What is the purpose of RESPA (Real Estate Settlement Procedures Act)?

The purpose of the Real Estate Settlement Procedures Act (RESPA) is to ensure transparency in the settlement process by requiring full disclosure of closing costs to both buyers and sellers. This act mandates that lenders provide borrowers with a Good Faith Estimate of settlement costs within three business days of receiving a loan application, which helps buyers and sellers understand the various fees and expenses associated with closing a real estate transaction.

By requiring this disclosure, RESPA aims to prevent unfair practices and promote informed decisions among consumers. The act also addresses issues such as kickbacks and referral fees that can inflate closing costs, thereby protecting consumers from hidden charges and ensuring they have access to essential information before completing the transaction.

In contrast, while simplifying closing procedures is a beneficial outcome of better disclosure practices, it is not the primary focus of RESPA. Similarly, although RESPA can help in resolving certain misunderstandings related to closing costs, it does not specifically handle disputes in real estate transactions nor does it regulate property taxes. The core intent of RESPA firmly revolves around disclosure, making it crucial for fostering transparency and trust in the home-buying process.