Most real estate professionals understand that the Real Estate Regulations and Procedures Act (RESPA) was created with customers in mind. the Consumer Financial Protection Bureau (CFPB) is responsible for enforcing RESPA, preventing bribes, limiting the use of escrow accounts, and suppressing abusive activity in the real estate settlement process.
RESPA has strict rules for real estate and mortgage professionals regarding kickbacks, referrals, and unnecessary fees. Nor does it prevent a real estate broker or agent and a lender from collaborating in marketing activities. Sponsorship of events can also be considered illegal if the event is used to market or publicize the services of a real estate or mortgage company.
But, RESPA also provides respite for real estate professionals, mortgage managers and lenders. Let’s get to know them.
Loans exempt from RESPA
The types of loans covered by RESPA are numerous, but there are specifically types of loans that are exempt.
Construction loans only
A loan is not covered by RESPA if it is a permanent construction loan. Custom homes are frequently developed and the site is used as collateral for a short-term loan to build the project. RESPA does not apply when the loan is paid off and a new permanent mortgage is started. However, RESPA applies a construction-to-permanent loan in one package.
Vacant Land Loan
When a loan is offered to purchase land that will not be used to build a covered residential structure, RESPA does not have to consider the loan. To buy land and divide it, a developer needs to get their subdivision plans, one or more attorneys to work with local laws and zoning, and people who can help with construction to help them through the process.
Business or commercial loans
The RESPA generally does not include loans backed by real estate used for commercial or agricultural purposes. Although RESPA does not apply to a loan to an individual entity, it does apply in the case of one to four rental units.
Loans for large plots of land
Land parcels of 25 acres or more, occupied or unoccupied, are not included in RESPA. You may consider buying land for a ranch or farm in which a house can be built or already exists. The buyer must be a seasoned rancher or a farmer looking to expand. Their understanding of land use reduces the need for monitoring to defend their interests.
Some Lending Assumptions
The loan is unsecured when assumed, and the mortgage lender has no authority to accept future parties for assumption. While there aren’t too many affordable housing loans available these days, VA loans are an exception.
Lyle Solomon is lead counsel for Oak View Law Group in California.
This column does not necessarily reflect the opinion of the editorial department of RealTrends and its owners.
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