What is RESPA in Real Estate?

RESPA stands for the Real Estate Settlement Procedures Act, a federal law enacted in 1974 that governs the closing process for residential real estate transactions involving federally related mortgage loans. RESPA requires lenders and mortgage brokers to provide borrowers with disclosures about all closing costs, practices, and business relationships involved in the settlement process. The law prohibits kickbacks and unearned referral fees between settlement service providers, meaning a title company cannot pay a real estate agent for referring clients.

RESPA also limits the amount a lender can require in an escrow account for taxes and insurance, typically capping advance deposits at two months beyond the anticipated disbursement date. Section 8 of RESPA is most frequently tested on the exam — it strictly prohibits any fee-splitting or kickback arrangement where no actual services are rendered in exchange for the payment. Violations of RESPA can result in criminal penalties including fines up to $10,000 and imprisonment up to one year.

RESPA is enforced by the Consumer Financial Protection Bureau (CFPB) and applies to all federally related mortgage loans used to finance the purchase of one-to-four-family residential properties.