Most real estate professionals understand that the Real Estate Settlement and Procedures Act (RESPA) was created keeping customers in mind. The Consumer Financial Protection Bureau (CFPB) is in charge of enforcing RESPA, preventing bribes, limiting the usage of escrow accounts, and removing abusive activities in the real estate settlement process.
RESPA has strict rules for real estate and mortgage professionals regarding kickbacks, referrals, and unnecessary fees. It also does not preclude a real estate broker or agent and a lender from collaborating on marketing activities. Sponsorship of events can also be deemed illegal if the event is used for marketing or publicizing a real estate or mortgage company’s services.
But, RESPA also provides breathing space to real estate professionals, mortgage servicers, and lenders. Let’s know about them.
The loans that are exempt from RESPA
Loan types covered by RESPA are many, but there are specifically exempt loan types.
A loan is not wrapped under RESPA if it is a construction-to-permanent loan. Custom homes are frequently developed, and the site is used as security for a short-term construction loan to complete the project. RESPA does not apply when the loan is paid off & a permanent new mortgage is started. However, RESPA applies to a construction-to-permanent loan inside one bundle.
Loan for vacant land
When a loan is offered to buy land that will not be used to build a covered residential framework, RESPA doesn’t have to look into the loan. To purchase land and split it up, a developer needs to get their subdivision plans, one or more lawyers to work with local laws and zoning, and people who can help with construction to help them with the process.
Commercial or business loans
RESPA does not typically include loans backed by real estate used for business or agricultural purposes. While RESPA does not apply to a loan to an individual entity, it applies in the case of one to four residential unit rental properties.
Loans for large land parcels
Land parcels of 25 acres or more, whether or not occupied, are not included in RESPA. You can consider land bought for a ranch or farm in which a home can be built or already exists. The buyer should be a seasoned rancher or farmer looking to expand. Their understanding of the land’s utilization reduces the need for oversight to defend their interests.
Certain loan assumptions
The loan is not insured when assumed, and the mortgage lender possesses no authority to accept future parties for the assumption. Although there aren’t too many housing assumable loans available these days, VA loans are an exception.
Lyle Solomon is the principal attorney with Oak View Law Group in California.
This column does not necessarily reflect the opinion of RealTrends’s editorial department and its owners.
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