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Thursday, April 16, 2015

RESPA’s “Required Use”

QUESTION
Our state banking department has cited us for a violation of RESPA, because we did not comply with RESPA’s “Required Use” provisions. What is “Required Use” and how can we avoid this violation in the future?

ANSWER 
The Real Estate Settlement Procedures Act (RESPA) contains a certain definition relating to the use of a settlement service provider. Under RESPA, “required use” occurs when a loan applicant must use a particular provider of a settlement service in order to have access to some distinct service or property, and the applicant 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. [24 CFR § 3500.2(b)]

The following two caveats should be followed in order to avoid causing a violation of RESPA if, for instance, the lender offers a package, or a combination of settlement services, or offers discounts or rebates to consumers for the purchase of multiple settlement services:
  1. Any package or discount is optional to the purchaser; and,
  2. The discount is 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.
Jonathan Foxx
President & Managing Director
Lenders Compliance Group