§ 1 REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974

[Public Law 93-533, 88 Stat. 1724]

AN ACT To further the national housing goal of encouraging homeownership by regulating certain lending practices and closing and settlement procedures in federally related mortgage transactions to the end that unnecessary costs and difficulties of purchasing housing are minimized, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SHORT TITLE

SECTION 1. This Act may be cited as the "Real Estate Settlement Procedures Act of 1974".

FINDINGS AND PURPOSE

SEC. 2. (a) The Congress finds that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country. The Congress also finds that it has been over two years since the Secretary of Housing and Urban Development and the Administrator of Veterans' Affairs submitted their joint report to the Congress on "Mortgage Settlement Costs" and that the time has come for the recommendations for Federal legislative action made in that report to be implemented. (b) It is the purpose of this Act to effect certain changes in the settlement process for residential real estate that will result

(1) in more effective advance disclosure to home buyers and sellers of settlement costs;

(2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services; (3) in a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance; and

(4) in significant reform and modernization of local recordkeeping of land title information.

DEFINITIONS

SEC. 3. For purposes of this Act

(1) the term "federally related mortgage loan" includes any loan (other than temporary financing such as a construction loan) 1 which

1 Sec. 2(1) of the Real Estate Settlement Procedures Act Amendments of 1975. Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, amended section 3(1) of the Real Estate Settlement Procedures Act of 1974, by inserting the words "(other than temporary financing such as a construction loan)" immediately following "includes any loan".

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(A) is secured by a first lien on 1 residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families; and

(B) (i) is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the Federal Government, or is made in whole or in part by any lender which is regulated by any agency of the Federal Government; or

(ii) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary or any other officer or agency of the Federal Government or 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 such officer or

agency; or

(iii) is intended to be sold by the originating lender to1 the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, or a 1 financial institution from which it is to be purchased by the Federal Home Loan Mortgage Corporation; or

(iv) is made in whole or in part by any "creditor", as defined in section 103 (f) of the Consumer Credit Protection Act (15 U.S.C. 1602 (f)), who makes or invests in residential real estate loans aggregating more than $1,000,000 per year, except that for the purpose of this Act, the term "creditor" does not include any agency or instrumentality of any state 1; (2) the term "thing of value" includes any payment, advance, funds, loan, service, or other consideration;

(3) the term "settlement services" includes any service provided in connection with a real estate settlement including, but not limited to, the following: title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, and the handling of the processing, and closing or settlement;

(4) the term "title company" means any institution which is qualified to issue title insurance, directly or through its agents, and also refers to any duly authorized agent of a title company; (5) the term "person" includes individuals, corporations, associations, partnerships, and trusts; and

(6) the term "Secretary" means the Secretary of Housing and Urban Development.

1 Sec. 2(2) of the Real Estate Settlement Procedures Act Amendments of 1975. Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, amended subparagraph 3(1)(A) of the Real Estate Settlement Procedures Act of 1974, by inserting the words "a first lien on" immediately following "is secured by"; sec. 2(3) of such Act amended subparagraph 3(B) (iii) by deleting the words "is eligible for purchase" and inserting in lieu thereof "is intended to be sold by the originating lender to"; sec. 2(4) of such Act amended subparagraph 3(B) (iii) by deleting the word "or" the first time it appears: sec. 2(5) of such Act amended subparagraph 3(B) (iii) by striking out "from any" and "could" and inserting in lieu thereof "a" and "is to" respectively: sec. 2(6) of such Act amended subparagraph (B) (iv) by inserting before the semicolon at the end thereof the words ", except that for the purpose of this Act, the term 'creditor' does not include any agency or instrumentality of any State".

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UNIFORM SETTLEMENT STATEMENT

SEC. 4. (a) The Secretary, in consultation with the Administrator of Veterans' Affairs, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board, shall develop and prescribe a standard form for the statement of settlement costs which shall be used (with such variations as may be necessary to reflect differences in legal and administrative requirements or practices in different areas of the country) as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. Such form shall conspicuously and clearly itemize all charges imposed upon the borrower and all charges imposed upon the seller in connection with the settlement and shall indicate whether any title insurance premium included in such charges covers or insures the lender's interest in the property, the borrower's interest, or both. The Secretary may, by regulation, permit the deletion from the form prescribed under this section of items which are not, under local laws or customs, applicable in any locality, except that such regulation shall require that the numerical code prescribed by the Secretary be retained in forms to be used in all localities. Nothing in this section may be construed to require that that part of the standard form which relates to the borrower's transaction be furnished to the seller, or to require that that part of the standard form which relates to the seller be furnished to the borrower.2

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(b) The form prescribed under this section shall be completed and made available for inspection by the borrower at or before settlement by the person conducting the settlement, except that (1) the Secretary may exempt from the requirements of this section settlements occurring in localities where the final settlement statement is not customarily provided at or before the date of settlement, or settlements where such requirements are impractical and (2) the borrower may, in accordance with regulations of the Secretary, waive his right to have the form made available at such time. Upon the request of the borrower to inspect the form prescribed under this section during the business day immediately preceding the day of settlement, the person who will conduct the settlement shall permit the borrower to inspect those items which are known to such person during such preceding day.

[See Excerpt from Real Estate Settlement Procedures Act
Amendments of 1975]

SPECIAL INFORMATION BOOKLETS

SEC. 5. (a) The Secretary shall prepare and distribute booklets to help persons borrowing money to finance the purchase of residential real estate better to understand the nature and costs of real estate settlement services. The Secretary shall distribute such booklets to all lenders which make federally related mortgage loans.

1 Sec. 3(1) of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205. 89 Stat. 1157, approved January 2, 1976. amended sec. 4 of the Real Estate Settlement Procedures Act of 1974, by inserting "(a)" immediately before "The Secretary"; sec. 3(2) of such Act also amended sec. 4 by deleting the words "minimum" and "unavoidable" in the first sentence.

2 Sec. 3(3) of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205. 89 Stat. 1157, approved January 2, 1976, amended sec. 4 of the Real Estate Settlement Procedures Act of 1974, by adding the last two sentences of this paragraph.

3 Sec. 3(4) of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, amended sec. 4 of the Real Estate Settlement Procedures Act of 1974, by adding a new subsection "(b)".

(b) Each booklet shall be in such form and detail as the Secretary shall prescribe and, in addition to such other information as the Secretary may provide, shall include in clear and concise language—

(1) a description and explanation of the nature and purpose of each cost incident to a real estate settlement;

(2) an explanation and sample of the standard real estate settlement form developed and prescribed under section 4;

(3) a description and explanation of the nature and purpose of escrow accounts when used in connection with loans secured by residential real estate;

(4) an explanation of the choices available to buyers or residential real estate in selecting persons to provide necessary services incident to a real estate settlement; and

(5) an explanation of the unfair practices and unreasonable or unnecessary charges to be avoided by the prospective buyer with respect to a real estate settlement.

(c)1 Each lender shall include with the booklet a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur in connection with the settlement as prescribed by the Secretary. Such booklets shall take into consideration differences in real estate settlement procedures which may exist among the several States and territories of the United States and among separate political subdivisions within the same State and territory.

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(d) Each lender referred to in subsection (a) shall provide the booklet described in such subsection to each person from whom it receives or for whom it prepares a written application 3 to borrow money to finance the purchase of residential real estate. Such booklet shall be provided at the time of receipt or preparation of such application. (e) Booklets may be printed and distributed by lenders if their form and content are approved by the Secretary as meeting the requirements of subsection (b) of this section.

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[See Excerpt from Real Estate Settlement Procedures Act Amendments of 1975]

SEC. 6. (a) Any lender agreeing to make a federally related mortgage loan shall provide or cause to be provided to the prospective borrower, to the prospective seller, and to any officer or agency of the Federal Government proposing to insure, guarantee, supplement, or

1 Sec. 4(2) of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, amended section 5 of the Real Estate Settlement Procedures Act of 1975 by adding a new subsection "(c)". 2 Sec. 4(1) of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205, 89 Stat. 1157, approved January 2, 1976. amended section 5 of the Real Estate Settlement Procedures Act of 1974 by redesignating subsections "(c)” and “(d)” as subsections "(d)" and "(e)" respectively.

3 Sec. 4(3) of the Real Estate Settlement Procedures Act Amendments of 1975. Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, amended section 5 of the Real Estate Settlement Procedures Act of 1975 by striking out "an application" in redesignated subsection "(d)" and inserting in lieu thereof the words "or for whom it prepares a written application".

4 Sec. 4(4) of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, amended section 5 of the Real Estate Settlement Procedures Act of 1975 by inserting "or preparation" immediately following "receipt" in redesignated subsection "(d)".

5 Sec. 5 of the Real Estate Settlement Procedures Act Amendments of 1975. Public Law 94-205, 89 Stat. 1157, approved January 2, 1976, repealed sec. 6 of the Real Estate Settlement Procedures Act of 1974.

assist such loan, at the time of the loan commitment, but in no case later than twelve calendar days prior to settlement, upon the standard real estate settlement form developed and prescribed under section 4, or upon a form developed and prescribed by the Secretary specifically for the purposes of this section, and in accordance with regulations prescribed by the Secretary, an itemized disclosure in writing of each charge arising in connection with such settlement. For the purposes of complying with this section, it shall be the duty of the lender agreeing to make the loan to obtain or cause to be obtained from persons who provide or will provide services in connection with such settlement the amount of each charge they intend to make. In the event the exact amount of any such charge is not available, a good faith estimate of such charge may be provided.

(b) If any lender fails to provide a prospective borrower or seller with the disclosure as required by subsection (a), it shall be liable to such borrower or seller, as the case may be, in an amount equal to(1) the actual damages involved or $500, whichever is greater,

and

(2) in the case of any successful action to enforce the foregoing liability, the court costs of the action together with a reasonable attorney's fee as determined by the court;

except that a lender may not be held liable for a violation in any action brought under this subsection if it shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures adopted to avoid any such error.

(c) The provisions of subsection (a) shall be deemed to be satisfied with respect to a borrower or seller in connection with any settlement involving a federally related mortgage loan if the disclosure required by subsection (a) is provided at any time prior to settlement and the prospective borrower or seller, as the case may be, executes, under terms and conditions prescribed by regulations to be issued by the Secretary after consultation with the appropriate Federal agencies, a waiver of the requirement that the disclosure be provided at least twelve calendar days prior to such settlement. In issuing such regulations, the Secretary shall take into account the need to protect the borrower's and the seller's right to a timely disclosure.

(d) With respect to any particular transaction involving a federally related mortgage loan, no borrower shall maintain an action or separate actions against any lender under both the provisions of this section and the provisions of section 130 of the Consumer Credit Protection Act (15 U.S.C. 1640).

(e) The provisions of this Act shall supersede the provisions of section 121 (c) of the Consumer Credit Protection Act insofar as the latter applies to federally related mortgage loans as defined in this Act.

DISCLOSURE OF PREVIOUS SELLING PRICE OF EXISTING REAL PROPERTY 1

Repealed

SEC. 7. (a) No lender shall make any commitment for a federally related mortgage loan on a residence on which construction has been

1 Sec. 6 of the Real Estate Settlement Procedures Act Amendments of 1975, Public Law 94-205, 89 Stat. 1147, approved January 2, 1976, repealed sec. 7 of the Real Estate Settlement Procedures Act of 1974.