City Register Contacts:

1^st Deputy City Register

Betsy Hernandez

212 -291-4983    

Hernandezb@finance.nyc.gov

Deputy City Register-Borough Offices (VACANT)

Brooklyn: Assistant Deputy City Register

Marie Prasad

718-488-2770

prasadr@finance.nyc.gov

Queens: Assistant Deputy City Register

Vanessa Goodwin:

718-588-2319

goodwinv@finance.nyc.gov

Bronx: Assistant Deputy City Register

Edith Ladson-Tolbert:

718-920-2869

Ladson-tolberte@finance.nyc.gov

Deputy City Register-Manhattan

Sharon Kelly:

212-291-4676

Kellys@finance.nyc.gov

Manhattan: Assistant Deputy Nilsa Santiago

212-291-2727

santiagon@finance.nyc.gov

This article is part of a larger series on How to Become a Real Estate Agent.

WRITTEN BY:
Jealie Dacanay

The Real Estate Settlement Procedures Act (RESPA) was established in 1974 by the U.S. Congress as a protection against unfair business practices and unnecessarily high costs associated with homeownership. RESPA strives to eliminate unethical practices like kickbacks, fees, and errors and ensures disclosures are provided to buyers and sellers while obtaining a mortgage. By knowing RESPA offenses, laws, and regulations, all parties involved can avoid penalties and unethical business practices.

Let us dive into what is RESPA in real estate, common RESPA violation examples, penalties for violating RESPA, and how real estate professionals can avoid them.

What Is RESPA in Real Estate: History & Coverage

History of RESPA

• 1974: The Real Estate Settlement Procedures Act (RESPA) was passed into law
• 1983: RESPA amended to extend coverage to controlled business arrangements
• 1990: Section 6 mortgage servicing requirements were added
• 1992: RESPA extended to all residential mortgage loans with a lien, disclosures in writing for an agent to mortgage referrals, and computer loan originations
• 1996: HUD removed compensation for referrals to affiliate companies and stricter payment rules
• 2002: Revised RESPA has greater disclosure, more consumer choices, and limited fees
• 2008: Implemented a standardized GFE (good faith estimate) for consumer costs
• 2010: Dodd-Frank Act mandated RESPA to shorten time limits, increase penalties, and provide amendments
• 2011: The Consumer Financial Protection Bureau (CFPB) took over RESPA regulatory duties
• 2012: New mortgage disclosure forms implemented
• 2020: Updated frequently asked questions addressing gifts and promotional activities

Why RESPA Started

RESPA violation penalties were implemented because individuals and companies associated with real estate transactions, like lenders, agents, and construction and insurance companies, were receiving undisclosed kickbacks and referral fees for recommending a settlement service provider.

Kickbacks and increased fees resulted in ultimately higher costs paid by the homebuyer. RESPA seeks to ensure homebuyers have all the information about their transactions to make an educated decision on the vendors they choose to work with.

Who RESPA Involves

Unlike the rules listed in the Fair Housing Act, which seeks to prevent discrimination against those buying, renting, or selling homes, RESPA applies to all real estate settlement services. Real estate settlement services can be defined as agent services, services rendered by an attorney, origination of a mortgage loan, and settlement or closing process.

The act oversees all activities of a person or entity involved in the home purchasing, improvement, and closing process when a federally related mortgage loan is involved for one to four residential units. Although RESPA primarily seeks to protect consumers seeking to become eligible to obtain a federally insured mortgage loan, it benefits other parties involved. The required disclosures and honesty about upfront costs and fees provide benefits for the following parties:

• Sellers: They don’t have to decide which title insurance agency should be used.
• Real estate agents: Clients are treated fairly for smoother and faster transactions.
• Buyers: They understand all reasonable upfront costs involved in the buying process.
• Loan servicers: RESPA eliminates some competition, and clients can choose who they want to work with based on their personal evaluations.

What RESPA Does Not Cover

Real estate statistics indicate a seller’s market, where homes are selling quickly. Before rushing to close deals, knowing which real estate purchasing scenarios should or should not fall under RESPA violations is essential. Transactions involving all-cash sales, rental transactions, and loans obtained by real estate for business purposes aren’t covered. Additionally, loans obtained to purchase vacant land are not covered as long as no proceeds from the loan are used to build any residential property.

6 Most Common RESPA Violations

The Consumer Financial Protection Bureau enforces RESPA violations. It ensures all federally regulated mortgage loans, including purchase loans, refinances, home improvement loans, land contracts, and home equity lines of credit, are administered following RESPA guidelines.

To avoid most violations, the general rule of thumb is to make sure all payments and fees are charged for services performed. The RESPA violation statute of limitations is one year from the date of the violation. If a consumer believes you have violated their rights under RESPA, they have one year to file a claim.

To help you avoid penalties, we’ve listed six common RESPA violations:

1. Kickbacks & Referral Fees

Section 8a of RESPA prohibits giving or receiving any referral fees, kickbacks, or anything of value being exchanged for referral of business involving a federally related mortgage loan. The violation applies to verbal, written, or established conduct of such referral agreements. The items considered of value in exchange for business can be discounts, increased equity, trips, and even stock options.

Section 8b of RESPA prohibits giving or receiving any portion or percentage of a fee received for real estate settlement services unless it’s for services actually performed. These fees must be split between two or more persons for it to be a direct violation of the law.

Example

John, the mortgage broker, has developed an extensive network of real estate agents who have referred business to him throughout the years. John begins a competition with his network and gives out nice prizes for the agent who referred the most buyers to him. This is a direct violation of RESPA, as no party should receive anything of value for referring a business for a residential mortgage loan.

Penalty

The penalty for violating section 8 of RESPA is a fine of up to $10,000 and possibly one year of jail time. In some cases, the RESPA violator may also be charged in a private lawsuit to pay the borrower up to three times the charge for settlement services.

How to Avoid

Clients may ask you for your opinion on settlement service providers, and you can provide them with recommendations as long as it’s not under the condition that you receive anything in return from the vendor you recommend. A couple of tips include:

• Sharing a list of several trustworthy vendors, but allowing the client to make their own decision about who to work with.
• Include a written disclaimer in the vendor document that it’s the borrower’s responsibility to review vendors and select the best one that fits their needs.
• Suggest to clients that they interview each vendor before deciding who they work with.
• Be honest with clients and provide them with an Affiliated Business Arrangement Disclosure disclosing that you receive a promotional fee in return for referring the business.

2. Requiring Excessively Large Escrow Accounts Balances

Section 10 of RESPA provides rules and regulations to protect borrowers with escrow accounts. This section limits the amount of money a borrower may be required to keep in the escrow account to cover payments for things like taxes, flood insurance, private mortgage insurance, and other costs related to the property. While not every borrower will be required to have an escrow account, if they do, it is limited to approximately two months of escrow payments.

Example

Jamie is a lender involved in a federally related mortgage loan for a young couple. Jamie establishes an escrow account to pay the couple’s taxes and insurance. The escrow account is funded through a portion of the couple’s mortgage payment. Jamie determines their escrow amount by taking a monthly average of their anticipated insurance and taxes for the year.

After one year, their insurance premiums were reduced, but Jamie kept withdrawing the same amount without analyzing the account. By the end of the second year, the couple’s escrow account has an excess of four months of escrow payments. Jamie needs to perform an annual analysis of the escrow account and return any amount exceeding two months of escrow payments to the couple, or he will be in violation.

Penalty

For loan servicers who violated section 10 of RESPA, penalties are up to $110 for each violation. The law does impose a maximum amount of $130,000 for violations within 12 months.

How to Avoid

Lenders should understand the nuances associated with escrow accounts. A cushion within an escrow account may not exceed one-sixth of the amount that needs to be disbursed for the year. A lender must also analyze the escrow account once a year and notify borrowers if any shortages are present. If there are excess funds in the account of more than $50, then that must be returned to the borrower.

3. Responding to Loan Servicing Complaints

Section 6 of the RESPA protects borrowers with consumer protection rights concerning their mortgage loans. If a borrower has an issue with their servicer, they can contact their servicer in writing. The servicer must acknowledge the complaint within 20 days of receipt, and within 60 days, they must resolve the complaint. To resolve the complaint, they must do so with either a correction or a statement providing reasons for its defense.

Example

Jenny had an escrow account with a mortgage lender and noticed that she was charged a late fee for a payment that she believed was not sent in late. Jenny sends a written notice to her lender that includes her name, loan account information, and a written explanation of the error she believes was incorrect.

The mortgage lender receives her notice and responds to her within 20 days of receiving notice of the possible error. The mortgage lender noticed it was an accounting error and removed the late fee from her account. This is a violation of RESPA because the mortgage lender must reply to Jenny within five days of the correction in writing to let her know it has been fixed.

Penalty

Borrowers can file a private lawsuit for violating this section of RESPA within three years and may be awarded damages in court.

How to Avoid

Loan servicers should have strong processes to ensure all written requests are opened and addressed within the required time. Here are a few tips to ensure responses are made promptly:

• All incoming letters and packages should be time-stamped with the date of receipt and scanned into internal customer relationship management (CRM) software.
• When logging paperwork into the CRM, each staff member should be assigned a task requiring them to complete an acknowledgment receipt along with a final date for responding to the error.
• Once response letters are mailed, the lender should mark the tasks as complete to add additional electronic time stamps if the dates are disputed in the future.

It’s also important to note that within the 60 days provided to resolve the claim, the loan servicer cannot provide information to a credit reporting agency with any overdue payments if they exist during the period of a written request.

Pipedrive customizing pipeline (Source: Pipedrive)

A CRM that can assist professionals with this time-sensitive process is Pipedrive. Pipedrive allows you to create tasks, send automatic reminders and emails, and has built-in digital signature and document tracking features. These features will ensure you prioritize everyone in your pipeline and remain compliant with RESPA laws.

Visit Pipedrive

4. Inflating Costs

In section 4 of RESPA, mortgage lenders and brokers are unable to charge clients an inflated cost of third-party services beyond the original cost of service. This violation is specific to settlement costs itemized in HUD-1 and HUD-1A settlement statements, where costs cannot exceed the amount received by the settlement service.

Example

A mortgage broker told Jo, the buyer, that pulling their credit would cost $30. When Jo received the settlement statement, they noticed that there was an additional charge of $20 for the credit report because of third-party administrative services. This is a violation of RESPA because the mortgage broker is unable to charge the client any amount above the stated $30 for the credit report.

Penalty

The United States Department of Housing and Urban Development is the agency that will typically issue the violation when notified. Companies that violate this rule can be fined as much as a few hundred thousand dollars in damages.

How to Avoid

To avoid violations for inflated costs, ensure proper bookkeeping of fees paid for service and bill clients appropriately. If possible, you can develop relationships with your third-party vendor to set a standard amount for specific services based on your volume of clients, so there are no discrepancies in the amount paid and the amount charged. However, be careful not to ask for monetary kickbacks in return from your vendors if you’re getting a bulk discount.

5. Not Disclosing Estimated Settlement Costs

Mortgage lenders and brokers are required to provide an itemized statement of settlement costs to your clients. These costs are presented in a Good Faith Estimate (GFE) form. The form shows the estimated cost the borrower should incur during the mortgage settlement process, like origination fees, estimates for services, title insurance, escrow deposits, and insurance costs.

Example Closing Disclosure (Source: Consumer Financial Protection Bureau)

Example

A lender receives an application from John, the potential borrower. The lender must give John a GFE by hand delivery, mail, or electronic form no later than three days after receiving the application. The lender cannot charge John for any fees other than for the cost of a credit report until John accepts the GFE and indicates he wants to proceed with the loan.

Penalty

The fine for violation of this RESPA law is $94 for an accidental violation but can increase to a few hundred thousand for intentional violations.

How to Avoid

Lenders should provide estimated costs to the borrower within three days of their application by hand delivery, mail, fax, or other electronic avenues. If a document is mailed, ensure it has signature tracking and make sure the applicant received the costs within three days after it was mailed to avoid any penalty.

However, lenders do not have to provide the estimation of fees if the lender denies the application or if the borrower withdraws their application. In the GFE, lenders may not charge any additional fees until the borrower has received the estimation and indicates they want to proceed.

6. Demanding Title Insurance

Under RESPA section 9 violations, sellers of a property that is purchased with a federally related mortgage loan cannot require, directly or indirectly, that the buyer purchase title insurance from a particular company. Sellers should not list this as a condition of the sale of a property.

Example of title insurance (Source: Andrew Robb RE/MAX Fine Properties)

Example

Becky is a real estate agent, and her sister just started a job at a title agency. Becky wants to give her sister as much business as possible to get her end-of-year bonus. For all her sellers, Becky decides to include in the condition of the sale that they must get title insurance from Becky’s sister’s title agency for an offer to be accepted. This is a direct violation of RESPA.

Penalty

If this section of RESPA is violated, buyers may bring a lawsuit against the seller for up to three times the charges for the cost of title insurance.

How to Avoid

There are a few scenarios where you can avoid this penalty. Sellers should not list a title company as a property sale condition. If a title company is suggested, ensure you are providing multiple options and fine print for buyers to do their own research. However, sellers can pay for the title insurance at no cost to the buyer if those costs are not added to other fees.

SEE THE FULL AERTICLE HERE  https://fitsmallbusiness.com/what-are-respa-violations/

AOL EXPLAINER

If you have attended an Executive Committee meeting, the NYSLTA annual convention or an ALTA event in the past few years, you will have heard reference to AOLs (Attorney Opinion Letters). In New York State, an AOL is an unregulated insurance product.

AOLs are currently being promoted to provide significant cost saving to consumers, especially low- and middle-income buyers. It appears that a coordinated disinformation campaign is underway as seen by recent articles in the Wall Street Journal, the New York Post, Business Insider and The Daily Mail. 

In addition to marketing activity, federal and multi-state lobbying to promote greater use of AOLs is actively seeking to overturn regulations that have protected consumers for more than 100 years.  In fact, title insurance was introduced to fix the deficiencies of attorney opinion letters.

The New York State Land Title Association is concerned about the spread of AOLs driven by incomplete and misleading information that threatens consumers and distorts the value produced by the title industry. First-time home buyers and people who are financially unsophisticated are especially vulnerable.

This email sets out the following objectives

• What is an AOL?
• Why do you care?
• Does an AOL indemnify the homeowner?
• What are the differences between an AOL and a lenders title insurance policy?
• What can title professionals do?

You will also find attachments that provide details about this unregulated alternative to title insurance.

What is an AOL?

An AOL is a legal opinion prepared by an attorney that provides their professional determination of the status of title to a property and, when delivered to a lender, the priority of the mortgage lien.

Why do you care?

If your business is selling title insurance, AOLs are a low-cost alternative to the lender’s policy. If you are an attorney representing a purchaser, your client will have no protection or indemnification for any issues in the chain of title, such as liens, unpaid taxes, unsatisfied mortgages, as well as issues such as adverse possession, recording errors and challenges to your ownership of title.

Does an AOL indemnify the homeowner?

No, it does not.

These products lack transparency and basic consumer protections provided by state insurance regulation, creating risk to buyers. Providers of attorney opinion letters have no statutory reserving requirements to protect against losses.

What are the differences between an AOL and a lenders title insurance policy?

An AOL does not include defense of challenges.  Sole recourse is legal claim against attorney for negligent misrepresentation or potential breach of contract, which may be time constrained by the three-year statute of limitations [CPLR 214(6)].

You can find a detailed list of the many things not covered by an AOLs in the attachments.  A partial list includes the following elements not covered by AOLs: fraud; forgery; duress; incapacity; impersonation; improper execution of documents; priority over mechanics liens; back-chain creditors’ rights.

What can title professionals do?

1. Familiarize yourself and your colleagues with complete product knowledge about this alternative to the policies that you provide. ALTA has a wealth of good information about AOLs.
2. Help educate the attorneys that you work about the complete details of AOLs
3. Stay attuned to the markets that you serve and contact RGT@NYSLTA.ORG about any marketing or promotional activity that presents AOLs as “better than title insurance” or as a product that will “save consumers money”.
4. Follow NYSLTA and ALTA alerts. Contact NYSLTA about enrolling in the Title Action Network (TAN).

https://www.thestockdork.com/title-insurance/

Understanding Title Insurance: Protecting Your Property Ownership

• By Caryl V
• Dec 28, 2023

When it comes to purchasing a property, ensuring that you have clear and undisputed ownership is crucial. 

This is where title insurance plays a vital role. In this comprehensive guide, we will delve into the world of title insurance, unraveling its importance, and demystifying the process.

What Is Title Insurance?

Title insurance is a type of insurance that protects property owners and lenders against financial loss resulting from defects or issues with a property’s title. 

These defects can include liens, encumbrances, errors in public records, legal disputes, or prior claims on the property. It provides peace of mind by ensuring that the property’s ownership is clear and free from potential risks or challenges.

Title insurance is different from other forms of insurance as it focuses on protecting against past events or claims that occurred before the policy was issued. 

It provides coverage against known and unknown issues that could arise from the property’s historical ownership records.

Types of Title Insurance Policies

There are two main types of title insurance policies: owner’s title insurance and lender’s title insurance.

Owner’s Title Insurance:

The owner’s title insurance policy protects the property owner for as long as they own the property. It provides coverage against defects that may arise in the property’s title history, including errors in public records, undisclosed heirs, forged deeds, or mistakes made during the title search process. This policy is typically purchased by the buyer during the property purchase transaction.

Lender’s Title Insurance:

The lender’s title insurance policy protects the lender’s investment in the property. When a property is financed through a mortgage, the lender typically requires a lender’s title insurance policy to protect their interests in case of title defects or challenges. This policy is usually paid for by the borrower as part of the closing costs.

Coverage and Benefits of Title Insurance

One of the primary benefits of title insurance is its ability to provide protection against financial loss resulting from title defects. Here are the key coverage and benefits of title insurance:

Protection against Financial Loss:

Title insurance protects against financial loss or expenses incurred as a result of a covered title defect. If a claim is made against your property’s title, the title insurance company will compensate you for the covered losses, including legal expenses incurred while defending your ownership rights. This coverage can save you from significant financial burdens and potential litigation costs.

Coverage for Legal Expenses:

Title insurance also includes coverage for legal expenses that may arise from defending your ownership rights. 

If someone challenges your ownership or files a claim against the property’s title, the title insurance company will bear the legal costs associated with resolving the issue. 

This coverage can help minimize the financial impact of legal disputes.

Ensuring Clear Property Ownership:

Title insurance provides assurance that your property ownership is clear and marketable. 

In the event of a title defect that threatens your ownership rights, the title insurance policy will cover the costs of resolving the issue, allowing you to maintain your ownership without incurring additional expenses.

Coverage for Risks and Challenges:

Title insurance safeguards against a range of potential risks and challenges, including but not limited to boundary disputes, unpaid liens, undisclosed easements, restrictions on property use, or errors in public records. 

These risks can pose significant threats to property ownership and can result in costly legal battles. Title insurance provides coverage and financial protection against these potential challenges.

Peace of Mind for Property Owners:

By obtaining title insurance, property owners can have peace of mind knowing that their investment is protected. 

Title insurance can help you avoid the stress and financial burden that can arise from unforeseen title defects, giving you confidence in your property ownership.

Common Title Issues and Risks

Boundary disputes, liens, and undisclosed heirs are among the common title issues that title insurance protects against. 

Boundary disputes can arise when neighboring properties have disagreements regarding their property lines. Liens and encumbrances, such as unpaid taxes or mortgages, can also pose a risk to the title. 

Additionally, undisclosed heirs or claims from previous owners can surface, challenging your ownership rights.

Obtaining Title Insurance

To obtain title insurance, you will typically work with a title company. During the closing process, the title company will conduct a title search, examining public records and uncovering any potential issues or defects. 

The cost of title insurance is a one-time premium paid at closing, based on the property’s purchase price.

Frequently Asked Questions

Who pays for title insurance?

The party responsible for paying title insurance varies depending on the state and local practices. In some cases, the buyer pays for both the owner’s and lender’s title insurance policies, while in other cases, the seller may cover a portion or all of the expenses.

Is title insurance a waste of money?

While title insurance is not legally required in every state, it provides essential protection for property owners. Without title insurance, you may bear the financial burden of defending your ownership rights or correcting title defects, which can be costly.

What is title insurance used for in real estate?

Title insurance in real estate provides protection against potential defects or issues with the property’s ownership history. It ensures that you have clear and marketable title, safeguarding your investment and ownership rights.

Can you provide examples of title insurance claims?

Title insurance claims can arise from various situations, such as a previously undisclosed heir challenging your ownership, a lienholder asserting their rights to the property, or a forged signature on a previous deed. In each case, title insurance would provide coverage and protect your investment.

Conclusion

In conclusion, title insurance is a crucial component of the property purchasing process. It offers financial protection and ensures clear ownership, safeguarding your investment in real estate. 

By understanding the importance and benefits of title insurance, you can make informed decisions and protect your property ownership rights. 

When purchasing a property, remember to include title insurance in your plans, and work with a reputable title company to ensure a smooth and secure transaction.

CORPORATE TRANSPARENCY ACT GOING INTO EFFECT JANUARY 1, 2024

NEW YORK - Starting on January 1, 2024, the Corporate Transparency Act (“CTA” or “Act”) legislation will go into effect and impact a wide range of corporations. Most significantly, the CTA introduces beneficial ownership reporting requirements for new and existing companies. The Act’s new reporting requirement or beneficial ownership information (BOI) refers to identifying information about certain individuals directly or indirectly owning or controlling a corporate entity.

The CTA reporting requirements will apply to corporations, limited liability companies, and other entities that fall within the Act’s definition of a “reporting company”. According to the CTA, reporting companies will fall into two categories: (1) domestic reporting companies and (2) foreign reporting companies.

Domestic reporting companies: These will include corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
Foreign reporting companies: include entities (inclusive of corporations and limited liability companies) formed under the laws of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

The beneficial ownership information will be collected and accessed through the Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Department of the Treasury. By way of background, the CTA was passed originally passed in 2021 by Congress on a bipartisan basis. This act is a part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. BOI will be stored in a secure, non-public database using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level. FinCEN will permit access to BOI to Federal, State, local, and Tribal officials on a bipartisan basis, and will work closely with those authorized to access BOI to ensure they understand their roles and responsibilities. The use of such information will be solely for authorized purposes, security, and confidentiality for assisting FinCEN.

Nevertheless, a reporting company created or registered to do business before January 1, 2024 will have one year, or until January 1, 2025 to file its initial beneficial ownership information report. While a reporting company created or registered on or after January 1, 2024 will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Registration will be available through an electronic secure filing system via FinCEN’s website.
While this system is currently being developed, it will be available before reports are to be filed.

There will be no cost or fee associated with registration to FinCEN.

Reportable information includes:

- The full legal name and any trade name or “doing business as” name of the Reporting Company;

- A complete current address;

- The State, Tribal, or foreign jurisdiction of formation or registration of the Reporting Company; and

- The IRS Taxpayer Identification Number (including Employer Identification Number)

For more information and answers to FAQs, visit FinCEN’s site at https://www.fincen.gov/

________________________________________________________________

The information above was provided by Brian Berlandi, Esq. 646-878-6166 or bberlandi@bnrllp.com

Used with permission.