow account statement for an
escrow account established after settlement. For escrow accounts
established after settlement (and which are not a condition of the
loan), a servicer shall submit an initial escrow account statement to a
borrower within 45 calendar days of the date of establishment of the
escrow account.
(h) Format for initial escrow account statement. (1) The format and
a completed example for an initial escrow account statement are set out
in HUD Public Guidance Documents entitled ``Initial Escrow Account
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure
Statement--Example'', available in accordance with Sec. 3500.3.
(2) Incorporation of initial escrow account statement into HUD-1 or
HUD-1A settlement statement. Pursuant to Sec. 3500.9(a)(11), a servicer
may add the initial escrow account statement to the HUD-1 or HUD-1A
settlement statement. The servicer may include the initial escrow
account statement in the basic text or may attach the initial
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escrow account statement as an additional page to the HUD-1 or HUD-1A
settlement statement.
(3) Identification of payees. The initial escrow account statement
need not identify a specific payee by name if it provides sufficient
information to identify the use of the funds. For example, appropriate
entries include: county taxes, hazard insurance, condominium dues, etc.
If a particular payee, such as a taxing body, receives more than one
payment during the escrow account computation year, the statement shall
indicate each payment and disbursement date. If there are several taxing
authorities or insurers, the statement shall identify each taxing body
or insurer (e.g., ``City Taxes'', ``School Taxes'', ``Hazard
Insurance'', or ``Flood Insurance,'' etc.).
(i) Annual escrow account statements. For each escrow account, a
servicer shall submit an annual escrow account statement to the borrower
within 30 days of the completion of the escrow account computation year.
The servicer shall also submit to the borrower the previous year's
projection or initial escrow account statement. The servicer shall
conduct an escrow account analysis before submitting an annual escrow
account statement to the borrower.
(1) Contents of annual escrow account statement. The annual escrow
account statement shall provide an account history, reflecting the
activity in the escrow account during the escrow account computation
year, and a projection of the activity in the account for the next year.
In preparing the statement, the servicer may assume scheduled payments
and disbursements will be made for the final 2 months of the escrow
account computation year. The annual escrow account statement must
include, at a minimum, the following (the items in paragraphs (i)(1)(i)
through (i)(1)(iv) must be clearly itemized):
(i) The amount of the borrower's current monthly mortgage payment
and the portion of the monthly payment going into the escrow account;
(ii) The amount of the past year's monthly mortgage payment and the
portion of the monthly payment that went into the escrow account;
(iii) The total amount paid into the escrow account during the past
computation year;
(iv) The total amount paid out of the escrow account during the same
period for taxes, insurance premiums, and other charges (as separately
identified);
(v) The balance in the escrow account at the end of the period;
(vi) An explanation of how any surplus is being handled by the
servicer;
(vii) An explanation of how any shortage or deficiency is to be paid
by the borrower; and
(viii) If applicable, the reason(s) why the estimated low monthly
balance was not reached, as indicated by noting differences between the
most recent account history and last year's projection. HUD Public
Guidance Documents entitled ``Annual Escrow Account Disclosure
Statement--Format'' and ``Annual Escrow Account Disclosure Statement--
Example'' set forth an acceptable format and methodology for conveying
this information.
(2) No annual statements in the case of default, foreclosure, or
bankruptcy. This paragraph (i)(2) contains an exemption from the
provisions of Sec. 3500.17(i)(1). If at the time the servicer conducts
the escrow account analysis the borrower is more than 30 days overdue,
then the servicer is exempt from the requirements of submitting an
annual escrow account statement to the borrower under Sec. 3500.17(i).
This exemption also applies in situations where the servicer has brought
an action for foreclosure under the underlying mortgage loan, or where
the borrower is in bankruptcy proceedings. If the servicer does not
issue an annual statement pursuant to this exemption and the loan
subsequently is reinstated or otherwise becomes current, the servicer
shall provide a history of the account since the last annual statement
(which may be longer than 1 year) within 90 days of the date the account
became current.
(3) Delivery with other material. The servicer may deliver the
annual escrow account statement to the borrower with other statements or
materials, including the Substitute 1098, which is provided for federal
income tax purposes.
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(4) Short year statements. A servicer may issue a short year annual
escrow account statement (``short year statement'') to change one escrow
account computation year to another. By using a short year statement a
servicer may adjust its production schedule or alter the escrow account
computation year for the escrow account.
(i) Effect of short year statement. The short year statement shall
end the ``escrow account computation year'' for the escrow account and
establish the beginning date of the new escrow account computation year.
The servicer shall deliver the short year statement to the borrower
within 60 days from the end of the short year.
(ii) Short year statement upon servicing transfer. Upon the transfer
of servicing, the transferor (old) servicer shall submit a short year
statement to the borrower within 60 days of the effective date of
transfer.
(iii) Short year statement upon loan payoff. If a borrower pays off
a mortgage loan during the escrow account computation year, the servicer
shall submit a short year statement to the borrower within 60 days after
receiving the pay-off funds.
(j) Formats for annual escrow account statement. The formats and
completed examples for annual escrow account statements using single-
item analysis (pre-rule accounts) and aggregate analysis are set out in
HUD Public Guidance Documents entitled ``Annual Escrow Account
Disclosure Statement--Format'' and ``Annual Escrow Account Disclosure
Statement--Example''.
(k) Timely payments. (1) If the terms of any federally related
mortgage loan require the borrower to make payments to an escrow
account, the servicer must pay the disbursements in a timely manner,
that is, on or before the deadline to avoid a penalty, as long as the
borrower's payment is not more than 30 days overdue.
(2) The servicer must advance funds to make disbursements in a
timely manner as long as the borrower's payment is not more than 30 days
overdue. Upon advancing funds to pay a disbursement, the servicer may
seek repayment from the borrower for the deficiency pursuant to
paragraph (f) of this section.
(3) For the payment of property taxes from the escrow account, if a
taxing jurisdiction offers a servicer a choice between annual and
installment disbursements, the servicer must also comply with this
paragraph (k)(3). If the taxing jurisdiction neither offers a discount
for disbursements on a lump sum annual basis nor imposes any additional
charge or fee for installment disbursements, the servicer must make
disbursements on an installment basis. If, however, the taxing
jurisdiction offers a discount for disbursements on a lump sum annual
basis or imposes any additional charge or fee for installment
disbursements, the servicer may at the servicer's discretion (but is not
required by RESPA to), make lump sum annual disbursements in order to
take advantage of the discount for the borrower or avoid the additional
charge or fee for installments, as long as such method of disbursement
complies with paragraphs (k)(1) and (k)(2) of this section. HUD
encourages, but does not require, the servicer to follow the preference
of the borrower, if such preference is known to the servicer.
(4) Notwithstanding paragraph (k)(3) of this section, a servicer and
borrower may mutually agree, on an individual case basis, to a different
disbursement basis (installment or annual) or disbursement date for
property taxes from that required under paragraph (k)(3) of this
section, so long as the agreement meets the requirements of paragraphs
(k)(1) and (k)(2) of this section. The borrower must voluntarily agree;
neither loan approval nor any term of the loan may be conditioned on the
borrower's agreeing to a different disbursement basis or disbursement
date.
(l) System of recordkeeping. (1) Each servicer shall keep records,
which may involve electronic storage, microfiche storage, or any method
of computerized storage, so long as the information is easily
retrievable, reflecting the servicer's handling of each borrower's
escrow account. The servicer's records shall include, but not be limited
to, the payment of amounts into and from the escrow account and the
submission of initial and annual escrow account statements to the
borrower.
(2) The servicer responsible for servicing the borrower's escrow
account
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shall maintain the records for that account for a period of at least
five years after the servicer last serviced the escrow account.
(3) A servicer shall provide the Secretary with information
contained in the servicer's records for a specific escrow account, or
for a number or class of escrow accounts, within 30 days of the
Secretary's written request for the information. The servicer shall
convert any information contained in electronic storage, microfiche or
computerized storage to paper copies for review by the Secretary.
(i) To aid in investigations, the Secretary may also issue an
administrative subpoena for the production of documents, and for the
testimony of such witnesses as the Secretary deems advisable.
(ii) If the subpoenaed party refuses to obey the Secretary's
administrative subpoena, the Secretary is authorized to seek a court
order requiring compliance with the subpoena from any United States
district court. Failure to obey such an order of the court may be
punished as contempt of court.
(4) Borrowers may seek information contained in the servicer's
records by complying with the provisions set forth in 12 U.S.C. 2605(e)
and Sec. 3500.21(f).
(5) After receiving a request (by letter or subpoena) from the
Department for information relating to whether a servicer submitted an
escrow account statement to the borrower, the servicer shall respond
within 30 days. If the servicer is unable to provide the Department with
such information, the Secretary shall deem that lack of information to
be evidence of the servicer's failure to submit the statement to the
borrower.
(m) Penalties. (1) A servicer's failure to submit to a borrower an
initial or annual escrow account statement meeting the requirements of
this part shall constitute a violation of section 10(d) of RESPA (12
U.S.C. 2609(d)) and this section. For each such violation, the Secretary
shall assess a civil penalty of 55 dollars ($55), except that the total
of the assessed penalties shall not exceed $110,000 for any one servicer
for violations that occur during any consecutive 12-month period.
(2) Violations described in paragraph (m)(1) of this section do not
require any proof of intent. However, if a lender or servicer is shown
to have intentionally disregarded the requirements that it submit the
escrow account statement to the borrower, then the Secretary shall
assess a civil penalty of $110 for each violation, with no limit on the
total amount of the penalty.
(n) Civil penalties procedures. The following procedures shall apply
whenever the Department seeks to impose a civil money penalty for
violation of section 10(c) of RESPA (12 U.S.C. 2609(c)):
(1) Purpose and scope. This paragraph (n) explains the procedures by
which the Secretary may impose penalties under 12 U.S.C. 2609(d). These
procedures include administrative hearings, judicial review, and
collection of penalties. This paragraph (n) governs penalties imposed
under 12 U.S.C. 2609(d) and, when noted, adopts those portions of 24 CFR
part 30 that apply to all other civil penalty proceedings initiated by
the Secretary.
(2) Authority. The Secretary has the authority to impose civil
penalties under section 10(d) of RESPA (12 U.S.C. 2609(d)).
(3) Notice of intent to impose civil money penalties. Whenever the
Secretary intends to impose a civil money penalty for violations of
section 10(c) of RESPA (12 U.S.C. 2609(c)), the responsible program
official, or his or her designee, shall serve a written Notice of Intent
to Impose Civil Money Penalties (Notice of Intent) upon any servicer on
which the Secretary intends to impose the penalty. A copy of the Notice
of Intent must be filed with the Chief Docket Clerk, Office of
Administrative Law Judges, at the address provided in the Notice of
Intent. The Notice of Intent will provide:
(i) A short, plain statement of the facts upon which the Secretary
has determined that a civil money penalty should be imposed, including a
brief description of the specific violations under 12 U.S.C. 2609(c)
with which the servicer is charged and whether such violations are
believed to be intentional or unintentional in nature, or a combination
thereof;
(ii) The amount of the civil money penalty that the Secretary
intends to
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impose and whether the limitations in 12 U.S.C. 2609(d)(1), apply;
(iii) The right of the servicer to a hearing on the record to appeal
the Secretary's preliminary determination to impose a civil penalty;
(iv) The procedures to appeal the penalty;
(v) The consequences of failure to appeal the penalty; and
(vi) The name, address, and telephone number of the representative
of the Department, and the address of the Chief Docket Clerk, Office of
Administrative Law Judges, should the servicer decide to appeal the
penalty.
(4) Appeal procedures. (i) Answer. To appeal the imposition of a
penalty, a servicer shall, within 30 days after receiving service of the
Notice of Intent, file a written Answer with the Chief Docket Clerk,
Office of Administrative Law Judges, Department of Housing and Urban
Development, at the address provided in the Notice of Intent. The Answer
shall include a statement that the servicer admits, denies, or does not
have (and is unable to obtain) sufficient information to admit or deny
each allegation made in the Notice of Intent. A statement of lack of
information shall have the effect of a denial. Any allegation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||