RESPA Complete Statute

Real Estate Settlement Procedures Act
Background • Made in connection with a housing or urban

development program administered by an
The Real Estate Settlement Procedures Act of 1974 agency of the federal government
(RESPA) (12 USC 2601-17), which is implemented
by the Department of Housing and Urban Devel • Made by and intended to be sold by the
opment’s Regulation X (24 CFR 3500), became originating lender or creditor to FNMA, GNMA, or
effective in June 1975. The act requires lenders, FHLMC (or its successor)4
mortgage brokers, and servicers of home loans to • Subject of a home equity conversion mortgage
provide borrowers with pertinent and timely disclo or a reverse mortgage issued by a lender or
sures about the nature and costs of the real estate creditor subject to the regulation
settlement process. It also protects borrowers
• Made by a lender, dealer, or creditor subject to
against certain abusive practices, such as kick
the regulation and used in whole or in part to
backs, and places limitations on the use of escrow
fund an installment sales contract, land contract,
accounts.
or contract for deed on otherwise qualifying
Since its enactment, RESPA has been amended residential property
several times to cover, among other things, subor
dinate loans; required disclosures for the transfer,
sale, or assignment of mortgage servicing; rules for Exemptions—Section 3500.5(b)
mortgage escrow accounts, including the account
The following transactions are exempt from RESPA:
ing method to be used for these accounts; required
disclosures; and the established formats and pro • A loan on property of twenty-five acres or more
cedures for initial and annual escrow statements. (whether or not a dwelling is located on the
property)
Coverage—Section 3500.5(a) • A loan primarily for business, commercial, or
agricultural purposes (as defined in section
RESPA is applicable to all federally related mort 226.3(a)(1) of Regulation Z)
gage loans. Federally related mortgage loans are
• A temporary loan, such as a construction loan
loans, including refinances, secured by a first or
(The exemption does not apply if the loan is used
subordinate lien on residential real property upon
as, or may be converted to, permanent financing
which
by the same financial institution.) If the lender
• A one- to four-family structure is located or is to issues a commitment for permanent financing,
be constructed using proceeds of the loan the loan is covered. A construction loan with a
(including individual units of condominiums and term of two years or more is covered unless it is
cooperatives) or made to a bona fide contractor. ‘‘Bridge’’ and
‘‘swing’’ loans are not covered.
• A manufactured home is located or is to be
constructed using proceeds of the loan • A loan secured by vacant or unimproved prop
erty when no proceeds of the loan will be used to
In addition, the federally related mortage loan must construct a one- to four-family residential struc
meet one of the following conditions: ture. If the proceeds will be used to locate a
manufactured home or construct a structure
• Made by a lender,1 creditor,2 or dealer3
within two years from the date of settlement, the
• Made by or insured by an agency of the federal loan is covered.
government • An assumption, unless the mortgage instruments
require lender approval for the assumption and
the lender actually approves the assumption
1. A lender includes a financial institution either regulated by or • A renewal or modification when the original
whose deposits or accounts are insured by any agency of the obligation (note) is still in effect but modified
federal government.
2. A creditor is defined in section 103(f) of the Consumer Credit • A bona fide transfer of a loan obligation in the
Protection Act (15 USC 1602(f)). RESPA covers any creditor that secondary market (However, the mortgage
makes or invests in residential real estate loans aggregating to servicing transfer disclosure requirements of
more than $1,000,000 a year.
3. Dealer is defined in Regulation X as a seller, contractor, or
supplier of goods or services. Dealer loans are covered by RESPA 4. FNMA, Federal National Mortgage Association; GNMA,
if the obligations are to be assigned before the first payment is Government National Mortgage Association; FHLMC, Federal
due to any lender or creditor otherwise subject to the regulation. Home Loan Mortgage Corporation.
24 CFR 3500.21 still apply.) Mortgage broker Good Faith Estimates of the Amount or
transactions that are table-funded (that is, the Range of Settlement Costs (§ 3500.7)
loan is funded by a contemporaneous advance
of loan funds and an assignment of the loan A financial institution must provide, in a clear and
to the person advancing the funds) are not concise form, a good faith estimate (GFE) of the
secondary-market transactions and therefore are amount of settlement charges the borrower is likely
covered by RESPA. to incur. The GFE must include all charges that will
be listed in section L of the HUD-1 settlement
The exemption does not apply if there is a transfer
statement and must be provided no later than three
of title to the property.
business days after the written application is
received. The estimate for each settlement service
may be an estimate of the dollar amount or a range
Requirements of dollar amounts. However the estimate is stated
(amount or range), for each charge the estimate
Special Information Booklet (§ 3500.6) (1) must bear a reasonable relationship to the
borrower’s ultimate cost for each settlement charge
A financial institution is required to provide a and (2) must be based on experience in the locality
borrower with a copy of the ‘‘special information or area in which the property involved is located.
booklet’’ at the time a written application is sub A suggested form is set forth in appendix C to
mitted or no later than three business days after the Regulation X. If the application is denied before the
application is received. If the application is denied end of the three-business-day period, the institution
before the end of the three-business-day period, is not required to provide a GFE.
the institution is not required to provide the booklet.
If the borrower uses a mortgage broker, the broker • A financial institution that complies with Regula
rather than the institution must provide the booklet. tion Z for open-end home equity plans is deemed
to have complied with this section.
• An application includes the submission of a
borrower’s financial information, either written or • For ‘‘no cost’’ or ‘‘no point’’ loans, the GFE must
computer generated, for a credit decision on a disclose any payments to be made to affiliated or
federally related mortgage loan. To be consid independent settlement service providers. These
ered a written application, the submission must payments should be shown as P.O.C. (paid
state or identify a specific property. The subse outside of closing).
quent addition of an identified property to the
submission converts the submission to an appli • For dealer loans, the institution is responsible for
cation for a federally related mortgage loan. providing the GFE directly to the consumer or for
(section 3500.2(b)) ensuring that it is provided by the dealer.
• A financial institution that complies with Regula • For brokered loans, if the mortgage broker is the
tion Z for open-end home equity plans is deemed exclusive agent of the institution, either the
to have complied with this section of the institution or the broker must provide the GFE
regulation. within three business days after the broker
receives or prepares the application. When the
• The booklet does not need to be given for
broker is not the exclusive agent of the institution,
refinancing transactions, closed-end subordinate-
the institution is not required to provide the GFE
lien mortgage loans, or reverse mortgage trans
if the broker has already provided it. However,
actions or for any other federally related mort
the funding lender must ascertain that the GFE
gage loan not intended for the purchase of a
has been delivered.
one- to four-family residential property.
Part 1 of the booklet describes the settlement If the financial institution requires the use of a
process and the nature of charges and suggests particular settlement service provider and requires
questions to be asked of lenders, attorneys, and the borrower to pay all or a portion of the cost of
others to clarify what services they will provide for those services, the institution must include with the
the charges quoted. It also contains information on GFE the following disclosures:
the rights and remedies available under RESPA and
• A statement that use of the provider is required
alerts borrowers to unfair or illegal practices.
and that the estimate is based on the charges of
Part 2 contains an itemized explanation of the designated provider
settlement services and costs, as well as sample
• The name, address, and telephone number of
forms and worksheets for comparing costs. The
the designated provider
appendix in the booklet has a list of consumer
literature on home purchasing, maintenance pro • A description of the nature of any relationship
tection, and related topics. between each such provider and the institu-
tion. A relationship exists if any of the following Printing and Duplication

apply: of Settlement Statements
– The provider is an associate of the institution, (§ 3500.9)
as defined in section 3(8) of RESPA (12 USC
Financial institutions have numerous options for
2602(8))
layout and format in reproducing the HUD-1 and
– The provider has maintained an account with HUD-1A settlement statements. The following varia
the institution or had an outstanding loan or tions do not require prior HUD approval: size of
credit arrangement with the institution within pages; tint or color of pages; size and style of type
the past twelve months or print; spacing; printing on separate pages, the
– The institution has repeatedly used or required front and back of a single page, or one continuous
borrowers to use the provider’s services within page; use of multicopy tear-out sets; printing on
the past twelve months rolls for computer purposes; addition of signature
• A statement explaining that except for a provider lines; and translation into any language. Other
that is the institution’s chosen attorney, credit- changes may be made only with the approval of the
reporting agency, or appraiser, if the institution Secretary of Housing and Urban Development.
has an affiliated business relationship with the
provider, the institution may not require use of
that provider (24 CFR 3500.15) One-Day Advance Inspection
If the institution maintains a controlled list of
of Settlement Statements
required providers (five or more for each discrete
(§ 3500.10)
service) or relies on a list maintained by others and Upon request by the borrower, the HUD-1 or
at the time of the application has not decided which HUD-1A settlement statement must be completed
provider will be selected, the institution may and made available for inspection during the busi
comply with this section by ness day immediately preceding the day of settle
• Providing a written statement that the institution ment. The statement must set forth those items
will require a particular provider from an approved known at that time by the person conducting the
list and closing.
• Disclosing in the GFE the range of costs for the
required providers and providing the name of the
specific provider and the actual cost on the HUD Delivery of Settlement Statements
settlement statement (§§ 3500.10(a) and 3500.10(b))
If the list contains fewer than five providers of The completed HUD-1 or HUD-1A settlement
service, the names, addresses, telephone num statement must be mailed or delivered to the
bers, and costs are required along with an borrower, the seller (if there is one), and the lender
explanation of the business relationship. (if the lender is not the settlement agent) or their
agents at or before settlement. However, the bor
rower may waive the right of delivery by execut
Uniform Settlement Statements ing a written waiver at or before settlement. If the
(HUD-1 and HUD-1A) (§ 3500.8) borrower or the borrower’s agent does not attend
the settlement, the settlement statement must be
The HUD-1 and HUD-1A settlement statements mailed or delivered as soon as practicable after
must be completed by the person (settlement settlement.
agent) conducting the closing and must conspicu
ously and clearly itemize all charges related to the
transaction. The HUD-1 is used for transactions in Retention of Settlement Statements
which there is a borrower and a seller. It may also (§ 3500.10(e))
be used for transactions in which there is a bor
rower but no seller (refinancings and subordinate- The financial institution must retain each completed
lien loans) by completing the borrower’s side of the HUD-1 or HUD-1A settlement statement and related
statement; alternatively, the HUD-1A may be used documents for five years after settlement, unless
for borrower-only transactions. the institution disposes of its interest in the mort
gage and does not service the mortgage. If the
No settlement statement is required for home equity
loan is transferred, the institution must provide a
plans subject to the Truth in Lending Act and
copy of the statement to the owner or servicer of
Regulation Z.
the mortgage as part of the transfer. The owner or
Appendix A to Regulation X gives instructions for servicer must retain the statement for the remainder
completing the two forms. of the five-year period.
Prohibition of Fees for Preparing – The nature of the relationship (explaining the
ownership and financial interest) between the
Federal Disclosures— provider and the financial institution and
Section 3500.12 – The estimated charge or range of charges
For loans subject to RESPA, no fee may be charged generally made by such provider
for preparing the settlement statement or the This disclosure must also be provided on a
escrow account statement or any disclosures separate piece of paper either at the time of loan
required by the Truth in Lending Act. application, or with the GFE, or at the time of the
referral.
Prohibition against Kickbacks and Generally, the institution may not require the use
Unearned Fees—Section 3500.14 of such a provider. The institution may, however,
require a buyer, borrower, or seller to pay for the
Any person who gives or receives a fee or a thing of services of an attorney, credit-reporting agency, or
value (a payment, commission, fee, gift, or special real estate appraiser chosen by the institution to
privilege) for the referral of settlement business is in represent its interest. The only thing of value the
violation of section 8 of RESPA. Payments in excess institution may receive is a return on an ownership
of the reasonable value of goods provided or or franchise interest or a payment otherwise per
services rendered are considered kickbacks. mitted by RESPA.
Appendix B to Regulation X provides guidance on
the meaning and coverage of the prohibition
against kickbacks and unearned fees. Title Companies—Section 3500.16
Financial institutions that hold legal title to the
Penalties and Liabilities property being sold are prohibited from requiring
Civil and criminal liability is provided for violating borrowers, either directly or indirectly, to use a
the prohibition against kickbacks and unearned particular title company. Civil liability for violating
fees, including this provision is an amount equal to three times the
total of all charges made for such title insurance.
• Civil liability to the parties affected equal to three
times the amount of any charge paid for such
settlement service Escrow Accounts—Section 3500.17
• The possibility that the costs associated with any
court proceeding, together with reasonable HUD’s escrow accounting rule, known as aggre
attorney’s fees, could be recovered gate accounting, establishes formats and pro
cedures for initial and annual escrow account
• A fine of not more than $10,000 or imprisonment statements.
for not more than one year, or both, for each
violation Under the rule, the amount of escrow funds that
may be collected at settlement or upon creation of
an escrow account is restricted to an amount
Affiliated Business Arrangements— sufficient to pay charges, such as taxes and
Section 3500.15 insurance, that are attributable to the period from
the date such payments were last paid until the
If a financial institution has either an affiliate initial payment date. Throughout the life of an
relationship or a direct or beneficial ownership escrow account, the servicer may charge the
interest of more than 1 percent in a provider of borrower a monthly sum equal to one-twelfth of the
settlement services and the lender directly or total annual escrow payments that the servicer
indirectly refers business to the provider, this reasonably anticipates paying from the account.
relationship is an affiliated business arrangement. In addition, the servicer may add an amount to
An affiliated business arrangement is not a viola maintain a cushion no greater than one-sixth of the
tion of section 8 of RESPA or of section 3500.14 estimated total annual payment from the account.
of Regulation X if the following conditions are
satisfied:
Escrow Account Analysis
• Prior to the referral, the person making each (§§ 3500.17(c)(2) and 3500.17(c)(3))
referral has provided, to each person whose
business is referred, an affiliated business Before establishing an escrow account, a servicer
arrangement disclosure statement (Appendix D must conduct an analysis to determine the periodic
to Regulation X). This disclosure must specify payments and the amount to be deposited. The
both servicer must use an escrow disbursement date
that is on or before the earlier of (1) the deadline to • Require the borrower to repay the shortage in
take advantage of discounts, if available, or (2) the equal monthly payments over at least a twelve
deadline to avoid a penalty. The servicer must also month period
analyze each account at the completion of the If the escrow account analysis discloses a
computation year to determine the borrower’s deficiency, the servicer may require the borrower to
monthly payments for the next computation year. pay additional monthly deposits to the account to
eliminate the deficiency. If the deficiency is less
Transfer of Servicing (§ 3500.17(e)) than one month’s escrow account payment, the
servicer may do any of the following:
If a new servicer changes either the monthly
• Allow the deficiency to exist and do nothing to
payment amount or the accounting method used
change it
by the former servicer, it must provide the borrower
with an initial escrow account statement within sixty • Require the borrower to repay the deficiency
days of the date of transfer. When the new servicer within thirty days
provides an initial escrow account statement, it • Require the borrower to repay the deficiency in
must use the effective date of the transfer of two or more equal monthly payments
servicing to establish the new escrow account If the deficiency is equal to or more than one
computation year. In addition, if the new servicer month’s escrow payment, the servicer may do
retains the monthly payments and accounting either of the following:
method used by the former servicer, the new
servicer may continue to use the same compu • Allow the deficiency to exist and do nothing to
tation year established by the former servicer or change it
may choose a different one, using a short-year • Require the borrower to repay the deficiency in
statement. two or more equal monthly payments
These provisions for eliminating deficiencies and
Shortages, Surpluses, and Deficiencies shortages apply as long as the borrower’s mort
gage payment is current at the time of the escrow
Requirements (§ 3500.17(f))
account analysis.
The servicer must conduct an annual escrow A servicer must notify the borrower at least once
account analysis to determine whether a surplus, during the escrow account computation year if a
shortage, or deficiency exists, as defined in section shortage or deficiency exists in the account.
3500.17(b).
If the escrow account analysis discloses a
surplus, the servicer must, within thirty days from Initial Escrow Account Statement
the date of the analysis, refund the surplus to the (§ 3500.17(g))
borrower if the surplus is $50 or more. If the surplus
is less than $50, the servicer may refund such After analyzing each escrow account, a servicer
amount to the borrower or credit the amount must submit an initial escrow account statement to
against the next year’s escrow payments. These the borrower at settlement or within forty-five
provisions apply as long as the borrower’s mort calendar days of settlement for escrow accounts
gage payment is current at the time of the analysis. that are established as a condition of the loan. The
initial escrow account statement must include the
If the escrow account analysis discloses a
monthly mortgage payment; the portion going to
shortage of less than one month’s escrow pay
escrow; itemized estimated taxes, insurance pre
ments, the servicer may do any of the following:
miums, and other charges; the anticipated disburse
• Allow the shortage to exist and do nothing to ment dates of those charges; the amount of the
change it cushion; and a trial running balance.
• Require the borrower to repay the shortage
amount within thirty days
• Require the borrower to repay the shortage Annual Escrow Account Statement
amount in equal monthly payments over at least (§ 3500.17(i))
a twelve-month period
A servicer must submit to the borrower an annual
If the analysis shows a shortage more than or
statement for each escrow account within thirty
equal to one month’s escrow payment, the servicer
days of the completion of the computation year. The
may do either of the following:
servicer must conduct an escrow account analysis
• Allow the shortage to exist and do nothing to before submitting the annual statement to the
change it borrower.
The annual escrow account statement must including all refinancing transactions. Subordinate-
contain an account history; a projection for the next lien loans and open-end lines of credit (home
year; the amount of the current mortgage payment equity plans) that are covered under the Truth in
and the portion going to escrow; the amount of the Lending Act and Regulation Z are exempt from this
past year’s monthly mortgage payment and the section of Regulation X.
portion that went to escrow; the total amount paid
A financial institution that receives an application
into the escrow account during the past year; the
for a federally related mortgage loan is required to
amount paid from the account for taxes, insurance
provide the servicing disclosure statement to the
premiums, and other charges; the balance at the
borrower at the time of application if there is a
end of the period; an explanation of how the
face-to-face interview; otherwise, it must provide
surplus, shortage, or deficiency is being handled;
the statement within three business days after
and, if applicable, the reasons why the estimated
receiving the application.
low monthly balance was not reached.
When a federally related mortgage loan is
assigned, sold, or transferred, the transferor (the
Short-Year Statements (§ 3500.17(i)(4)) current servicer) must provide a disclosure at least
A short-year escrow account statement may be fifteen days before the effective date of the transfer.
issued to end one escrow account computation The same notice from the transferee (the new
year and establish the beginning date of the new servicer) must be provided not more than fifteen
computation year. Such a statement may be days after the effective date of the transfer. Both
provided upon the transfer of servicing and is notices may be combined in one notice if delivered
required upon loan payoff. The statement must be to the borrower at least fifteen days before the
submitted to the borrower within sixty days after effective date of the transfer. The disclosure must
receipt of the payoff funds. include
• The effective date of the transfer
Timely Payments (§ 3500.17(k)) • The name, address for consumer inquiries, and
toll-free or collect-call telephone number of the
The servicer must pay escrow disbursements by
transferee
the disbursement date. In calculating the disburse
ment date, the servicer must use a date on or • A toll-free or collect-call telephone number for an
before the earlier of the deadline to take advantage employee of the transferor who can be contacted
of discounts, if available, or the deadline to avoid a by the borrower to answer servicing questions
penalty. • The date on which the transferor will cease
accepting payments relating to the loan and the
date on which the transferee will begin accepting
Recordkeeping (§ 3500.17(l)) such payments. The dates must be either the
The servicer must keep easily retrievable records same or consecutive dates.
that reflect the servicer’s handling of each borrow • Any information concerning the effect of the
er’s escrow account. The records for each escrow transfer on the terms or continued availability of
account must be maintained for at least five years mortgage life or disability insurance or any other
after the servicer last serviced the account. type of optional insurance, and any action the
borrower must take to maintain coverage
Penalties (§ 3500.17(m)) • A statement that the transfer does not affect the
terms or conditions of the mortgage (except as
Failure to provide an initial or annual escrow related to servicing)
account statement to a borrower can result in the
financial institution’s or servicer’s being assessed a • A statement of the borrower’s rights in connec
civil penalty of $55 for each such failure, with the tion with complaint resolution
total for any twelve-month period not to exceed During the sixty-day period beginning on the date
$110,000. If the violation is due to intentional of transfer, no late fee may be imposed on a
disregard, the penalty is $110 for each failure, with borrower who has made the payment to the wrong
no annual cap on liability. servicer.
The following transfers are not considered an
Mortgage Servicing Disclosures— assignment, sale, or transfer of mortgage loan
Section 3500.21 servicing for purposes of this requirement if there is
no change in the payee, the address to which
Disclosures related to the transfer of mortgage payment must be delivered, the account number,
servicing are required for first mortgage liens, or the amount of payment due:
• Transfers between affiliates are considered to have complied with any state law
• Transfers resulting from mergers or acquisitions or regulation requiring notice to a borrower at the
of servicers or subservicers time of application or transfer of a mortgage.
• Transfers between master servicers, when the State laws are not affected by the act, except to
subservicer remains the same the extent that they are inconsistent, and then only
to the extent of the inconsistency. The Secretary of
Housing and Urban Development is authorized,
Servicers Must Respond to after consulting with the appropriate federal agen
Borrower Inquiries (§ 3500.21(e)) cies, to determine whether such inconsistencies
A financial institution servicer must respond to a exist.
borrower’s qualified written inquiry and must take
appropriate action within established time frames Penalties and Liabilities (§ 3500.21(f))
after receiving the inquiry. Generally, the institution
must provide written acknowledgment within twenty Failure to comply with any provision of section
business days and must take certain specified 3500.21 of Regulation X will result in actual
actions within sixty business days after receiving damages and, if there is a pattern or practice of
the inquiry. The inquiry must include the name and noncompliance, any additional damages in an
account number of the borrower and the reasons amount not to exceed $1,000. In class action
the borrower believes the account is in error. cases, each borrower will receive actual damages
and additional damages, as the court allows, up to
During the sixty-business-day period following $1,000 for each member of the class, except that
receipt of a qualified written request from a the total amount of damages in any class action
borrower relating to a disputed payment, a financial may not exceed the lesser of $500,000 or 1 percent
institution may not provide information to any of the net worth of the servicer. In addition, in any
consumer reporting agency regarding any overdue successful action, the entity that failed to comply
payment relating to this period or to the qualified will be liable for the costs of the action and
written request. reasonable attorney’s fees.
Relationship to State Law (§ 3500.21(h))

Financial institutions complying with the mortgage
servicing transfer disclosure requirements of RESPA
§ 3284.1 24 CFR Ch. XX (4–1–06 Edition)
SOURCE: 67 FR 52835, Aug. 13, 2002, unless 3500.14 Prohibition against kickbacks and
otherwise noted. unearned fees.
3500.15 Affiliated business arrangements.
§ 3284.1 Applicability. 3500.16 Title companies.
3500.17 Escrow accounts.
This part applies to manufacturers 3500.18 Validity of contracts and liens.
that are subject to the requirements of 3500.19 Enforcement.
the National Manufactured Housing 3500.20 [Reserved]
Construction and Safety Standards Act 3500.21 Mortgage servicing transfers.
of 1974 (the Act), and to States having APPENDIX A TO PART 3500—INSTRUCTIONS FOR
State plans approved in accordance COMPLETING HUD–1 AND HUD–1A SETTLE-
with the Act. The amounts established MENT STATEMENTS; SAMPLE HUD–1 AND
under this part for any fee collected HUD–1A STATEMENTS
APPENDIX B TO PART 3500—ILLUSTRATIONS OF
from manufacturers will be used, to the REQUIREMENTS OF RESPA
extent approved in advance in an an- APPENDIX C TO PART 3500—SAMPLE FORM OF
nual appropriations Act, to offset the GOOD FAITH ESTIMATE
expenses incurred by HUD in connec- APPENDIX D TO PART 3500—AFFILIATED BUSI-
tion with the manufactured housing NESS ARRANGEMENT DISCLOSURE STATE-
program authorized by the Act. MENT FORMAT
APPENDIX E TO PART 3500—ARITHMETIC STEPS
§ 3284.5 Amount of fee. APPENDIX MS–1 TO PART 3500—SERVICING DIS-
CLOSURE STATEMENT
Each manufacturer, as defined in APPENDIX MS–2 TO PART 3500—NOTICE OF AS-
§ 3282.7 of this chapter, must pay a fee SIGNMENT, SALE, OR TRANSFER OF SERV-
of $39 per transportable section of each ICING RIGHTS
manufactured housing unit that it AUTHORITY: 12 U.S.C. 2601 et seq.; 42 U.S.C.
manufactures under the requirements 3535(d).
of part 3280 of this chapter.
SOURCE: 57 FR 49607, Nov. 2, 1992, unless
otherwise noted. Sections 3500.1 through
§ 3284.10 Payments to States. 3500.19 and 3500.21 revised at 61 FR 13233, Mar.
Each calendar year HUD will pay 26, 1996.
each State that, on December 27, 2000,
had a State plan approved pursuant to § 3500.1 Designation.
subpart G of part 3282 of this chapter a This part may be referred to as Regu-
total amount that is not less than the lation X.
amount paid to that State for the 12
months ending at the close of business § 3500.2 Definitions.
on December 26, 2000. (a) Statutory terms. All terms defined
in RESPA (12 U.S.C. 2602) are used in
PART 3500—REAL ESTATE accordance with their statutory mean-
SETTLEMENT PROCEDURES ACT ing unless otherwise defined in para-
graph (b) of this section or elsewhere in
Sec. this part.
3500.1 Designation. (b) Other terms. As used in this part:
3500.2 Definitions. Application means the submission of a
3500.3 Questions or suggestions from public borrower’s financial information in an-
and copies of public guidance documents. ticipation of a credit decision, whether
3500.4 Reliance upon rule, regulation or in- written or computer-generated, relat-
terpretation by HUD. ing to a federally related mortgage
3500.5 Coverage of RESPA.
3500.6 Special information booklet at time loan. If the submission does not state
of loan application. or identify a specific property, the sub-
3500.7 Good faith estimate. mission is an application for a pre-
3500.8 Use of HUD–1 or HUD–1A settlement qualification and not an application for
statements. a federally related mortgage loan
3500.9 Reproduction of settlement state- under this part. The subsequent addi-
ments. tion of an identified property to the
3500.10 One-day advance inspection of HUD–
submission converts the submission to
1 or HUD–1A settlement statement; de-
livery; recordkeeping. an application for a federally related
3500.11 Mailing. mortgage loan.
3500.12 No fee. Business day means a day on which
3500.13 Relation to State laws. the offices of the business entity are
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Office of Asst. Sec. for Housing, HUD § 3500.2
open to the public for carrying on sub- or whose deposits or accounts are in-
stantially all of the entity’s business sured by any agency of the Federal
functions. Government;
Dealer means, in the case of property (B) Is made in whole or in part, or is
improvement loans, a seller, con- insured, guaranteed, supplemented, or
tractor, or supplier of goods or serv- assisted in any way:
ices. In the case of manufactured home (1) By the Secretary or any other of-
loans, ‘‘dealer’’ means one who engages ficer or agency of the Federal Govern-
in the business of manufactured home ment; or
retail sales.
(2) Under or in connection with a
Dealer loan or dealer consumer credit
housing or urban development program
contract means, generally, any arrange-
administered by the Secretary or a
ment in which a dealer assists the bor-
rower in obtaining a federally related housing or related program adminis-
mortgage loan from the funding lender tered by any other officer or agency of
and then assigns the dealer’s legal in- the Federal Government;
terests to the funding lender and re- (C) Is intended to be sold by the orig-
ceives the net proceeds of the loan. The inating lender to the Federal National
funding lender is the lender for the pur- Mortgage Association, the Government
poses of the disclosure requirements of National Mortgage Association, the
this part. If a dealer is a ‘‘creditor’’ as Federal Home Loan Mortgage Corpora-
defined under the definition of ‘‘feder- tion (or its successors), or a financial
ally related mortgage loan’’ in this institution from which the loan is to be
part, the dealer is the lender for pur- purchased by the Federal Home Loan
poses of this part. Mortgage Corporation (or its succes-
Effective date of transfer is defined in sors);
section 6(i)(1) of RESPA (12 U.S.C. (D) Is made in whole or in part by a
2605(i)(1)). In the case of a home equity ‘‘creditor’’, as defined in section 103(f)
conversion mortgage or reverse mort- of the Consumer Credit Protection Act
gage as referenced in this section, the (15 U.S.C. 1602(f)), that makes or in-
effective date of transfer is the transfer vests in residential real estate loans
date agreed upon by the transferee aggregating more than $1,000,000 per
servicer and the transferor servicer. year. For purposes of this definition,
Federally related mortgage loan or the term ‘‘creditor’’ does not include
mortgage loan means as follows: any agency or instrumentality of any
(1) Any loan (other than temporary State, and the term ‘‘residential real
financing, such as a construction loan): estate loan’’ means any loan secured
(i) That is secured by a first or subor- by residential real property, including
dinate lien on residential real property, single-family and multifamily residen-
including a refinancing of any secured tial property;
loan on residential real property upon
(E) Is originated either by a dealer
which there is either:
or, if the obligation is to be assigned to
(A) Located or, following settlement,
any maker of mortgage loans specified
will be constructed using proceeds of
in paragraphs (1)(ii) (A) through (D) of
the loan, a structure or structures de-
signed principally for occupancy of this definition, by a mortgage broker;
from one to four families (including in- or
dividual units of condominiums and co- (F) Is the subject of a home equity
operatives and including any related conversion mortgage, also frequently
interests, such as a share in the cooper- called a ‘‘reverse mortgage,’’ issued by
ative or right to occupancy of the any maker of mortgage loans specified
unit); or in paragraphs (1)(ii) (A) through (D) of
(B) Located or, following settlement, this definition.
will be placed using proceeds of the (2) Any installment sales contract,
loan, a manufactured home; and land contract, or contract for deed on
(ii) For which one of the following otherwise qualifying residential prop-
paragraphs applies. The loan: erty is a federally related mortgage
(A) Is made in whole or in part by loan if the contract is funded in whole
any lender that is either regulated by or in part by proceeds of a loan made
267
§ 3500.2 24 CFR Ch. XX (4–1–06 Edition)
by any maker of mortgage loans speci- of ‘‘settlement services’’ in this sec-

fied in paragraphs (1)(ii) (A) through tion. A loan correspondent approved
(D) of this definition. under § 202.8 of this title for Federal
(3) If the residential real property se- Housing Administration programs is a
curing a mortgage loan is not located mortgage broker for purposes of this
in a State, the loan is not a federally part.
related mortgage loan. Mortgaged property means the real
Good faith estimate means an esti- property that is security for the feder-
mate, prepared in accordance with sec- ally related mortgage loan.
tion 5 of RESPA (12 U.S.C. 2604), of Person is defined in section 3(5) of
charges that a borrower is likely to RESPA (12 U.S.C. 2602(5)).
incur in connection with a settlement. Public Guidance Documents means
HUD–1 or HUD–1A settlement statement documents that HUD has published in
(also HUD–1 or HUD–1A) means the the FEDERAL REGISTER, and that it
statement that is prescribed by the may amend from time-to-time by pub-
Secretary in this part for setting forth lication in the FEDERAL REGISTER.
settlement charges in connection with These documents are also available
either the purchase or the refinancing from HUD at the address indicated in
(or other subordinate lien transaction) 24 CFR 3500.3.
of 1- to 4-family residential property. Refinancing means a transaction in
Lender means, generally, the secured which an existing obligation that was
creditor or creditors named in the debt subject to a secured lien on residential
obligation and document creating the real property is satisfied and replaced
lien. For loans originated by a mort- by a new obligation undertaken by the
gage broker that closes a federally re- same borrower and with the same or a
lated mortgage loan in its own name in new lender. The following shall not be
a table funding transaction, the lender treated as a refinancing, even when the
is the person to whom the obligation is existing obligation is satisfied and re-
initially assigned at or after settle- placed by a new obligation with the
ment. A lender, in connection with same lender (this definition of ‘‘refi-
dealer loans, is the lender to whom the nancing’’ as to transactions with the
loan is assigned, unless the dealer same lender is similar to Regulation Z,
meets the definition of creditor as de- 12 CFR 226.20(a)):
fined under ‘‘federally related mort- (1) A renewal of a single payment ob-
gage loan’’ in this section. See also ligation with no change in the original
§ 3500.5(b)(7), secondary market trans- terms;
actions. (2) A reduction in the annual percent-
Managerial employee means an em- age rate as computed under the Truth
ployee of a settlement service provider in Lending Act with a corresponding
who does not routinely deal directly change in the payment schedule;
with consumers, and who either hires, (3) An agreement involving a court
directs, assigns, promotes, or rewards proceeding;
other employees or independent con- (4) A workout agreement, in which a
tractors, or is in a position to formu- change in the payment schedule or
late, determine, or influence the poli- change in collateral requirements is
cies of the employer. Neither the term agreed to as a result of the consumer’s
‘‘managerial employee’’ nor the term default or delinquency, unless the rate
‘‘employee’’ includes independent con- is increased or the new amount fi-
tractors, but a managerial employee nanced exceeds the unpaid balance plus
may hold a real estate brokerage or earned finance charges and premiums
agency license. for continuation of allowable insur-
Manufactured home is defined in ance; and
§ 3280.2 of this title. (5) The renewal of optional insurance
Mortgage broker means a person (not purchased by the consumer that is
an employee or exclusive agent of a added to an existing transaction, if dis-
lender) who brings a borrower and lend- closures relating to the initial pur-
er together to obtain a federally re- chase were provided.
lated mortgage loan, and who renders Regulation Z means the regulations
services as described in the definition issued by the Board of Governors of the
268
Federal Reserve System (12 CFR part which the assignment, sale, or transfer
226) to implement the Federal Truth in of the servicing of the mortgage loan is
Lending Act (15 U.S.C. 1601 et seq.), and preceded by termination of the con-
includes the Commentary on Regula- tract for servicing the loan for cause,
tion Z. commencement of proceedings for
Required use means a situation in bankruptcy of the servicer, or com-
which a person must use a particular mencement of proceedings by the FDIC
provider of a settlement service in or RTC for conservatorship or receiver-
order to have access to some distinct ship of the servicer (or an entity by
service or property, and the person will which the servicer is owned or con-
pay for the settlement service of the trolled).
particular provider or will pay a charge Servicing means receiving any sched-
attributable, in whole or in part, to the uled periodic payments from a bor-
settlement service. However, the offer- rower pursuant to the terms of any
ing of a package (or combination of mortgage loan, including amounts for
settlement services) or the offering of escrow accounts under section 10 of
discounts or rebates to consumers for RESPA (12 U.S.C. 2609), and making the
the purchase of multiple settlement payments to the owner of the loan or
services does not constitute a required other third parties of principal and in-
use. Any package or discount must be terest and such other payments with
optional to the purchaser. The discount respect to the amounts received from
must be a true discount below the the borrower as may be required pursu-
prices that are otherwise generally ant to the terms of the mortgage serv-
available, and must not be made up by icing loan documents or servicing con-
higher costs elsewhere in the settle- tract. In the case of a home equity con-
ment process. version mortgage or reverse mortgage
RESPA means the Real Estate Settle- as referenced in this section, servicing
ment Procedures Act of 1974, 12 U.S.C. includes making payments to the bor-
2601 et seq. rower.
Servicer means the person responsible Settlement means the process of exe-
for the servicing of a mortgage loan cuting legally binding documents re-
(including the person who makes or garding a lien on property that is sub-
holds a mortgage loan if such person ject to a federally related mortgage
also services the mortgage loan). The loan. This process may also be called
term does not include: ‘‘closing’’ or ‘‘escrow’’ in different ju-
(1) The Federal Deposit Insurance risdictions.
Corporation (FDIC) or the Resolution Settlement service means any service
Trust Corporation (RTC), in connection provided in connection with a prospec-
with assets acquired, assigned, sold, or tive or actual settlement, including,
transferred pursuant to section 13(c) of but not limited to, any one or more of
the Federal Deposit Insurance Act or the following:
as receiver or conservator of an insured (1) Origination of a federally related
depository institution; and mortgage loan (including, but not lim-
(2) The Federal National Mortgage ited to, the taking of loan applications,
Corporation (FNMA); the Federal loan processing, and the underwriting
Home Loan Mortgage Corporation and funding of such loans);
(Freddie Mac); the RTC; the FDIC; (2) Rendering of services by a mort-
HUD, including the Government Na- gage broker (including counseling, tak-
tional Mortgage Association (GNMA) ing of applications, obtaining
and the Federal Housing Administra- verifications and appraisals, and other
tion (FHA) (including cases in which a loan processing and origination serv-
mortgage insured under the National ices, and communicating with the bor-
Housing Act (12 U.S.C. 1701 et seq.) is rower and lender);
assigned to HUD); the National Credit (3) Provision of any services related
Union Administration (NCUA); the to the origination, processing or fund-
Farmers Home Administration or its ing of a federally related mortgage
successor agency under Public Law 103– loan;
354 (FmHA); and the Department of (4) Provision of title services, includ-
Veterans Affairs (VA), in any case in ing title searches, title examinations,
269
§ 3500.3 24 CFR Ch. XX (4–1–06 Edition)
abstract preparation, insurability de- transaction is not a secondary market

terminations, and the issuance of title transaction (see § 3500.5(b)(7)).
commitments and title insurance poli- Title company means any institution,
cies; or its duly authorized agent, that is
(5) Rendering of services by an attor- qualified to issue title insurance.
ney;
[61 FR 13233, Mar. 26, 1996, as amended at 61
(6) Preparation of documents, includ- FR 29252, June 7, 1996; 61 FR 58475, Nov. 15,
ing notarization, delivery, and recorda- 1996; 62 FR 20088, Apr. 24, 1997]
tion;
EFFECTIVE DATE NOTE: At 61 FR 29252, June
(7) Rendering of credit reports and
7, 1996, § 3500.2(b) was amended by adding a
appraisals; definition of ‘‘managerial employee’’, effec-
(8) Rendering of inspections, includ- tive Oct. 7, 1996. At 61 FR 51782, Oct. 4, 1996,
ing inspections required by applicable the effective date was delayed until further
law or any inspections required by the notice.
sales contract or mortgage documents
prior to transfer of title; § 3500.3 Questions or suggestions from
(9) Conducting of settlement by a set- public and copies of public guid-
tlement agent and any related services; ance documents.
(10) Provision of services involving Any questions or suggestions from
mortgage insurance; the public regarding RESPA, or re-
(11) Provision of services involving quests for copies of HUD Public Guid-
hazard, flood, or other casualty insurance Documents, should be directed to
ance or homeowner’s warranties; the Director, Office of Consumer and
(12) Provision of services involving Regulatory Affairs, Department of
mortgage life, disability, or similar in- Housing and Urban Development, 451
surance designed to pay a mortgage Seventh Street SW., Washington, DC
loan upon disability or death of a bor- 20410–8000, rather than to HUD field of-
rower, but only if such insurance is re- fices. Legal questions may be directed
quired by the lender as a condition of to the Assistant General Counsel, GSE/
the loan; RESPA Division, at this address.
(13) Provision of services involving
real property taxes or any other assess- § 3500.4 Reliance upon rule, regulation
ments or charges on the real property; or interpretation by HUD.
(14) Rendering of services by a real (a) Rule, regulation or interpretation.
estate agent or real estate broker; and (1) For purposes of sections 19 (a) and
(15) Provision of any other services (b) of RESPA (12 U.S.C. 2617 (a) and (b))
for which a settlement service provider only the following constitute a rule,
requires a borrower or seller to pay. regulation or interpretation of the Sec-
Special information booklet means the retary:
booklet prepared by the Secretary pur- (i) All provisions, including appen-
suant to section 5 of RESPA (12 U.S.C. dices, of this part. Any other document
2604) to help persons understand the na- referred to in this part is not incor-
ture and costs of settlement services. porated in this part unless it is specifi-
The Secretary publishes the form of cally set out in this part;
the special information booklet in the (ii) Any other document that is pub-
FEDERAL REGISTER. The Secretary may lished in the FEDERAL REGISTER by the
issue or approve additional booklets or Secretary and states that it is an ‘‘in-
alternative booklets by publication of terpretation,’’ ‘‘interpretive rule,’’
a Notice in the FEDERAL REGISTER. ‘‘commentary,’’ or a ‘‘statement of pol-
State means any State of the United icy’’ for purposes of section 19(a) of
States, the District of Columbia, the RESPA. Such documents will be pre-
Commonwealth of Puerto Rico, and pared by HUD staff and counsel. Such
any territory or possession of the documents may be revoked or amended
United States. by a subsequent document published in
Table funding means a settlement at the FEDERAL REGISTER by the Sec-
which a loan is funded by a contem- retary.
poraneous advance of loan funds and an (2) A ‘‘rule, regulation, or interpreta-
assignment of the loan to the person tion thereof by the Secretary’’ for pur-
advancing the funds. A table-funded poses of section 19(b) of RESPA (12
270
U.S.C. 2617(b)) shall not include the 226.3(a)(1). Persons may rely on Regula-
special information booklet prescribed tion Z in determining whether the ex-
by the Secretary or any other state- emption applies.
ment or issuance, whether oral or writ- (3) Temporary financing. Temporary
ten, by an officer or representative of financing, such as a construction loan.
the Department of Housing and Urban The exemption for temporary financing
Development (HUD), letter or memo- does not apply to a loan made to fi-
randum by the Secretary, General nance construction of 1- to 4-family
Counsel, any Assistant Secretary or residential property if the loan is used
other officer or employee of HUD, pre- as, or may be converted to, permanent
amble to a regulation or other issuance financing by the same lender or is used
of HUD, Public Guidance Document, to finance transfer of title to the first
report to Congress, pleading, affidavit user. If a lender issues a commitment
or other document in litigation, pam- for permanent financing, with or with-
phlet, handbook, guide, telegraphic out conditions, the loan is covered by
communication, explanation, instruc- this part. Any construction loan for
tions to forms, speech or other mate- new or rehabilitated 1- to 4-family resi-
rial of any nature which is not specifi- dential property, other than a loan to a
cally included in paragraph (a)(1) of bona fide builder (a person who regu-
this section. larly constructs 1- to 4-family residen-
(b) Unofficial interpretations; staff dis- tial structures for sale or lease), is sub-
cretion. In response to requests for in- ject to this part if its term is for two
terpretation of matters not adequately years or more. A ‘‘bridge loan’’ or
covered by this part or by an official ‘‘swing loan’’ in which a lender takes a
interpretation issued under paragraph security interest in otherwise covered
(a)(1)(ii) of this section, unofficial staff 1- to 4-family residential property is
interpretations may be provided at the not covered by RESPA and this part.
discretion of HUD staff or counsel.
(4) Vacant land. Any loan secured by
Written requests for such interpreta-
vacant or unimproved property, unless
tions should be directed to the address
within two years from the date of the
indicated in § 3500.3. Such interpreta-
tions provide no protection under sec- settlement of the loan, a structure or a
tion 19(b) of RESPA (12 U.S.C. 2617(b)). manufactured home will be con-
Ordinarily, staff or counsel will not structed or placed on the real property
issue unofficial interpretations on mat- using the loan proceeds. If a loan for a
ters adequately covered by this part or structure or manufactured home to be
by official interpretations or com- placed on vacant or unimproved prop-
mentaries issued under paragraph erty will be secured by a lien on that
(a)(1)(ii) of this section. property, the transaction is covered by
(c) All informal counsel’s opinions this part.
and staff interpretations issued before (5) Assumption without lender approval.
November 2, 1992, were withdrawn as of Any assumption in which the lender
that date. Courts and administrative does not have the right expressly to ap-
agencies, however, may use previous prove a subsequent person as the bor-
opinions to determine the validity of rower on an existing federally related
conduct under the previous Regulation mortgage loan. Any assumption in
X. which the lender’s permission is both
required and obtained is covered by
§ 3500.5 Coverage of RESPA. RESPA and this part, whether or not
(a) Applicability. RESPA and this part the lender charges a fee for the as-
apply to all federally related mortgage sumption.
loans, except for the exemptions pro- (6) Loan conversions. Any conversion
vided in paragraph (b) of this section. of a federally related mortgage loan to
(b) Exemptions. (1) A loan on property different terms that are consistent
of 25 acres or more. with provisions of the original mort-
(2) Business purpose loans. An exten- gage instrument, as long as a new note
sion of credit primarily for a business, is not required, even if the lender
commercial, or agricultural purpose, as charges an additional fee for the con-
defined by Regulation Z, 12 CFR version.
271
§ 3500.6 24 CFR Ch. XX (4–1–06 Edition)
(7) Secondary market transactions. A tled ‘‘When Your Home is On the Line:
bona fide transfer of a loan obligation What You Should Know About Home
in the secondary market is not covered Equity Lines of Credit’’, or any suc-
by RESPA and this part, except as set cessor brochure issued by the Board of
forth in section 6 of RESPA (12 U.S.C. Governors of the Federal Reserve Sys-
2605) and § 3500.21. In determining what tem, is deemed to be in compliance
constitutes a bona fide transfer, HUD with this section.
will consider the real source of funding (3) In the categories of transactions
and the real interest of the funding set forth at the end of this paragraph,
lender. Mortgage broker transactions the lender or mortgage broker does not
that are table-funded are not secondary have to provide the booklet to the bor-
market transactions. Neither the cre- rower. Under the authority of section
ation of a dealer loan or dealer con- 19(a) of RESPA (12 U.S.C. 2617(a)), the
sumer credit contract, nor the first as- Secretary may issue a revised or sepa-
signment of such loan or contract to a rate special information booklet that
lender, is a secondary market trans- deals with these transactions, or the
action (see § 3500.2.) Secretary may chose to endorse the
[61 FR 13233, Mar. 26, 1996, as amended at 61 forms or booklets of other Federal
FR 58475, Nov. 15, 1996] agencies. In such an event, the require-
ments for delivery by lenders and the
§ 3500.6 Special information booklet at availability of the booklet or alternate
time of loan application. materials for these transactions will be
(a) Lender to provide special informa- set forth in a Notice in the FEDERAL
tion booklet. Subject to the exceptions REGISTER. This paragraph shall apply
set forth in this paragraph, the lender to the following transactions:
shall provide a copy of the special in- (i) Refinancing transactions;
formation booklet to a person from (ii) Closed-end loans, as defined in 12
whom the lender receives, or for whom CFR 226.2(a)(10) of Regulation Z, when
the lender prepares, a written applica- the lender takes a subordinate lien;
tion for a federally related mortgage (iii) Reverse mortgages; and
loan. When two or more persons apply (iv) Any other federally related mort-
together for a loan, the lender is in gage loan whose purpose is not the pur-
compliance if the lender provides a chase of a 1- to 4-family residential
copy of the booklet to one of the per- property.
sons applying. (b) Revision. The Secretary may from
(1) The lender shall provide the spe- time to time revise the special infor-
cial information booklet by delivering mation booklet by publishing a notice
it or placing it in the mail to the appli- in the FEDERAL REGISTER.
cant not later than three business days (c) Reproduction. The special informa-
(as that term is defined in § 3500.2) after tion booklet may be reproduced in any
the application is received or prepared. form, provided that no change is made
However, if the lender denies the bor- other than as provided under paragraph
rower’s application for credit before (d) of this section. The special informa-
the end of the three-business-day pe- tion booklet may not be made a part of
riod, then the lender need not provide a larger document for purposes of dis-
the booklet to the borrower. If a bor- tribution under RESPA and this sec-
rower uses a mortgage broker, the tion. Any color, size and quality of
mortgage broker shall distribute the paper, type of print, and method of re-
special information booklet and the production may be used so long as the
lender need not do so. The intent of booklet is clearly legible.
this provision is that the applicant re- (d) Permissible changes. (1) No changes
ceive the special information booklet to, deletions from, or additions to the
at the earliest possible date. special information booklet currently
(2) In the case of a federally related prescribed by the Secretary shall be
mortgage loan involving an open-ended made other than those specified in this
credit plan, as defined in § 226.2(a)(20) of paragraph (d) or any others approved in
Regulation Z (12 CFR), a lender or writing by the Secretary. A request to
mortgage broker that provides the bor- the Secretary for approval of any
rower with a copy of the brochure enti- changes shall be submitted in writing
272
to the address indicated in § 3500.3, provide the good faith estimate within
stating the reasons why the applicant three business days after the mortgage
believes such changes, deletions or ad- broker receives or prepares the applica-
ditions are necessary. tion.
(2) The cover of the booklet may be (b) Mortgage broker to provide. In the
in any form and may contain any draw- event an application is received by a
ings, pictures or artwork, provided mortgage broker who is not an exclu-
that the words ‘‘settlement costs’’ are sive agent of the lender, the mortgage
used in the title. Names, addresses and broker must provide a good faith esti-
telephone numbers of the lender or oth- mate within three days of receiving a
ers and similar information may ap- loan application based on his or her
pear on the cover, but no discussion of knowledge of the range of costs (a sug-
the matters covered in the booklet gested format is set forth in appendix C
shall appear on the cover. of this part). As long as the mortgage
(3) The special information booklet broker has provided the good faith esti-
may be translated into languages other mate, the funding lender is not re-
than English. quired to provide an additional good
faith estimate, but the funding lender
§ 3500.7 Good faith estimate.
is responsible for ascertaining that the
(a) Lender to provide. Except as pro- good faith estimate has been delivered.
vided in this paragraph (a) or para- If the application for mortgage credit
graph (f) of this section, the lender is denied before the end of the three-
shall provide all applicants for a feder- business-day period, the mortgage
ally related mortgage loan with a good broker need not provide the denied bor-
faith estimate of the amount of or rower with a good faith estimate.
range of charges for the specific settle- (c) Content of good faith estimate. A
ment services the borrower is likely to good faith estimate consists of an esti-
incur in connection with the settle- mate, as a dollar amount or range, of
ment. The lender shall provide the each charge which:
good faith estimate required under this
(1) Will be listed in section L of the
section (a suggested format is set forth
HUD–1 or HUD–1A in accordance with
in appendix C of this part) either by de-
the instructions set forth in appendix
livering the good faith estimate or by
A to this part; and
placing it in the mail to the loan appli-
cant, not later than three business (2) That the borrower will normally
days after the application is received pay or incur at or before settlement
or prepared. based upon common practice in the lo-
(1) If the lender denies the applica- cality of the mortgaged property. Each
tion for a federally related mortgage such estimate must be made in good
loan before the end of the three-busi- faith and bear a reasonable relation-
ness-day period, the lender need not ship to the charge a borrower is likely
provide the denied borrower with a to be required to pay at settlement,
good faith estimate. and must be based upon experience in
(2) For ‘‘no cost’’ or ‘‘no point’’ loans, the locality of the mortgaged property.
the charges to be shown on the good As to each charge with respect to
faith estimate include any payments to which the lender requires a particular
be made to affiliated or independent settlement service provider to be used,
settlement service providers. These the lender shall make its estimate
payments should be shown as P.O.C. based upon the lender’s knowledge of
(Paid Outside of Closing) on the Good the amounts charged by such provider.
Faith Estimate and the HUD–1 or (d) Form of good faith estimate. A sug-
HUD–1A. gested good faith estimate form is set
(3) In the case of dealer loans, the forth in appendix C to this part and is
lender is responsible for provision of in compliance with the requirements of
the good faith estimate, either directly the Act except for any additional re-
or by the dealer. quirements of paragraph (e) of this sec-
(4) If a mortgage broker is the exclu- tion. The good faith estimate may be
sive agent of the lender, either the provided together with disclosures re-
lender or the mortgage broker shall quired by the Truth in Lending Act, 15
273
§ 3500.8 24 CFR Ch. XX (4–1–06 Edition)
U.S.C. 1601 et seq., so long as all re- is in an affiliated business relationship

quired material for the good faith esti- (see § 3500.15) with a provider, the lend-
mate is grouped together. The lender er may not require the use of that pro-
may include additional relevant infor- vider.
mation, such as the name/signature of (4) If the lender maintains a con-
the applicant and loan officer, date, trolled list of required providers (five
and information identifying the loan or more for each discrete service) or re-
application and property, as long as lies on a list maintained by others, and
the form remains clear and concise and at the time of application the lender
the additional information is not more has not yet decided which provider will
prominent than the required material. be selected from that list, then the
(e) Particular providers required by lender may satisfy the requirements of
lender. (1) If the lender requires the use this section if the lender:
(see § 3500.2, ‘‘required use’’) of a par- (i) Provides the borrower with a writ-
ticular provider of a settlement serv- ten statement that the lender will re-
ice, other than the lender’s own em- quire a particular provider from a lend-
ployees, and also requires the borrower er-controlled or -approved list; and
to pay any portion of the cost of such (ii) Provides the borrower in the
service, then the good faith estimate Good Faith Estimate the range of costs
must: for the required provider(s), and pro-
(i) Clearly state that use of the par- vides the name of the specific provider
ticular provider is required and that and the actual cost on the HUD–1 or
the estimate is based on the charges of HUD–1A.
the designated provider; (f) Open-end lines of credit (home-eq-
(ii) Give the name, address, and tele- uity plans) under Truth in Lending Act.
phone number of each provider; and In the case of a federally related mort-
(iii) Describe the nature of any rela- gage loan involving an open-end line of
tionship between each such provider credit (home-equity plan) covered
and the lender. Plain English ref- under the Truth in Lending Act and
erences to the relationship should be Regulation Z, a lender or mortgage
utilized, e.g., ‘‘X is a depositor of the broker that provides the borrower with
lender,’’ ‘‘X is a borrower from the the disclosures required by 12 CFR
lender,’’ ‘‘X has performed 60% of the 226.5b of Regulation Z at the time the
lender’s settlements in the past year.’’ borrower applies for such loan shall be
(The lender is not required to keep de- deemed to satisfy the requirements of
tailed records of the percentages of use. this section.
Similar language, such as ‘‘X was used (Approved by the Office of Management and
[regularly] [frequently] in our settle- Budget under control number 2502–0265)
ments the past year’’ is also sufficient [61 FR 13233, Mar. 26, 1996, as amended at 61
for the purposes of this paragraph.) In FR 58476, Nov. 15, 1996]
the event that more than one relation-
ship exists, each should be disclosed. § 3500.8 Use of HUD–1 or HUD–1A set-
(2) For purposes of paragraph (e)(1) of tlement statements.
this section, a ‘‘relationship’’ exists if: (a) Use by settlement agent. The settle-
(i) The provider is an associate of the ment agent shall use the HUD–1 settle-
lender, as that term is defined in 12 ment statement in every settlement in-
U.S.C. 2602(8); volving a federally related mortgage
(ii) Within the last 12 months, the loan in which there is a borrower and a
provider has maintained an account seller. For transactions in which there
with the lender or had an outstanding is a borrower and no seller, such as re-
loan or credit arrangement with the financing loans or subordinate lien
lender; or loans, the HUD–1 may be utilized by
(iii) The lender has repeatedly used using the borrower’s side of the HUD–1
or required borrowers to use the serv- statement. Alternatively, the form
ices of the provider within the last 12 HUD–1A may be used for these trans-
months. actions. Either the HUD–1 or the HUD–
(3) Except for a provider that is the 1A, as appropriate, shall be used for
lender’s chosen attorney, credit report- every RESPA-covered transaction, un-
ing agency, or appraiser, if the lender less its use is specifically exempted,
274
but the HUD–1 or HUD–1A may be § 3500.9 Reproduction of settlement

modified as permitted under this part. statements.
The use of the HUD–1 or HUD–1A is ex- (a) Permissible changes—HUD–1. The
empted for open-end lines of credit following changes and insertions are
(home-equity plans) covered by the permitted when the HUD–1 settlement
Truth in Lending Act and Regulation statement is reproduced:
Z. (1) The person reproducing the HUD–
(b) Charges to be stated. The settle- 1 may insert its business name and log-
ment agent shall complete the HUD–1 otype in section A and may rearrange,
or HUD–1A in accordance with the in- but not delete, the other information
structions set forth in appendix A to that appears in section A.
this part. (2) The name, address, and other in-
formation regarding the lender and set-
(c) Aggregate accounting at settlement.
tlement agent may be printed in sec-
(1) After itemizing individual deposits
tions F and H, respectively.
in the 1000 series using single-item ac- (3) Reproduction of the HUD–1 must
counting, the servicer shall make an conform to the terminology, sequence,
adjustment based on aggregate ac- and numbering of line items as pre-
counting. This adjustment equals the sented in lines 100–1400. However, blank
difference in the deposit required under lines or items listed in lines 100–1400
aggregate accounting and the sum of that are not used locally or in connec-
the deposits required under single-item tion with mortgages by the lender may
accounting. The computation steps for be deleted, except for the following:
both accounting methods are set out in Lines 100, 120, 200, 220, 300, 301, 302, 303,
§ 3500.17(d). The adjustment will always 400, 420, 500, 520, 600, 601, 602, 603, 700,
be a negative number or zero (–0–). The 800, 900, 1000, 1100, 1200, 1300, and 1400.
settlement agent shall enter the aggre- The form may be shortened correspond-
gate adjustment amount on a final line ingly. The number of a deleted item
in the 1000 series of the HUD–1 or HUD– shall not be used for a substitute or
1A statement. new item, but the number of a blank
(2) During the phase-in period, as de- space on the HUD–1 may be used for a
fined in § 3500.17(b), an alternative pro- substitute or new item.
(4) Charges not listed on the HUD–1,
cedure is available. The settlement
but that are customary locally or pur-
agent may initially calculate the 1000
suant to the lender’s practice, may be
series deposits for the HUD–1 and HUD– inserted in blank spaces. Where exist-
1A settlement statement using single- ing blank spaces on the HUD–1 are in-
item analysis with only a one-month sufficient, additional lines and spaces
cushion (unless the mortgage loan doc- may be added and numbered in se-
uments indicate a smaller amount). In quence with spaces on the HUD–1.
the escrow account analysis conducted (5) The following variations in layout
within 45 days of settlement, however, and format are within the discretion of
the servicer shall adjust the escrow ac- persons reproducing the HUD–1 and do
count to reflect the aggregate account- not require prior HUD approval: size of
ing balance. Appendix E to this part pages; tint or color of pages; size and
sets out examples of aggregate anal- style of type or print; vertical spacing
ysis. Appendix A to this part contains between lines or provision for addi-
instructions for completing the HUD–1 tional horizontal space on lines (for ex-
or HUD–1A settlement statements ample, to provide sufficient space for
using an aggregate analysis adjust- recording time periods used in prora-
ment and the alternative process dur- tions); printing of the HUD–1 contents
ing the phase-in period. on separate pages, on the front and
back of a single page, or on one contin-
(Approved by the Office of Management and uous page; use of multicopy tear-out
Budget under control numbers 2502–0265 and sets; printing on rolls for computer
2502–0491) purposes; reorganization of sections B
[61 FR 13233, Mar. 26, 1996, as amended at 61 through I, when necessary to accom-
FR 58476, Nov. 15, 1996] modate computer printing; and manner
of placement of the HUD number, but
275
§ 3500.10 24 CFR Ch. XX (4–1–06 Edition)
not the OMB approval number, neither settlement agent shall permit the bor-
of which may be deleted. The designa- rower to inspect the HUD–1 or HUD–1A
tion of the expiration date of the OMB settlement statement, completed to set
number may be deleted. Any changes forth those items that are known to
in the HUD number or OMB approval the settlement agent at the time of in-
number may be announced by notice in spection, during the business day im-
the FEDERAL REGISTER, rather than by mediately preceding settlement. Items
amendment of this part. related only to the seller’s transaction
(6) The borrower’s information and may be omitted from the HUD–1.
the seller’s information may be pro- (b) Delivery. The settlement agent
vided on separate pages. shall provide a completed HUD–1 or
(7) Signature lines may be added. HUD–1A to the borrower, the seller (if
(8) The HUD–1 may be translated into there is one), the lender (if the lender
languages other than English. is not the settlement agent), and/or
(9) An additional page may be at- their agents. When the borrower’s and
tached to the HUD–1 for the purpose of seller’s copies of the HUD–1 or HUD–1A
including customary recitals and infor- differ as permitted by the instructions
mation used locally in real estate set- in appendix A to this part, both copies
tlements; for example, breakdown of shall be provided to the lender (if the
payoff figures, a breakdown of the bor- lender is not the settlement agent).
rower’s total monthly mortgage pay- The settlement agent shall deliver the
ments, check disbursements, a state- completed HUD–1 or HUD–1A at or be-
ment indicating receipt of funds, appli- fore the settlement, except as provided
cable special stipulations between in paragraphs (c) and (d) of this sec-
buyer and seller, and the date funds are tion.
transferred. If space permits, such in- (c) Waiver. The borrower may waive
formation may be added at the end of the right to delivery of the completed
the HUD–1. HUD–1 or HUD–1A no later than at set-
(10) As required by HUD/FHA in FHA- tlement by executing a written waiver
insured loans. at or before settlement. In such case,
(11) As allowed by § 3500.17, relating the completed HUD–1 or HUD–1A shall
to an initial escrow account statement. be mailed or delivered to the borrower,
(b) Permissible changes—HUD–1A. The seller, and lender (if the lender is not
changes and insertions on the HUD–1 the settlement agent) as soon as prac-
permitted under paragraph (a) of this ticable after settlement.
section are also permitted when the (d) Exempt transactions. When the bor-
HUD–1A settlement statement is repro- rower or the borrower’s agent does not
duced, except the changes described in attend the settlement, or when the set-
paragraphs (a)(3) and (6) of this section. tlement agent does not conduct a
(c) Written approval. Any other devi- meeting of the parties for that purpose,
ation in the HUD–1 or HUD–1A forms is the transaction shall be exempt from
permissible only upon receipt of writ- the requirements of paragraphs (a) and
ten approval of the Secretary. A re- (b) of this section, except that the
quest to the Secretary for approval HUD–1 or HUD–1A shall be mailed or
shall be submitted in writing to the ad- delivered as soon as practicable after
dress indicated in § 3500.3 and shall settlement.
state the reasons why the applicant be- (e) Recordkeeping. The lender shall re-
lieves such deviation is needed. The tain each completed HUD–1 or HUD–1A
prescribed form(s) must be used until and related documents for five years
approval is received. after settlement, unless the lender dis-
(Approved by the Office of Management and poses of its interest in the mortgage
Budget under control numbers 2502–0265 and and does not service the mortgage. In
2502–0491) that case, the lender shall provide its
copy of the HUD–1 or HUD–1A to the
§ 3500.10 One-day advance inspection owner or servicer of the mortgage as a
of HUD–1 or HUD–1A settlement part of the transfer of the loan file.
statement; delivery; recordkeeping. Such owner or servicer shall retain the
(a) Inspection one day prior to settle- HUD–1 or HUD–1A for the remainder of
ment upon request by the borrower. The the five-year period. The Secretary
276
shall have the right to inspect or re- sistent with any provision of RESPA or
quire copies of records covered by this this part, if the Secretary determines
paragraph (e). that such law or regulation gives
(Approved by the Office of Management and greater protection to the consumer.
Budget under control number 2502–0265) (2) In determining whether provisions
of State law or regulations concerning
§ 3500.11 Mailing. affiliated business arrangements are
The provisions of this part requiring inconsistent with RESPA or this part,
or permitting mailing of documents the Secretary may not construe those
shall be deemed to be satisfied by plac- provisions that impose more stringent
ing the document in the mail (whether limitations on affiliated business ar-
or not received by the addressee) ad- rangements as inconsistent with
dressed to the addresses stated in the RESPA so long as they give more pro-
loan application or in other informa- tection to consumers and/or competi-
tion submitted to or obtained by the tion.
lender at the time of loan application (c) Any person may request the Sec-
or submitted or obtained by the lender retary to determine whether an incon-
or settlement agent, except that a re- sistency exists by submitting to the
vised address shall be used where the address indicated in § 3500.3, a copy of
lender or settlement agent has been ex- the State law in question, any other
pressly informed in writing of a change law or judicial or administrative opin-
in address. ion that implements, interprets or ap-
plies the relevant provision, and an ex-
§ 3500.12 No fee. planation of the possible inconsistency.
No fee shall be imposed or charge A determination by the Secretary that
made upon any other person, as a part an inconsistency with State law exists
of settlement costs or otherwise, by a will be made by publication of a notice
lender in connection with a federally in the FEDERAL REGISTER. ‘‘Law’’ as
related mortgage loan made by it (or a used in this section includes regula-
loan for the purchase of a manufac- tions and any enactment which has the
tured home), or by a servicer (as that force and effect of law and is issued by
term is defined under 12 U.S.C. a State or any political subdivision of
2605(i)(2)) for or on account of the prep- a State.
aration and distribution of the HUD–1 (d) A specific preemption of con-
or HUD–1A settlement statement, es- flicting State laws regarding notices
crow account statements required pur- and disclosures of mortgage servicing
suant to section 10 of RESPA (12 U.S.C. transfers is set forth in § 3500.21(h).
2609), or statements required by the
Truth in Lending Act, 15 U.S.C. 1601 et [61 FR 13233, Mar. 26, 1996, as amended at 61
seq. FR 58476, Nov. 15, 1996]
§ 3500.13 Relation to State laws. § 3500.14 Prohibition against kick-

backs and unearned fees.
(a) State laws that are inconsistent
with RESPA or this part are preempted (a) Section 8 violation. Any violation
to the extent of the inconsistency. of this section is a violation of section
However, RESPA and these regulations 8 of RESPA (12 U.S.C. 2607) and is sub-
do not annul, alter, affect, or exempt ject to enforcement as such under
any person subject to their provisions § 3500.19.
from complying with the laws of any (b) No referral fees. No person shall
State with respect to settlement prac- give and no person shall accept any fee,
tices, except to the extent of the incon- kickback or other thing of value pursu-
sistency. ant to any agreement or under-
(b) Upon request by any person, the standing, oral or otherwise, that busi-
Secretary is authorized to determine if ness incident to or part of a settlement
inconsistencies with State law exist; in service involving a federally related
doing so, the Secretary shall consult mortgage loan shall be referred to any
with appropriate Federal agencies. person. Any referral of a settlement
(1) The Secretary may not determine service is not a compensable service,
that a State law or regulation is incon- except as set forth in § 3500.14(g)(1). A
277
§ 3500.14 24 CFR Ch. XX (4–1–06 Edition)
company may not pay any other com- the business referred, the receipt of the
pany or the employees of any other thing of value is evidence that it is
company for the referral of settlement made pursuant to an agreement or un-
service business. derstanding for the referral of business.
(c) No split of charges except for actual (f) Referral. (1) A referral includes any
services performed. No person shall give oral or written action directed to a per-
and no person shall accept any portion, son which has the effect of affirma-
split, or percentage of any charge made tively influencing the selection by any
or received for the rendering of a set- person of a provider of a settlement
tlement service in connection with a service or business incident to or part
transaction involving a federally re- of a settlement service when such per-
lated mortgage loan other than for son will pay for such settlement serv-
services actually performed. A charge
ice or business incident thereto or pay
by a person for which no or nominal
a charge attributable in whole or in
services are performed or for which du-
part to such settlement service or busi-
plicative fees are charged is an un-
ness.
earned fee and violates this section.
The source of the payment does not de- (2) A referral also occurs whenever a
termine whether or not a service is person paying for a settlement service
compensable. Nor may the prohibitions or business incident thereto is required
of this part be avoided by creating an to use (see § 3500.2, ‘‘required use’’) a
arrangement wherein the purchaser of particular provider of a settlement
services splits the fee. service or business incident thereto.
(d) Thing of value. This term is broad- (g) Fees, salaries, compensation, or
ly defined in section 3(2) of RESPA (12 other payments. (1) Section 8 of RESPA
U.S.C. 2602(2)). It includes, without lim- permits:
itation, monies, things, discounts, sala- (i) A payment to an attorney at law
ries, commissions, fees, duplicate pay- for services actually rendered;
ments of a charge, stock, dividends, (ii) A payment by a title company to
distributions of partnership profits, its duly appointed agent for services
franchise royalties, credits rep- actually performed in the issuance of a
resenting monies that may be paid at a policy of title insurance;
future date, the opportunity to partici- (iii) A payment by a lender to its
pate in a money-making program, re- duly appointed agent or contractor for
tained or increased earnings, increased services actually performed in the
equity in a parent or subsidiary entity, origination, processing, or funding of a
special bank deposits or accounts, spe- loan;
cial or unusual banking terms, services (iv) A payment to any person of a
of all types at special or free rates, bona fide salary or compensation or
sales or rentals at special prices or
other payment for goods or facilities
rates, lease or rental payments based
actually furnished or for services actu-
in whole or in part on the amount of
ally performed;
business referred, trips and payment of
another person’s expenses, or reduction (v) A payment pursuant to coopera-
in credit against an existing obliga- tive brokerage and referral arrange-
tion. The term ‘‘payment’’ is used ments or agreements between real es-
throughout §§ 3500.14 and 3500.15 as syn- tate agents and real estate brokers.
onymous with the giving or receiving (The statutory exemption restated in
any ‘‘thing of value’’ and does not re- this paragraph refers only to fee divi-
quire transfer of money. sions within real estate brokerage ar-
(e) Agreement or understanding. An rangements when all parties are acting
agreement or understanding for the re- in a real estate brokerage capacity,
ferral of business incident to or part of and has no applicability to any fee ar-
a settlement service need not be writ- rangements between real estate bro-
ten or verbalized but may be estab- kers and mortgage brokers or between
lished by a practice, pattern or course mortgage brokers.);
of conduct. When a thing of value is re- (vi) Normal promotional and edu-
ceived repeatedly and is connected in cational activities that are not condi-
any way with the volume or value of tioned on the referral of business and
278
that do not involve the defraying of ex- be retained for five (5) years from the
penses that otherwise would be in- date of execution.
curred by persons in a position to refer (i) Appendix B of this part. Illustra-
settlement services or business inci- tions in appendix B of this part dem-
dent thereto; or onstrate some of the requirements of
(vii) An employer’s payment to its this section.
own employees for any referral activi-
ties. [61 FR 13233, Mar. 26, 1996, as amended at 61
FR 29252, June 7, 1996; 61 FR 58476, Nov. 15,
(2) The Department may investigate
1996]
high prices to see if they are the result
of a referral fee or a split of a fee. If the EFFECTIVE DATE NOTE: At 61 FR 29252, June
payment of a thing of value bears no 7, 1996, § 3500.14 was amended by revising the
reasonable relationship to the market last sentence of paragraph (b), the heading of
paragraph (g), and paragraph (g)(1), effective
value of the goods or services provided,
Oct. 7, 1996. At 61 FR 51782, Oct. 4, 1996, the
then the excess is not for services or effective date was delayed until further no-
goods actually performed or provided. tice. For the convenience of the user, the
These facts may be used as evidence of new text is set forth as follows:
a violation of section 8 and may serve
as a basis for a RESPA investigation. § 3500.14 Prohibition against kickbacks and
High prices standing alone are not unearned fees.
proof of a RESPA violation. The value
of a referral (i.e., the value of any addi- * * * * *
tional business obtained thereby) is not (b) * * * A business entity (whether or
to be taken into account in deter- not in an affiliate relationship) may not pay
mining whether the payment exceeds any other business entity or the employees
the reasonable value of such goods, fa- of any other business entity for the referral
cilities or services. The fact that the of settlement service business.
transfer of the thing of value does not
result in an increase in any charge * * * * *
made by the person giving the thing of
value is irrelevant in determining (g) Exemptions for fees, salaries, compensa-
tion, or other payments. (1) The following are
whether the act is prohibited.
permissible:
(3) Multiple services. When a person in
(i) A payment to an attorney at law for
a position to refer settlement service services actually rendered;
business, such as an attorney, mort- (ii) A payment by a title company to its
gage lender, real estate broker or duly appointed agent for services actually
agent, or developer or builder, receives performed in the issuance of a policy of title
a payment for providing additional set- insurance;
tlement services as part of a real estate (iii) A payment by a lender to its duly ap-
transaction, such payment must be for pointed agent or contractor for services ac-
services that are actual, necessary and tually performed in the origination, proc-
distinct from the primary services pro- essing, or funding of a loan;
vided by such person. For example, for (iv) A payment to any person of a bona fide
salary or compensation or other payment for
an attorney of the buyer or seller to re-
goods or facilities actually furnished or for
ceive compensation as a title agent, services actually performed;
the attorney must perform core title (v) A payment pursuant to cooperative bro-
agent services (for which liability kerage and referral arrangements or agree-
arises) separate from attorney services, ments between real estate agents and real
including the evaluation of the title estate brokers. (The statutory exemption re-
search to determine the insurability of stated in this paragraph refers only to fee di-
the title, the clearance of underwriting visions within real estate brokerage arrange-
objections, the actual issuance of the ments when all parties are acting in a real
policy or policies on behalf of the title estate brokerage capacity, and has no appli-
cability to any fee arrangements between
insurance company, and, where cus-
real estate brokers and mortgage brokers or
tomary, issuance of the title commit- between mortgage brokers.)
ment, and the conducting of the title (vi) Normal promotional and educational
search and closing. activities that are not conditioned on the re-
(h) Recordkeeping. Any documents ferral of business and do not involve the de-
provided pursuant to this section shall fraying of expenses that otherwise would be
279
§ 3500.15 24 CFR Ch. XX (4–1–06 Edition)
incurred by persons in a position to refer set- sistent with section 8(c)(4)(A) of
tlement services or business incident there- RESPA (12 U.S.C. 2607(c)(4)(A)).
to; (1) The person making each referral
(vii) A payment by an employer to its own
has provided to each person whose
bona fide employee for generating business
for that employer; business is referred a written disclo-
(viii) In a controlled business arrangement, sure, in the format of the Affiliated
a payment by an employer of a bonus to a Business Arrangement Disclosure
managerial employee based on criteria relat- Statement set forth in appendix D of
ing to performance (such as profitability, this part, of the nature of the relation-
capture rate, or other thresholds) of a busi- ship (explaining the ownership and fi-
ness entity in the controlled business ar- nancial interest) between the provider
rangement. However, the amount of such
of settlement services (or business inci-
bonus may not be calculated as a multiple of
the number or value of referrals of settle- dent thereto) and the person making
ment service business to a business entity in the referral and of an estimated charge
a controlled business arrangement; and or range of charges generally made by
(ix)(A) A payment by an employer to its such provider (which describes the
bona fide employee for the referral of settle- charge using the same terminology, as
ment service business to a settlement serv- far as practical, as section L of the
ice provider that has an affiliate relationship HUD–1 settlement statement). The dis-
with the employer or in which the employer closures must be provided on a sepa-
has a direct or beneficial ownership interest
of more than 1 percent, if the following con-
rate piece of paper no later than the
ditions are met: time of each referral or, if the lender
(1) The employee does not perform settle- requires use of a particular provider,
ment services in any transaction; and the time of loan application, except
(2) Before the referral, the employee pro- that:
vides to the person being referred a written (i) Where a lender makes the referral
disclosure in the format of the Controlled to a borrower, the condition contained
Business Arrangement Disclosure State- in paragraph (b)(1) of this section may
ment, set forth in appendix D to this part.
be satisfied at the time that the good
(B) For purposes of this paragraph
(g)(1)(ix), the marketing of a settlement faith estimate or a statement under
service or product of an affiliated entity, in- § 3500.7(d) is provided; and
cluding the collection and conveyance of in- (ii) Whenever an attorney or law firm
formation or the taking of an application or requires a client to use a particular
order for an affiliated entity, does not con- title insurance agent, the attorney or
stitute the performance of a settlement serv- law firm shall provide the disclosures
ice. Under this paragraph (g)(1)(ix), mar- no later than the time the attorney or
keting of a settlement service or product
law firm is engaged by the client. Fail-
may include incidental communications
with the consumer after the application or ure to comply with the disclosure re-
order, such as providing the consumer with quirements of this section may be over-
information about the status of an applica- come if the person making a referral
tion or order; marketing shall not include can prove by a preponderance of the
serving as the ongoing point of contact for evidence that procedures reasonably
coordinating the delivery and provision of adopted to result in compliance with
settlement services. these conditions have been maintained
and that any failure to comply with
* * * * * these conditions was unintentional and
the result of a bona fide error. An error
§ 3500.15 Affiliated business arrange- of legal judgment with respect to a per-
ments. son’s obligations under RESPA is not a
(a) General. An affiliated business ar- bona fide error. Administrative and ju-
rangement is defined in section 3(7) of dicial interpretations of section 130(c)
RESPA (12 U.S.C. 2602(7)). of the Truth in Lending Act shall not
(b) Violation and exemption. An affili- be binding interpretations of the pre-
ated business arrangement is not a vio- ceding sentence or section 8(d)(3) of
lation of section 8 of RESPA (12 U.S.C. RESPA (12 U.S.C. 2607(d)(3)).
2607) and of § 3500.14 if the conditions (2) No person making a referral has
set forth in this section are satisfied. required (as defined in § 3500.2, ‘‘re-
Paragraph (b)(1) of this section shall quired use’’) any person to use any par-
not apply to the extent it is incon- ticular provider of settlement services
280
or business incident thereto, except if termine whether it is a bona fide return

such person is a lender, for requiring a on an ownership interest or franchise
buyer, borrower or seller to pay for the relationship. Whether a thing of value
services of an attorney, credit report- is such a return will be determined by
ing agency, or real estate appraiser analyzing facts and circumstances on a
chosen by the lender to represent the case by case basis.
lender’s interest in a real estate trans- (iv) A return on franchise relation-
action, or except if such person is an ship may be a payment to or from a
attorney or law firm for arranging for franchisee but it does not include any
issuance of a title insurance policy for payment which is not based on the
a client, directly as agent or through a franchise agreement, nor any payment
separate corporate title insurance which varies according to the number
agency that may be operated as an ad- or amount of referrals by the
junct to the law practice of the attor- franchisor or franchisee or which is
ney or law firm, as part of representa- based on a franchise agreement which
tion of that client in a real estate has been adjusted on the basis of a pre-
transaction. vious number or amount of referrals by
(3) The only thing of value that is re- the franchiser or franchisees. A fran-
ceived from the arrangement other chise agreement may not be con-
than payments listed in § 3500.14(g) is a structed to insulate against kickbacks
return on an ownership interest or or referral fees.
franchise relationship. (c) Definitions. As used in this sec-
(i) In an affiliated business arrange- tion:
ment: (1) Associate is defined in section 3(8)
(A) Bona fide dividends, and capital of RESPA (12 U.S.C. 2602(8)).
or equity distributions, related to own- (2) Affiliate relationship means the re-
ership interest or franchise relation- lationship among business entities
ship, between entities in an affiliate re- where one entity has effective control
lationship, are permissible; and over the other by virtue of a partner-
(B) Bona fide business loans, ad- ship or other agreement or is under
vances, and capital or equity contribu- common control with the other by a
tions between entities in an affiliate third entity or where an entity is a
relationship (in any direction), are not corporation related to another corpora-
prohibited—so long as they are for or- tion as parent to subsidiary by an iden-
dinary business purposes and are not tity of stock ownership.
fees for the referral of settlement serv- (3) Beneficial ownership means the ef-
ice business or unearned fees. fective ownership of an interest in a
(ii) A return on an ownership interest provider of settlement services or the
does not include: right to use and control the ownership
(A) Any payment which has as a basis interest involved even though legal
of calculation no apparent business ownership or title may be held in an-
motive other than distinguishing other person’s name.
among recipients of payments on the (4) Control, as used in the definitions
basis of the amount of their actual, es- of ‘‘associate’’ and ‘‘affiliate relation-
timated or anticipated referrals; ship,’’ means that a person:
(B) Any payment which varies ac- (i) Is a general partner, officer, direc-
cording to the relative amount of refer- tor, or employer of another person;
rals by the different recipients of simi- (ii) Directly or indirectly or acting in
lar payments; or concert with others, or through one or
(C) A payment based on an owner- more subsidiaries, owns, holds with
ship, partnership or joint venture share power to vote, or holds proxies rep-
which has been adjusted on the basis of resenting, more than 20 percent of the
previous relative referrals by recipi- voting interests of another person;
ents of similar payments. (iii) Affirmatively influences in any
(iii) Neither the mere labelling of a manner the election of a majority of
thing of value, nor the fact that it may the directors of another person; or
be calculated pursuant to a corporate (iv) Has contributed more than 20
or partnership organizational docu- percent of the capital of the other per-
ment or a franchise agreement, will de- son.
281
§ 3500.16 24 CFR Ch. XX (4–1–06 Edition)
(5) Direct ownership means the hold- use of a particular provider, the time of loan
ing of legal title to an interest in a pro- application, except that:
vider of settlement service except
where title is being held for the bene- * * * * *
ficial owner.
(6) Franchise is defined in 16 CFR § 3500.16 Title companies.
436.2(a). No seller of property that will be pur-
(7) Franchisor is defined in 16 CFR chased with the assistance of a feder-
436.2(c). ally related mortgage loan shall vio-
(8) Franchisee is defined in 16 CFR late section 9 of RESPA (12 U.S.C.
436.2(d). 2608). Section 3500.2 defines ‘‘required
(9) Person who is in a position to refer use’’ of a provider of a settlement serv-
settlement service business means any ice. Section 3500.19(c) explains the li-
real estate broker or agent, lender, ability of a seller for a violation of this
mortgage broker, builder or developer, section.
attorney, title company, title agent, or
other person deriving a significant por- § 3500.17 Escrow accounts.
tion of his or her gross income from
providing settlement services. (a) General. This section sets out the
(d) Recordkeeping. Any documents requirements for an escrow account
provided pursuant to this section shall that a lender establishes in connection
be retained for 5 years after the date of with a federally related mortgage loan.
execution. It sets limits for escrow accounts using
(e) Appendix B of this part. Illustra- calculations based on monthly pay-
tions in appendix B of this part dem- ments and disbursements within a cal-
onstrate some of the requirements of endar year. If an escrow account in-
this section. volves biweekly or any other payment
period, the requirements in this section
[61 FR 13233, Mar. 26, 1996, as amended at 61 shall be modified accordingly. A HUD
FR 29252, June 7, 1996; 61 FR 58476, Nov. 15,
Public Guidance Document entitled
1996]
‘‘Biweekly Payments—Example’’ pro-
EFFECTIVE DATE NOTE: At 61 FR 29252, June vides examples of biweekly accounting
7, 1996, § 3500.15 was amended by revising the and a HUD Public Guidance Document
introductory text of paragraph (b)(1), effec-
entitled ‘‘Annual Escrow Account Dis-
tive Oct. 7, 1996. At 61 FR 51782, Oct. 4, 1996,
the effective date was delayed until further closure Statement—Example’’ provides
notice. For the convenience of the user, the examples of a 3-year accounting cycle
new text is set forth as follows: that may be used in accordance with
paragraph (c)(9) of this section. A HUD
§ 3500.15 Controlled business arrangements. Public Guidance Document entitled
‘‘Consumer Disclosure for Voluntary
* * * * * Escrow Account Payments’’ provides a
(b) * * * model disclosure format that origina-
(1) Prior to the referral, the person making tors and servicers are encouraged, but
a referral has provided to each person whose not required, to provide to consumers
business is referred a written disclosure, in when the originator or servicer antici-
the format of the Controlled Business Ar- pates a substantial increase in dis-
rangement Disclosure Statement set forth in bursements from the escrow account
appendix D of this part. This disclosure shall after the first year of the loan. The dis-
specify the nature of the relationship (ex-
plaining the ownership and financial inter-
closures in that model format may be
est) between the person performing settle- combined with or included in the Ini-
ment services (or business incident thereto) tial Escrow Account Statement re-
and the person making the referral, and shall quired in § 3500.17(g).
describe the estimated charge or range of (b) Definitions. As used in this sec-
charges (using the same terminology, as far tion:
as practical, as section L of the HUD–1 or
Acceptable accounting method means
HUD–1A settlement statement) generally
made by the provider of settlement services. an accounting method that a servicer
The disclosure must be provided on a sepa- uses to conduct an escrow account
rate piece of paper no later than the time of analysis for an escrow account subject
each referral or, if the lender requires the to the provisions of § 3500.17(c).
282
Aggregate (or) composite analysis, here- serve account’’, ‘‘impound account’’, or

after called aggregate analysis, means other term in different localities. An
an accounting method a servicer uses ‘‘escrow account’’ includes any ar-
in conducting an escrow account anal- rangement where the servicer adds a
ysis by computing the sufficiency of es- portion of the borrower’s payments to
crow account funds by analyzing the principal and subsequently deducts
account as a whole. Appendix E to this from principal the disbursements for
part sets forth examples of aggregate escrow account items. For purposes of
escrow account analyses. this section, the term ‘‘escrow ac-
Annual escrow account statement count’’ excludes any account that is
means a statement containing all of under the borrower’s total control.
the information set forth in § 3500.17(i). Escrow account analysis means the ac-
As noted in § 3500.17(i), a servicer shall counting that a servicer conducts in
submit an annual escrow account the form of a trial running balance for
statement to the borrower within 30 an escrow account to:
calendar days of the end of the escrow (1) Determine the appropriate target
account computation year, after con- balances;
ducting an escrow account analysis. (2) Compute the borrower’s monthly
Conversion date means the date three payments for the next escrow account
years after the publication date of the computation year and any deposits
rule adding this section (i.e., October needed to establish or maintain the ac-
27, 1997) by which date all servicers count; and
shall use aggregate analysis. (3) Determine whether shortages, sur-
Cushion or reserve (hereafter cushion) pluses or deficiencies exist.
means funds that a servicer may re- Escrow account computation year is a
quire a borrower to pay into an escrow 12-month period that a servicer estab-
account to cover unanticipated dis- lishes for the escrow account beginning
bursements or disbursements made be- with the borrower’s initial payment
fore the borrower’s payments are avail- date. The term includes each 12-month
able in the account, as limited by period thereafter, unless a servicer
§ 3500.17(c). chooses to issue a short year statement
Deficiency is the amount of a nega- under the conditions stated in
tive balance in an escrow account. As § 3500.17(i)(4).
noted in § 3500.17(f), if a servicer ad- Escrow account item or separate item
vances funds for a borrower, then the means any separate expenditure cat-
servicer must perform an escrow ac- egory, such as ‘‘taxes’’ or ‘‘insurance’’,
count analysis before seeking repay- for which funds are collected in the es-
ment of the deficiency. crow account for disbursement. An es-
Delivery means the placing of a docu- crow account item with installment
ment in the United States mail, first- payments, such as local property taxes,
class postage paid, addressed to the remains one escrow account item re-
last known address of the recipient. gardless of multiple disbursement
Hand delivery also constitutes deliv- dates to the tax authority.
ery. Initial escrow account statement means
Disbursement date means the date on the first disclosure statement that the
which the servicer actually pays an es- servicer delivers to the borrower con-
crow item from the escrow account. cerning the borrower’s escrow account.
Escrow account means any account The initial escrow account statement
that a servicer establishes or controls shall meet the requirements of
on behalf of a borrower to pay taxes, § 3500.17(g) and be in substantially the
insurance premiums (including flood format set forth in § 3500.17(h).
insurance), or other charges with re- Installment payment means one of two
spect to a federally related mortgage or more payments payable on an es-
loan, including charges that the bor- crow account item during an escrow
rower and servicer have voluntarily account computation year. An example
agreed that the servicer should collect of an installment payment is where a
and pay. The definition encompasses jurisdiction bills quarterly for taxes.
any account established for this pur- Payment due date means the date
pose, including a ‘‘trust account’’, ‘‘re- each month when the borrower’s
283
§ 3500.17 24 CFR Ch. XX (4–1–06 Edition)
monthly payment to an escrow account amounts from the escrow account and
is due to the servicer. The initial pay- the submission of initial and annual es-
ment date is the borrower’s first pay- crow account statements to borrowers.
ment due date to an escrow account. Target balance means the estimated
Penalty means a late charge imposed month end balance in an escrow ac-
by the payee for paying after the discount that is just sufficient to cover
bursement is due. It does not include the remaining disbursements from the
any additional charge or fee imposed escrow account in the escrow account
by the payee associated with choosing computation year, taking into account
installment payments as opposed to the remaining scheduled periodic pay-
annual payments or for choosing one ments, and a cushion, if any.
installment plan over another. Trial running balance means the ac-
Phase-in period means the period be- counting process that derives the tar-
ginning on May 24, 1995, and ending on get balances over the course of an es-
the conversion date, i.e., October 27, crow account computation year. Sec-
1997, by which date all servicers shall tion 3500.17(d) provides a description of
use the aggregate accounting method the steps involved in performing a trial
in conducting escrow account analyses. running balance.
Post-rule account means an escrow ac- (c) Limits on payments to escrow ac-
count established in connection with a counts; acceptable accounting methods to
federally related mortgage loan whose
determine limits. (1) A lender or servicer
settlement date is on or after May 24,
(hereafter servicer) shall not require a
1995.
borrower to deposit into any escrow ac-
Pre-accrual is a practice some
count, created in connection with a
servicers use to require borrowers to
federally related mortgage loan, more
deposit funds, needed for disbursement
than the following amounts:
and maintenance of a cushion, in the
escrow account some period before the (i) Charges at settlement or upon cre-
disbursement date. Pre-accrual is sub- ation of an escrow account. At the time
ject to the limitations of § 3500.17(c). a servicer creates an escrow account
Pre-rule account is an escrow account for a borrower, the servicer may charge
established in connection with a feder- the borrower an amount sufficient to
ally related mortgage loan whose set- pay the charges respecting the mort-
tlement date is before May 24, 1995. gaged property, such as taxes and in-
Shortage means an amount by which surance, which are attributable to the
a current escrow account balance falls period from the date such payment(s)
short of the target balance at the time were last paid until the initial pay-
of escrow analysis. ment date. The ‘‘amount sufficient to
Single-item analysis means an ac- pay’’ is computed so that the lowest
counting method servicers use in con- month end target balance projected for
ducting an escrow account analysis by the escrow account computation year
computing the sufficiency of escrow ac- is zero (–0–) (see Step 2 in appendix E to
count funds by considering each escrow this part). In addition, the servicer
item separately. Appendix E to this may charge the borrower a cushion
part sets forth examples of single-item that shall be no greater than one-sixth
analysis. (1⁄6) of the estimated total annual pay-
Submission (of an escrow account ments from the escrow account.
statement) means the delivery of the (ii) Charges during the life of the es-
statement. crow account. Throughout the life of an
Surplus means an amount by which escrow account, the servicer may
the current escrow account balance ex- charge the borrower a monthly sum
ceeds the target balance for the ac- equal to one-twelfth (1⁄12) of the total
count. annual escrow payments which the
System of recordkeeping means the servicer reasonably anticipates paying
servicer’s method of keeping informa- from the account. In addition, the
tion that reflects the facts relating to servicer may add an amount to main-
that servicer’s handling of the bor- tain a cushion no greater than one-
rower’s escrow account, including, but sixth (1⁄6) of the estimated total annual
not limited to, the payment of payments from the account. However,
284
if a servicer determines through an es- quirements of paragraph (k) of this sec-

crow account analysis that there is a tion. The servicer must use the escrow
shortage or deficiency, the servicer account analysis to determine whether
may require the borrower to pay addi- a surplus, shortage, or deficiency ex-
tional deposits to make up the short- ists, and must make any adjustments
age or eliminate the deficiency, subject to the account pursuant to paragraph
to the limitations set forth in (f) of this section. Upon completing an
§ 3500.17(f). escrow account analysis, the servicer
(2) Escrow analysis at creation of es- must prepare and submit an annual es-
crow account. Before establishing an escrow account statement to the bor-
crow account, the servicer must con- rower, as set forth in paragraph (i) of
duct an escrow account analysis to de- this section.
termine the amount the borrower must (4) Acceptable accounting methods to
deposit into the escrow account (sub- determine escrow limits. The following
ject to the limitations of paragraph are acceptable accounting methods
(c)(1)(i) of this section), and the that servicers may use in conducting
amount of the borrower’s periodic pay- an escrow account analysis.
ments into the escrow account (subject (i) Pre-rule accounts. For pre-rule ac-
to the limitations of paragraph counts, servicers may use either single-
(c)(1)(ii) of this section). In conducting item analysis or aggregate-analysis
the escrow account analysis, the during the phase-in period. In con-
servicer must estimate the disburse- ducting the escrow account analysis,
ment amounts according to paragraph servicers shall use ‘‘month-end’’ ac-
(c)(7) of this section. Pursuant to para- counting. Under month-end account-
graph (k) of this section, the servicer ing, the timing of the disbursements
must use a date on or before the dead- and payments within the month is ir-
line to avoid a penalty as the disburse- relevant. As of the conversion date, all
ment date for the escrow item and pre-rule accounts shall comply with
comply with any other requirements of the requirements for post-rule ac-
paragraph (k) of this section. Upon counts in paragraph (c)(4)(ii) of this
completing the initial escrow account section. During the phase-in period, the
analysis, the servicer must prepare and transfer of servicing of a pre-rule ac-
deliver an initial escrow account state- count to another servicer does not con-
ment to the borrower, as set forth in vert the account to a post-rule ac-
paragraph (g) of this section. The count. After May 24, 1995, refinancing
servicer must use the escrow account transactions (as defined in § 3500.2)
analysis to determine whether a sur- shall comply with the requirements for
plus, shortage, or deficiency exists and post-rule accounts.
must make any adjustments to the ac- (ii) Post-rule accounts. For post-rule
count pursuant to paragraph (f) of this accounts, servicers shall use aggregate
section. accounting to conduct an escrow ac-
(3) Subsequent escrow account analyses. count analysis. In conducting the es-
For each escrow account, the servicer crow account analysis, servicers shall
must conduct an escrow account anal- use ‘‘month-end’’ accounting. Under
ysis at the completion of the escrow month-end accounting, the timing of
account computation year to deter- the disbursements and payments with-
mine the borrower’s monthly escrow in the month is irrelevant.
account payments for the next com- (5) Cushion. For post-rule accounts,
putation year, subject to the limita- the cushion shall be no greater than
tions of paragraph (c)(1)(ii) of this sec- one-sixth (1⁄6) of the estimated total an-
tion. In conducting the escrow account nual disbursements from the escrow ac-
analysis, the servicer must estimate count using aggregate analysis ac-
the disbursement amounts according to counting. For pre-rule accounts, the
paragraph (c)(7) of this section. Pursu- cushion may not exceed the total of
ant to paragraph (k) of this section, one-sixth of the estimated annual dis-
the servicer must use a date on or be- bursements for each escrow account
fore the deadline to avoid a penalty as item using single-item analysis ac-
the disbursement date for the escrow counting. In determining the cushion
item and comply with any other re- using single-item analysis, a servicer
285
§ 3500.17 24 CFR Ch. XX (4–1–06 Edition)
shall not divide an escrow account a servicer establishes an escrow ac-

item into sub-accounts, even if the count under State law, then the limita-
payee requires installment payments. tions of this section apply unless State
(6) Restrictions on pre-accrual. For pre- law provides for a lower amount. If the
rule accounts, a servicer shall not re- loan documents provide for escrow ac-
quire any pre-accrual that results in counts up to the RESPA limits, then
the escrow account balance exceeding the servicer may require the maximum
the limits of paragraph (c)(1) of this amounts consistent with this section,
section. In addition, if the mortgage unless an applicable State law sets a
documents in a pre-rule account are si- lesser amount.
lent about the amount of pre-accrual, (9) Assessments for periods longer than
the servicer shall not require in excess one year. Some escrow account items
of one month of pre-accrual, subject to may be billed for periods longer than
the additional limitations provided in one year. For example, servicers may
paragraph (c)(8) of this section. For need to collect flood insurance or water
post-rule accounts, a servicer shall not purification escrow funds for payment
practice pre-accrual. every three years. In such cases, the
(7) Servicer estimates of disbursement servicer shall estimate the borrower’s
amounts. To conduct an escrow account payments for a full cycle of disburse-
analysis, the servicer shall estimate ments. For a flood insurance premium
the amount of escrow account items to payable every 3 years, the servicer
be disbursed. If the servicer knows the shall collect the payments reflecting 36
charge for an escrow item in the next equal monthly amounts. For two out of
computation year, then the servicer the three years, however, the account
shall use that amount in estimating balance may not reach its low monthly
disbursement amounts. If the charge is balance because the low point will be
unknown to the servicer, the servicer on a three-year cycle, as compared to
may base the estimate on the pre- an annual one. The annual escrow ac-
ceding year’s charge, or the preceding count statement shall explain this sit-
year’s charge as modified by an
uation (see example in the HUD Public
amount not exceeding the most recent
Guidance Document entitled ‘‘Annual
year’s change in the national Con-
Escrow Account Disclosure State-
sumer Price Index for all urban con-
ment—Example’’, available in accord-
sumers (CPI, all items). In cases of
ance with § 3500.3).
unassessed new construction, the
servicer may base an estimate on the (d) Methods of escrow account analysis.
assessment of comparable residential Paragraph (c) of this section prescribes
property in the market area. acceptable accounting methods. The
(8) Provisions in mortgage documents. following sets forth the steps servicers
The servicer shall examine the mort- shall use to determine whether their
gage loan documents to determine the use of an acceptable accounting meth-
applicable cushion and limitations on od conforms with the limitations in
pre-accrual for each escrow account. If § 3500.17(c)(1). The steps set forth in this
the mortgage loan documents provide section derive maximum limits.
for lower cushion limits or less pre-ac- Servicers may use accounting proce-
crual than this section, then the terms dures that result in lower target bal-
of the loan documents apply. Where the ances. In particular, servicers may use
terms of any mortgage loan document a cushion less than the permissible
allow greater payments to an escrow cushion or no cushion at all. This sec-
account than allowed by this section, tion does not require the use of a cush-
then this section controls the applica- ion.
ble limits. Where the mortgage loan (1) Aggregate analysis. (i) When a
documents do not specifically establish servicer uses aggregate analysis in con-
an escrow account, whether a servicer ducting the escrow account analysis,
may establish an escrow account for the target balances may not exceed the
the loan is a matter for determination balances computed according to the
by State law. If the mortgage loan doc- following arithmetic operations:
ument is silent on the escrow account (A) The servicer first projects a trial
limits (for cushion or pre-accrual) and balance for the account as a whole over
286
the next computation year (a trial run- dates. The servicer also assumes that
ning balance). In doing so the servicer the borrower will make periodic pay-
assumes that it will make estimated ments equal to one-twelfth of the esti-
disbursements on or before the earlier mated total annual escrow account dis-
of the deadline to take advantage of bursements.
discounts, if available, or the deadline (B) The servicer then examines the
to avoid a penalty. The servicer does monthly trial balance for each escrow
not use pre-accrual on these disburse- account item and adds to the first
ment dates. The servicer also assumes monthly balance for each separate
that the borrower will make monthly item an amount just sufficient to bring
payments equal to one-twelfth of the the lowest monthly trial balance for
estimated total annual escrow account that item to zero, and then adjusts all
disbursements. other monthly balances accordingly.
(B) The servicer then examines the (C) The servicer then adds the per-
monthly trial balances and adds to the missible cushion, if any, to the month-
first monthly balance an amount just ly balance for the separate escrow ac-
sufficient to bring the lowest monthly count item. The permissible cushion is
trial balance to zero, and adjusts all two months of escrow payments for the
other monthly balances accordingly. escrow account item (net of any in-
(C) The servicer then adds to the creases or decreases because of prior
monthly balances the permissible cush- year shortages or surpluses, respec-
ion. The cushion is two months of the tively) or a lesser amount specified by
borrower’s escrow payments to the State law or the mortgage document.
servicer or a lesser amount specified by
(D) The servicer then examines the
State law or the mortgage document
balances for each item to make certain
(net of any increases or decreases be-
that the lowest monthly balance for
cause of prior year shortages or sur-
that item is less than or equal to one-
pluses, respectively).
sixth of the estimated total annual es-
(ii) Lowest monthly balance. Under ag-
crow account disbursements for that
gregate analysis, the lowest monthly
item or a lesser amount specified by
target balance for the account shall be
less than or equal to one-sixth of the State law or the mortgage document.
estimated total annual escrow account (ii) In performing an escrow account
disbursements or a lesser amount spec- analysis using single-item analysis,
ified by State law or the mortgage doc- servicers may account for each escrow
ument. The target balances that the account item separately, but servicers
servicer derives using these steps yield shall not further divide accounts into
the maximum limit for the escrow ac- sub-accounts, even if the payee of a dis-
count. Appendix E to this part illus- bursement requires installment pay-
trates these steps. ments. The target balances that the
(2) Single-item or other non-aggregate servicer derives using these steps yield
analysis method. (i) When a servicer the maximum limit for the escrow ac-
uses single-item analysis or any hybrid count. Appendix F to this part illus-
accounting method in conducting an trates these steps.
escrow account analysis during the (e) Transfer of servicing. (1) If the new
phase-in period, the target balances servicer changes either the monthly
may not exceed the balances computed payment amount or the accounting
according to the following arithmetic method used by the transferor (old)
operations: servicer, then the new servicer shall
(A) The servicer first projects a trial provide the borrower with an initial es-
balance for each item over the next crow account statement within 60 days
computation year (a trial running bal- of the date of servicing transfer.
ance). In doing so the servicer assumes (i) Where a new servicer provides an
that it will make estimated disburse- initial escrow account statement upon
ments on or before the earlier of the the transfer of servicing, the new
deadline to take advantage of dis- servicer shall use the effective date of
counts, if available, or the deadline to the transfer of servicing to establish
avoid a penalty. The servicer does not the new escrow account computation
use pre-accrual on these disbursement year.
287
§ 3500.17 24 CFR Ch. XX (4–1–06 Edition)
(ii) Where the new servicer retains (ii) These provisions regarding sur-
the monthly payments and accounting pluses apply if the borrower is current
method used by the transferor servicer, at the time of the escrow account anal-
then the new servicer may continue to ysis. A borrower is current if the
use the escrow account computation servicer receives the borrower’s pay-
year established by the transferor ments within 30 days of the payment
servicer or may choose to establish a due date. If the servicer does not re-
different computation year using a ceive the borrower’s payment within 30
short-year statement. At the comple- days of the payment due date, then the
tion of the escrow account computa- servicer may retain the surplus in the
tion year or any short year, the new escrow account pursuant to the terms
servicer shall perform an escrow anal- of the mortgage loan documents.
ysis and provide the borrower with an (iii) After an initial or annual escrow
annual escrow account statement. analysis has been performed, the
(2) The new servicer shall treat short- servicer and the borrower may enter
ages, surpluses and deficiencies in the into a voluntary agreement for the
transferred escrow account according forthcoming escrow accounting year
to the procedures set forth in for the borrower to deposit funds into
§ 3500.17(f). the escrow account for that year great-
(3) A pre-rule account remains a pre- er than the limits established under
rule account upon the transfer of serv- paragraph (c) of this section. Such an
icing to a new servicer so long as the agreement shall cover only one escrow
transfer occurs before the conversion accounting year, but a new voluntary
date. agreement may be entered into after
(f) Shortages, surpluses, and defi- the next escrow analysis is performed.
ciencies requirements—(1) Escrow account The voluntary agreement may not
analysis. For each escrow account, the alter how surpluses are to be treated
servicer shall conduct an escrow ac- when the next escrow analysis is per-
count analysis to determine whether a formed at the end of the escrow ac-
surplus, shortage or deficiency exists. counting year covered by the voluntary
(i) As noted in § 3500.17(c)(2) and (3), agreement.
the servicer shall conduct an escrow (3) Shortages. (i) If an escrow account
account analysis upon establishing an analysis discloses a shortage of less
escrow account and at completion of than one month’s escrow account pay-
the escrow account computation year. ment, then the servicer has three pos-
(ii) The servicer may conduct an es- sible courses of action:
crow account analysis at other times (A) The servicer may allow a short-
during the escrow computation year. If age to exist and do nothing to change
a servicer advances funds in paying a it;
disbursement, which is not the result (B) The servicer may require the bor-
of a borrower’s payment default under rower to repay the shortage amount
the underlying mortgage document, within 30 days; or
then the servicer shall conduct an es- (C) The servicer may require the bor-
crow account analysis to determine the rower to repay the shortage amount in
extent of the deficiency before seeking equal monthly payments over at least
repayment of the funds from the bor- a 12-month period.
rower under this paragraph (f). (ii) If an escrow account analysis dis-
(2) Surpluses. (i) If an escrow account closes a shortage that is greater than
analysis discloses a surplus, the or equal to one month’s escrow account
servicer shall, within 30 days from the payment, then the servicer has two
date of the analysis, refund the surplus possible courses of action:
to the borrower if the surplus is great- (A) The servicer may allow a short-
er than or equal to 50 dollars ($50). If age to exist and do nothing to change
the surplus is less than 50 dollars ($50), it; or
the servicer may refund such amount (B) The servicer may require the bor-
to the borrower, or credit such amount rower to repay the shortage in equal
against the next year’s escrow pay- monthly payments over at least a 12-
ments. month period.
288
(4) Deficiency. If the escrow account accounts that are established as a con-
analysis confirms a deficiency, then dition of the loan.
the servicer may require the borrower (i) The initial escrow account state-
to pay additional monthly deposits to ment shall include the amount of the
the account to eliminate the defi- borrower’s monthly mortgage payment
ciency. and the portion of the monthly pay-
(i) If the deficiency is less than one ment going into the escrow account
month’s escrow account payment, then and shall itemize the estimated taxes,
the servicer: insurance premiums, and other charges
(A) May allow the deficiency to exist that the servicer reasonably antici-
and do nothing to change it; pates to be paid from the escrow ac-
(B) May require the borrower to count during the escrow account com-
repay the deficiency within 30 days; or putation year and the anticipated dis-
(C) May require the borrower to bursement dates of those charges. The
repay the deficiency in 2 or more equal initial escrow account statement shall
monthly payments. indicate the amount that the servicer
(ii) If the deficiency is greater than selects as a cushion. The statement
or equal to 1 month’s escrow payment, shall include a trial running balance
the servicer may allow the deficiency for the account.
to exist and do nothing to change it or (ii) Pursuant to § 3500.17(h)(2), the
may require the borrower to repay the servicer may incorporate the initial es-
deficiency in two or more equal month- crow account statement into the HUD–
ly payments. 1 or HUD–1A settlement statement. If
(iii) These provisions regarding defi- the servicer does not incorporate the
ciencies apply if the borrower is cur- initial escrow account statement into
rent at the time of the escrow account the HUD–1 or HUD–1A settlement
analysis. A borrower is current if the statement, then the servicer shall sub-
servicer receives the borrower’s pay- mit the initial escrow account state-
ments within 30 days of the payment ment to the borrower as a separate
due date. If the servicer does not re- document.
ceive the borrower’s payment within 30 (2) Time of submission of initial escrow
days of the payment due date, then the account statement for an escrow account
servicer may recover the deficiency established after settlement. For escrow
pursuant to the terms of the mortgage accounts established after settlement
loan documents. (and which are not a condition of the
(5) Notice of shortage or deficiency in loan), a servicer shall submit an initial
escrow account. The servicer shall no- escrow account statement to a bor-
tify the borrower at least once during rower within 45 calendar days of the
the escrow account computation year date of establishment of the escrow ac-
if there is a shortage or deficiency in count.
the escrow account. The notice may be (h) Format for initial escrow account
part of the annual escrow account statement. (1) The format and a com-
statement or it may be a separate doc- pleted example for an initial escrow ac-
ument. count statement are set out in HUD
(g) Initial escrow account statement. (1) Public Guidance Documents entitled
Submission at settlement, or within 45 ‘‘Initial Escrow Account Disclosure
calendar days of settlement. As noted Statement—Format’’ and ‘‘Initial Es-
in § 3500.17(c)(2), the servicer shall con- crow Account Disclosure Statement—
duct an escrow account analysis before Example’’, available in accordance
establishing an escrow account to de- with § 3500.3.
termine the amount the borrower shall (2) Incorporation of initial escrow ac-
deposit into the escrow account, sub- count statement into HUD–1 or HUD–1A
ject to the limitations of settlement statement. Pursuant to
§ 3500.17(c)(1)(i). After conducting the § 3500.9(a)(11), a servicer may add the
escrow account analysis for each es- initial escrow account statement to
crow account, the servicer shall submit the HUD–1 or HUD–1A settlement
an initial escrow account statement to statement. The servicer may include
the borrower at settlement or within 45 the initial escrow account statement in
calendar days of settlement for escrow the basic text or may attach the initial
289
§ 3500.17 24 CFR Ch. XX (4–1–06 Edition)
escrow account statement as an addi- (iii) The total amount paid into the
tional page to the HUD–1 or HUD–1A escrow account during the past com-
settlement statement. putation year;
(3) Identification of payees. The initial (iv) The total amount paid out of the
escrow account statement need not escrow account during the same period
identify a specific payee by name if it for taxes, insurance premiums, and
provides sufficient information to iden- other charges (as separately identi-
tify the use of the funds. For example, fied);
appropriate entries include: county (v) The balance in the escrow account
taxes, hazard insurance, condominium at the end of the period;
dues, etc. If a particular payee, such as (vi) An explanation of how any sur-
a taxing body, receives more than one plus is being handled by the servicer;
payment during the escrow account (vii) An explanation of how any
computation year, the statement shall
shortage or deficiency is to be paid by
indicate each payment and disburse-
the borrower; and
ment date. If there are several taxing
(viii) If applicable, the reason(s) why
authorities or insurers, the statement
shall identify each taxing body or in- the estimated low monthly balance was
surer (e.g., ‘‘City Taxes’’, ‘‘School not reached, as indicated by noting dif-
Taxes’’, ‘‘Hazard Insurance’’, or ‘‘Flood ferences between the most recent ac-
Insurance,’’ etc.). count history and last year’s projec-
(i) Annual escrow account statements. tion. HUD Public Guidance Documents
For each escrow account, a servicer entitled ‘‘Annual Escrow Account Dis-
shall submit an annual escrow account closure Statement—Format’’ and ‘‘An-
statement to the borrower within 30 nual Escrow Account Disclosure State-
days of the completion of the escrow ment—Example’’ set forth an accept-
account computation year. The able format and methodology for con-
servicer shall also submit to the bor- veying this information.
rower the previous year’s projection or (2) No annual statements in the case of
initial escrow account statement. The default, foreclosure, or bankruptcy. This
servicer shall conduct an escrow ac- paragraph (i)(2) contains an exemption
count analysis before submitting an from the provisions of § 3500.17(i)(1). If
annual escrow account statement to at the time the servicer conducts the
the borrower. escrow account analysis the borrower
(1) Contents of annual escrow account is more than 30 days overdue, then the
statement. The annual escrow account servicer is exempt from the require-
statement shall provide an account his- ments of submitting an annual escrow
tory, reflecting the activity in the es- account statement to the borrower
crow account during the escrow ac- under § 3500.17(i). This exemption also
count computation year, and a projec- applies in situations where the servicer
tion of the activity in the account for has brought an action for foreclosure
the next year. In preparing the state- under the underlying mortgage loan, or
ment, the servicer may assume sched- where the borrower is in bankruptcy
uled payments and disbursements will proceedings. If the servicer does not
be made for the final 2 months of the issue an annual statement pursuant to
escrow account computation year. The this exemption and the loan subse-
annual escrow account statement must quently is reinstated or otherwise be-
include, at a minimum, the following comes current, the servicer shall pro-
(the items in paragraphs (i)(1)(i) vide a history of the account since the
through (i)(1)(iv) must be clearly last annual statement (which may be
itemized): longer than 1 year) within 90 days of
(i) The amount of the borrower’s cur- the date the account became current.
rent monthly mortgage payment and (3) Delivery with other material. The
the portion of the monthly payment servicer may deliver the annual escrow
going into the escrow account; account statement to the borrower
(ii) The amount of the past year’s with other statements or materials, in-
monthly mortgage payment and the cluding the Substitute 1098, which is
portion of the monthly payment that provided for federal income tax pur-
went into the escrow account; poses.
290
(4) Short year statements. A servicer (3) For the payment of property taxes
may issue a short year annual escrow from the escrow account, if a taxing ju-
account statement (‘‘short year state- risdiction offers a servicer a choice be-
ment’’) to change one escrow account tween annual and installment disburse-
computation year to another. By using ments, the servicer must also comply
a short year statement a servicer may with this paragraph (k)(3). If the taxing
adjust its production schedule or alter jurisdiction neither offers a discount
the escrow account computation year for disbursements on a lump sum an-
for the escrow account. nual basis nor imposes any additional
(i) Effect of short year statement. The charge or fee for installment disburse-
short year statement shall end the ments, the servicer must make dis-
‘‘escrow account computation year’’ bursements on an installment basis. If,
for the escrow account and establish however, the taxing jurisdiction offers
the beginning date of the new escrow a discount for disbursements on a lump
account computation year. The sum annual basis or imposes any addi-
servicer shall deliver the short year tional charge or fee for installment dis-
statement to the borrower within 60 bursements, the servicer may at the
days from the end of the short year. servicer’s discretion (but is not re-
(ii) Short year statement upon servicing quired by RESPA to), make lump sum
transfer. Upon the transfer of servicing, annual disbursements in order to take
the transferor (old) servicer shall sub- advantage of the discount for the bor-
mit a short year statement to the borrower or avoid the additional charge or
rower within 60 days of the effective fee for installments, as long as such
date of transfer. method of disbursement complies with
(iii) Short year statement upon loan paragraphs (k)(1) and (k)(2) of this sec-
payoff. If a borrower pays off a mort- tion. HUD encourages, but does not re-
gage loan during the escrow account quire, the servicer to follow the pref-
computation year, the servicer shall erence of the borrower, if such pref-
submit a short year statement to the erence is known to the servicer.
borrower within 60 days after receiving (4) Notwithstanding paragraph (k)(3)
the pay-off funds. of this section, a servicer and borrower
(j) Formats for annual escrow account may mutually agree, on an individual
statement. The formats and completed case basis, to a different disbursement
examples for annual escrow account basis (installment or annual) or dis-
statements using single-item analysis bursement date for property taxes from
(pre-rule accounts) and aggregate anal- that required under paragraph (k)(3) of
ysis are set out in HUD Public Guid- this section, so long as the agreement
ance Documents entitled ‘‘Annual Es- meets the requirements of paragraphs
crow Account Disclosure Statement— (k)(1) and (k)(2) of this section. The
Format’’ and ‘‘Annual Escrow Account borrower must voluntarily agree; nei-
Disclosure Statement—Example’’. ther loan approval nor any term of the
(k) Timely payments. (1) If the terms loan may be conditioned on the bor-
of any federally related mortgage loan rower’s agreeing to a different dis-
require the borrower to make pay- bursement basis or disbursement date.
ments to an escrow account, the (l) System of recordkeeping. (1) Each
servicer must pay the disbursements in servicer shall keep records, which may
a timely manner, that is, on or before involve electronic storage, microfiche
the deadline to avoid a penalty, as long storage, or any method of computer-
as the borrower’s payment is not more ized storage, so long as the information
than 30 days overdue. is easily retrievable, reflecting the
(2) The servicer must advance funds servicer’s handling of each borrower’s
to make disbursements in a timely escrow account. The servicer’s records
manner as long as the borrower’s pay- shall include, but not be limited to, the
ment is not more than 30 days overdue. payment of amounts into and from the
Upon advancing funds to pay a dis- escrow account and the submission of
bursement, the servicer may seek re- initial and annual escrow account
payment from the borrower for the de- statements to the borrower.
ficiency pursuant to paragraph (f) of (2) The servicer responsible for serv-
this section. icing the borrower’s escrow account
291
§ 3500.17 24 CFR Ch. XX (4–1–06 Edition)
shall maintain the records for that ac- (2) Violations described in paragraph
count for a period of at least five years (m)(1) of this section do not require
after the servicer last serviced the es- any proof of intent. However, if a lend-
crow account. er or servicer is shown to have inten-
(3) A servicer shall provide the Sec- tionally disregarded the requirements
retary with information contained in that it submit the escrow account
the servicer’s records for a specific es- statement to the borrower, then the
crow account, or for a number or class Secretary shall assess a civil penalty of
of escrow accounts, within 30 days of $110 for each violation, with no limit
the Secretary’s written request for the on the total amount of the penalty.
information. The servicer shall convert (n) Civil penalties procedures. The fol-
any information contained in elec- lowing procedures shall apply whenever
tronic storage, microfiche or comput- the Department seeks to impose a civil
erized storage to paper copies for re- money penalty for violation of section
view by the Secretary. 10(c) of RESPA (12 U.S.C. 2609(c)):
(i) To aid in investigations, the Sec- (1) Purpose and scope. This paragraph
retary may also issue an administra- (n) explains the procedures by which
tive subpoena for the production of the Secretary may impose penalties
documents, and for the testimony of under 12 U.S.C. 2609(d). These proce-
such witnesses as the Secretary deems dures include administrative hearings,
advisable. judicial review, and collection of pen-
alties. This paragraph (n) governs pen-
(ii) If the subpoenaed party refuses to
alties imposed under 12 U.S.C. 2609(d)
obey the Secretary’s administrative
and, when noted, adopts those portions
subpoena, the Secretary is authorized
of 24 CFR part 30 that apply to all
to seek a court order requiring compli-
other civil penalty proceedings initi-
ance with the subpoena from any
ated by the Secretary.
United States district court. Failure to
(2) Authority. The Secretary has the
obey such an order of the court may be
authority to impose civil penalties
punished as contempt of court.
under section 10(d) of RESPA (12 U.S.C.
(4) Borrowers may seek information 2609(d)).
contained in the servicer’s records by (3) Notice of intent to impose civil
complying with the provisions set forth money penalties. Whenever the Sec-
in 12 U.S.C. 2605(e) and § 3500.21(f). retary intends to impose a civil money
(5) After receiving a request (by let- penalty for violations of section 10(c)
ter or subpoena) from the Department of RESPA (12 U.S.C. 2609(c)), the re-
for information relating to whether a sponsible program official, or his or her
servicer submitted an escrow account designee, shall serve a written Notice
statement to the borrower, the servicer of Intent to Impose Civil Money Pen-
shall respond within 30 days. If the alties (Notice of Intent) upon any
servicer is unable to provide the De- servicer on which the Secretary in-
partment with such information, the tends to impose the penalty. A copy of
Secretary shall deem that lack of in- the Notice of Intent must be filed with
formation to be evidence of the the Chief Docket Clerk, Office of Ad-
servicer’s failure to submit the state- ministrative Law Judges, at the ad-
ment to the borrower. dress provided in the Notice of Intent.
(m) Penalties. (1) A servicer’s failure The Notice of Intent will provide:
to submit to a borrower an initial or (i) A short, plain statement of the
annual escrow account statement facts upon which the Secretary has de-
meeting the requirements of this part termined that a civil money penalty
shall constitute a violation of section should be imposed, including a brief de-
10(d) of RESPA (12 U.S.C. 2609(d)) and scription of the specific violations
this section. For each such violation, under 12 U.S.C. 2609(c) with which the
the Secretary shall assess a civil pen- servicer is charged and whether such
alty of 65 dollars ($65), except that the violations are believed to be inten-
total of the assessed penalties shall not tional or unintentional in nature, or a
exceed $120,000 for any one servicer for combination thereof;
violations that occur during any con- (ii) The amount of the civil money
secutive 12-month period. penalty that the Secretary intends to
292
impose and whether the limitations in failure was not the result of an inten-
12 U.S.C. 2609(d)(1), apply; tional disregard of the requirements of
(iii) The right of the servicer to a RESPA (for purposes of determining
hearing on the record to appeal the the penalty).
Secretary’s preliminary determination (iii) Review of the record. The Admin-
to impose a civil penalty; istrative Law Judge will review the
(iv) The procedures to appeal the pen- evidence submitted by the servicer, if
alty; any, and that submitted by the Depart-
(v) The consequences of failure to ap- ment. The Administrative Law Judge
peal the penalty; and shall make a determination based upon
(vi) The name, address, and telephone a review of the written record, except
number of the representative of the De- that the Administrative Law Judge
partment, and the address of the Chief may order an oral hearing if he or she
Docket Clerk, Office of Administrative finds that the determination turns on
Law Judges, should the servicer decide the credibility or veracity of a witness,
to appeal the penalty. or that the matter cannot be resolved
(4) Appeal procedures. (i) Answer. To by review of the documentary evidence.
appeal the imposition of a penalty, a If the Administrative Law Judge de-
servicer shall, within 30 days after re- cides that an oral hearing is appro-
ceiving service of the Notice of Intent, priate, then the procedural rules set
file a written Answer with the Chief forth at 24 CFR part 30 shall apply, to
Docket Clerk, Office of Administrative the extent that they are not incon-
Law Judges, Department of Housing sistent with this section.
and Urban Development, at the address (iv) Burden of proof. The burden of
provided in the Notice of Intent. The proof or the burden of going forward
Answer shall include a statement that with the evidence shall be upon the
the servicer admits, denies, or does not proponent of an action. The Depart-
have (and is unable to obtain) suffi-
ment’s submission of evidence that the
cient information to admit or deny
servicer’s system of records lacks in-
each allegation made in the Notice of
formation that the servicer submitted
Intent. A statement of lack of informa-
the escrow account statement(s) to the
tion shall have the effect of a denial.
borrower(s) shall satisfy the Depart-
Any allegation that is not denied shall
ment’s burden. Upon the Department’s
be deemed admitted. Failure to submit
presentation of evidence of this lack of
an Answer within the required period
information in the servicer’s system of
of time will result in a decision by the
records, the burden of proof shifts from
Administrative Law Judge based upon
the Department’s submission of evi- the Secretary to the servicer to provide
dence in the Notice of Intent. evidence that it submitted the state-
(ii) Submission of evidence. A servicer ment(s) to the borrower.
that receives the Notice of Intent has a (v) Standard of proof. The standard of
right to present evidence. Evidence proof shall be the preponderance of the
must be submitted within 45 calendar evidence.
days from the date of service of the No- (5) Determination of the Administrative
tice of Intent, or by such other time as Law Judge. (i) Following the hearing or
may be established by the Administra- the review of the written record, the
tive Law Judge (ALJ). The servicer’s Administrative Law Judge shall issue a
failure to submit evidence within the decision that shall contain findings of
required period of time will result in a fact, conclusions of law, and the
decision by the Administrative Law amount of any penalties imposed. The
Judge based upon the Department’s decision shall include a determination
submission of evidence in the Notice of of whether the servicer has failed to
Intent. The servicer may present evi- submit any required statements and, if
dence of the following: so, whether the servicer’s failure was
(A) The servicer did submit the re- the result of an intentional disregard
quired escrow account statement(s) to for the law’s requirements.
the borrower(s); or (ii) The Administrative Law Judge
(B) Even if the servicer did not sub- shall issue the decision to all parties
mit the required statement(s), that the within 30 days of the submission of the
293
§ 3500.18 24 CFR Ch. XX (4–1–06 Edition)
evidence or the post-hearing briefs, made as part of a monthly mortgage

whichever is the last to occur. payment is to be noted on the initial
(iii) The decision of the Administra- and annual statements. If a discre-
tive Law Judge shall constitute the tionary payment is established or ter-
final decision of the Department and minated during the escrow account
shall be final and binding on the par- computation year, this change should
ties. be noted on the next annual statement.
(6) Judicial review. (i) A person A discretionary payment is not part of
against whom the Department has im- the escrow account unless the payment
posed a civil money penalty under this is required by the lender, in accordance
part may obtain a review of the De- with the definition of ‘‘settlement serv-
partment’s final decision by filing a ice’’ in § 3500.2, or the servicer chooses
written petition for a review of the to place the discretionary payment in
record with the appropriate United the escrow account. If a servicer has
States district court. not established an escrow account for a
(ii) The petition must be filed within federally related mortgage loan and
30 days after the decision is filed with only receives payments for discre-
the Chief Docket Clerk, Office of Ad- tionary items, this section is not appli-
ministrative Law Judges. cable.
(7) Collection of penalties. (i) If any (Approved by the Office of Management and
person fails to comply with the Depart- Budget under control number 2502–0501)
ment’s final decision imposing a civil [61 FR 13233, Mar. 26, 1996, as amended at 61
money penalty, the Secretary, if the FR 46510, Sept. 3, 1996; 61 FR 50219, Sept. 24,
time for judicial review of the decision 1996; 61 FR 58476, Nov. 15, 1996; 63 FR 3236,
has expired, may request the Attorney Jan. 21, 1998; 68 FR 12789, Mar. 17, 2003]
General to bring an action in an appro-
priate United States district court to § 3500.18 Validity of contracts and
obtain a judgment against the person liens.
that has failed to comply with the De- Section 17 of RESPA (12 U.S.C. 2615)
partment’s final decision. governs the validity of contracts and
(ii) In any such collection action, the liens under RESPA.
validity and appropriateness of the De-
partment’s final decision imposing the § 3500.19 Enforcement.
civil penalty shall not be subject to re- (a) Enforcement policy. It is the policy
view in the district court. of the Secretary regarding RESPA en-
(iii) The Secretary may obtain such forcement matters to cooperate with
other relief as may be available, in- Federal, State or local agencies having
cluding attorney fees and other ex- supervisory powers over lenders or
penses in connection with the collec- other persons with responsibilities
tion action. under RESPA. Federal agencies with
(iv) Interest on and other charges for supervisory powers over lenders may
any unpaid penalty may be assessed in use their powers to require compliance
accordance with 31 U.S.C. 3717. with RESPA. In addition, failure to
(8) Offset. In addition to any other comply with RESPA may be grounds
rights as a creditor, the Secretary may for administrative action by the Sec-
seek to collect a civil money penalty retary under part 24 of this title con-
through administrative offset. cerning debarment, suspension, ineligi-
(9) At any time before the decision of bility of contractors and grantees, or
the Administrative Law Judge, the under part 25 of this title concerning
Secretary and the servicer may enter the HUD Mortgagee Review Board.
into an administrative settlement. The Nothing in this paragraph is a limita-
settlement may include provisions for tion on any other form of enforcement
interest, attorney’s fees, and costs re- which may be legally available.
lated to the proceeding. Such settle- (b) Violations of section 8 of RESPA (12
ment will terminate the appearance be- U.S.C. 2607), § 3500.14, or § 3500.15. Any
fore the Administrative Law Judge. person who violates §§ 3500.14 or 3500.15
(o) Discretionary payments. Any bor- shall be deemed to violate section 8 of
rower’s discretionary payment (such as RESPA and shall be sanctioned accord-
credit life or disability insurance) ingly.
294
(c) Violations of section 9 of RESPA (12 using table funding, or dealer who an-
U.S.C. 2608) or § 3500.16. Any person who ticipates a first lien dealer loan shall
violates section 3500.16 of this part provide to each person who applies for
shall be deemed to violate section 9 of such a loan a Servicing Disclosure
RESPA and shall be sanctioned accord- Statement. This requirement shall not
ingly. apply when the application for credit is
(d) Investigations. The procedures for turned down within three business days
investigations and investigational pro- after receipt of the application. A for-
ceedings are set forth in 24 CFR part mat for the Servicing Disclosure State-
3800. ment appears as appendix MS–1 to this
part. Except as provided in paragraph
§ 3500.20 [Reserved] (b)(2) of this section, the specific lan-
guage of the Servicing Disclosure
§ 3500.21 Mortgage servicing transfers. Statement is not required to be used,
(a) Definitions. As used in this sec- but the Servicing Disclosure State-
tion: ment must include the information set
Master servicer means the owner of out in paragraph (b)(3) of this section,
the right to perform servicing, which including the statement of the bor-
may actually perform the servicing rower’s rights in connection with com-
itself or may do so through a plaint resolution. The information set
subservicer. forth in Instructions to Preparer on
Mortgage servicing loan means a feder- the Servicing Disclosure Statement
ally related mortgage loan, as that need not be included on the form given
term is defined in § 3500.2, subject to to applicants, and material in square
the exemptions in § 3500.5, when the brackets is optional or alternative lan-
mortgage loan is secured by a first guage.
lien. The definition does not include (2) The Applicant’s Acknowledge-
subordinate lien loans or open-end ment portion of the Servicing Disclo-
lines of credit (home equity plans) cov- sure Statement in the format stated is
ered by the Truth in Lending Act and mandatory. Additional lines may be
Regulation Z, including open-end lines added to accommodate more than two
of credit secured by a first lien. applicants.
Qualified written request means a writ- (3) The Servicing Disclosure State-
ten correspondence from the borrower ment must contain the following infor-
to the servicer prepared in accordance mation, except as provided in para-
with paragraph (e)(2) of this section. graph (b)(3)(ii) of this section:
Subservicer means a servicer who does (i) Whether the servicing of the loan
not own the right to perform servicing, may be assigned, sold or transferred to
but who does so on behalf of the master any other person at any time while the
servicer. loan is outstanding. If the lender, table
Transferee servicer means a servicer funding mortgage broker, or dealer in a
who obtains or who will obtain the first lien dealer loan does not engage in
right to perform servicing functions the servicing of any mortgage servicing
pursuant to an agreement or under- loans, the disclosure may consist of a
standing. statement to the effect that there is a
Transferor servicer means a servicer, current intention to assign, sell, or
including a table funding mortgage transfer servicing of the loan.
broker or dealer on a first lien dealer (ii) The percentages (rounded to the
loan, who transfers or will transfer the nearest quartile (25%)) of mortgage
right to perform servicing functions servicing loans originated by the lend-
pursuant to an agreement or under- er in each calendar year for which serv-
standing. icing has been assigned, sold, or trans-
(b) Servicing Disclosure Statement and ferred for such calendar year. Compli-
Applicant Acknowledgement; require- ance with this paragraph (b)(3)(ii) is
ments. (1) At the time an application not required if the lender, table fund-
for a mortgage servicing loan is sub- ing mortgage broker, or dealer on a
mitted, or within 3 business days after first lien dealer loan chooses option B
submission of the application, the lend- in the model format in paragraph (b)(4)
er, mortgage broker who anticipates of this section, including in square
295
§ 3500.21 24 CFR Ch. XX (4–1–06 Edition)
brackets the language ‘‘[and have not (A) If the lender, mortgage broker, or
serviced mortgage loans in the last dealer anticipates that no loan serv-
three years.]’’. The percentages shall icing will be sold during the calendar
be provided as follows: year, the word ‘‘none’’ may be sub-
(A) This information shall be set out stituted for ‘‘0 to 25 percent.’’ If it is
for the most recent three calendar anticipated that all loan servicing will
years completed, with percentages as be sold during the calendar year, the
of the end of each year. This informa- word ‘‘all’’ may be substituted for ‘‘76
tion shall be updated in the disclosure to 100 percent.’’
no later than March 31 of the next cal- (B) This statistical information does
endar year. Each percentage should be not have to include the estimated as-
obtained by using as the numerator the signment, sale, or transfer of mortgage
number of mortgage servicing loans loan servicing to an affiliate or sub-
originated during the calendar year for sidiary of that person. However, this
which servicing is transferred within information may be provided volun-
the calendar year and, as the denomi- tarily. The Servicing Disclosure State-
nator, the total number of mortgage ments should indicate whether the per-
servicing loans originated in the cal- centages provided include assignments,
endar year. If the volume of transfers sales or transfers to affiliates or sub-
is less than 12.5 percent, the word sidiaries.
‘‘nominal’’ or the actual percentage (iv) The information set out in para-
amount of servicing transfers may be graphs (d) and (e) of this section.
used.
(v) A written acknowledgement that
(B) This statistical information does
the applicant (and any co-applicant)
not have to include the assignment,
has/have read and understood the dis-
sale, or transfer of mortgage loan serv-
closure, and understand that the dis-
icing by the lender to an affiliate or
closure is a required part of the mort-
subsidiary of the lender. However, lend-
gage application. This acknowledge-
ers may voluntarily include transfers
ment shall be evidenced by the signa-
to an affiliate or subsidiary. The lender
ture of the applicant and any co-appli-
should indicate whether the percent-
ages provided include assignments, cant.
sales, or transfers to affiliates or sub- (4) The following is a model format,
sidiaries. which includes several options, for
(C) In the alternative, if applicable, complying with the requirements of
the following statement may be sub- paragraph (b)(3) of this section. The
stituted for the statistical information model format may be annotated with
required to be provided in accordance additional information that clarifies or
with paragraph (b)(3)(ii) of this section: enhances the model language. The
‘‘We have previously assigned, sold, or lender or table funding mortgage
transferred the servicing of federally broker (or dealer) should use the lan-
related mortgage loans.’’ guage that best describes the par-
(iii) The best available estimate of ticular circumstances.
the percentage (0 to 25 percent, 26 to 50 (i) Model format: The following is the
percent, 51 to 75 percent, or 76 to 100 best estimate of what will happen to
percent) of all loans to be made during the servicing of your mortgage loan:
the 12-month period beginning on the (A) Option A. We may assign, sell, or
date of origination for which the serv- transfer the servicing of your loan
icing may be assigned, sold, or trans- while the loan is outstanding. [We are
ferred. Each percentage should be ob- able to service your loan[.][,] and we
tained by using as the numerator the [will] [will not] [haven’t decided wheth-
estimated number of mortgage serv- er to] service your loan.]; or
icing loans that will be originated for (B) Option B. We do not service mort-
which servicing may be transferred gage loans[.][,] [and have not serviced
within the 12-month period and, as the mortgage loans in the past three
denominator, the estimated total num- years.] We presently intend to assign,
ber of mortgage servicing loans that sell, or transfer the servicing of your
will be originated in the 12-month pe- mortgage loan. You will be informed
riod. about your servicer.
296
(C) As appropriate, the following servicer of any mortgage servicing loan

paragraph may be used: shall deliver to the borrower a written
We assign, sell, or transfer the serv- Notice of Transfer, containing the in-
icing of some of our loans while the formation described in paragraph (d)(3)
loans are outstanding, depending on of this section, of any assignment, sale,
the type of loan and other factors. For or transfer of the servicing of the loan.
the program for which you have ap- The following transfers are not consid-
plied, we expect to [assign, sell, or ered an assignment, sale, or transfer of
transfer all of the mortgage serv- mortgage loan servicing for purposes of
icing][retain all of the mortgage serv- this requirement if there is no change
icing] [assign, sell, or transfer in the payee, address to which payment
llll% of the mortgage servicing]. must be delivered, account number, or
(ii) [Reserved] amount of payment due:
(c) Servicing Disclosure Statement and (A) Transfers between affiliates;
Applicant Acknowledgement; delivery. (B) Transfers resulting from mergers
The lender, table funding mortgage or acquisitions of servicers or
broker, or dealer that anticipates a subservicers; and
first lien dealer loan shall deliver Serv- (C) Transfers between master
icing Disclosure Statements to each servicers, where the subservicer re-
applicant for mortgage servicing loans. mains the same.
Each applicant or co-applicant must (ii) The Federal Housing Administra-
sign an Acknowledgement of receipt of tion (FHA) is not required under para-
the Servicing Disclosure Statement be- graph (d) of this section to submit to
fore settlement. the borrower a Notice of Transfer in
(1) In the case of a face-to-face inter- cases where a mortgage insured under
view with one or more applicants, the the National Housing Act is assigned
Servicing Disclosure Statement shall to FHA.
be delivered at the time of application. (2) Time of notice. (i) Except as pro-
An applicant present at the interview vided in paragraph (d)(2)(ii) of this sec-
may sign the Acknowledgment on his tion:
or her own behalf at that time. An ap- (A) The transferor servicer shall de-
plicant present at the interview also liver the Notice of Transfer to the bor-
may accept delivery of the Servicing rower not less than 15 days before the
Disclosure Statement on behalf of the effective date of the transfer of the
other applicants. servicing of the mortgage servicing
(2) If there is no face-to-face inter- loan;
view, the Servicing Disclosure State- (B) The transferee servicer shall de-
ment shall be delivered by placing it in liver the Notice of Transfer to the bor-
the mail, with prepaid first-class post- rower not more than 15 days after the
age, within 3 business days from re- effective date of the transfer; and
ceipt of the application. If co-appli- (C) The transferor and transferee
cants indicate the same address on servicers may combine their notices
their application, one copy delivered to into one notice, which shall be deliv-
that address is sufficient. If different ered to the borrower not less than 15
addresses are shown by co-applicants days before the effective date of the
on the application, a copy must be de- transfer of the servicing of the mort-
livered to each of the co-applicants. gage servicing loan.
(3) The signed Applicant Acknowledg- (ii) The Notice of Transfer shall be
ment(s) shall be retained for a period of delivered to the borrower by the trans-
5 years after the date of settlement as feror servicer or the transferee servicer
part of the loan file for every settled not more than 30 days after the effec-
loan. There is no requirement for re- tive date of the transfer of the serv-
tention of Applicant Acknowledg- icing of the mortgage servicing loan in
ment(s) if the loan is not settled. any case in which the transfer of serv-
(d) Notices of Transfer; loan servicing— icing is preceded by:
(1) Requirement for notice. (i) Except as (A) Termination of the contract for
provided in this paragraph (d)(1)(i) or servicing the loan for cause;
paragraph (d)(1)(ii) of this section, each (B) Commencement of proceedings
transferor servicer and transferee for bankruptcy of the servicer; or
297
§ 3500.21 24 CFR Ch. XX (4–1–06 Edition)
(C) Commencement of proceedings by comply with the requirements of para-

the Federal Deposit Insurance Corpora- graph (d) of this section is set out in
tion (FDIC) or the Resolution Trust appendix MS–2 of this part. Minor
Corporation (RTC) for conservatorship modifications to the sample language
or receivership of the servicer or an en- may be made to meet the particular
tity that owns or controls the servicer. circumstances of the servicer, but the
(iii) Notices of Transfer delivered at substance of the sample language shall
settlement by the transferor servicer not be omitted or substantially al-
and transferee servicer, whether as sep- tered.
arate notices or as a combined notice, (5) Consumer protection during transfer
will satisfy the timing requirements of of servicing. During the 60-day period
paragraph (d)(2) of this section. beginning on the effective date of
(3) Notices of Transfer; contents. The transfer of the servicing of any mort-
Notices of Transfer required under gage servicing loan, if the transferor
paragraph (d) of this section shall in- servicer (rather than the transferee
clude the following information: servicer that should properly receive
(i) The effective date of the transfer payment on the loan) receives payment
of servicing; on or before the applicable due date
(ii) The name, consumer inquiry ad- (including any grace period allowed
dresses (including, at the option of the under the loan documents), a late fee
servicer, a separate address where may not be imposed on the borrower
qualified written requests must be with respect to that payment and the
sent), and a toll-free or collect-call payment may not be treated as late for
telephone number for an employee or any other purposes.
department of the transferee servicer; (e) Duty of loan servicer to respond to
(iii) A toll-free or collect-call tele- borrower inquiries—(1) Notice of receipt of
phone number for an employee or de- inquiry. Within 20 business days of a
partment of the transferor servicer servicer of a mortgage servicing loan
that can be contacted by the borrower receiving a qualified written request
for answers to servicing transfer in- from the borrower for information re-
quiries; lating to the servicing of the loan, the
(iv) The date on which the transferor servicer shall provide to the borrower a
servicer will cease to accept payments written response acknowledging re-
relating to the loan and the date on ceipt of the qualified written response.
which the transferee servicer will begin This requirement shall not apply if the
to accept such payments. These dates action requested by the borrower is
shall either be the same or consecutive taken within that period and the bor-
days; rower is notified of that action in ac-
(v) Information concerning any effect cordance with the paragraph (f)(3) of
the transfer may have on the terms or this section. By notice either included
the continued availability of mortgage in the Notice of Transfer or separately
life or disability insurance, or any delivered by first-class mail, postage
other type of optional insurance, and prepaid, a servicer may establish a sep-
any action the borrower must take to arate and exclusive office and address
maintain coverage; for the receipt and handling of quali-
(vi) A statement that the transfer of fied written requests.
servicing does not affect any other (2) Qualified written request; defined.
term or condition of the mortgage doc- (i) For purposes of paragraph (e) of this
uments, other than terms directly re- section, a qualified written request
lated to the servicing of the loan; and means a written correspondence (other
(vii) A statement of the borrower’s than notice on a payment coupon or
rights in connection with complaint other payment medium supplied by the
resolution, including the information servicer) that includes, or otherwise
set forth in paragraph (e) of this sec- enables the servicer to identify, the
tion. Appendix MS–2 of this part illus- name and account of the borrower, and
trates a statement satisfactory to the includes a statement of the reasons
Secretary. that the borrower believes the account
(4) Notices of Transfer; sample notice. is in error, if applicable, or that pro-
Sample language that may be used to vides sufficient detail to the servicer
298
regarding information relating to the (ii) In accordance with section 17 of

servicing of the loan sought by the bor- RESPA (12 U.S.C. 2615), the protection
rower. of credit rating provision of paragraph
(ii) A written request does not con- (e)(4)(i) of this section does not impede
stitute a qualified written request if it a lender or servicer from pursuing any
is delivered to a servicer more than 1 of its remedies, including initiating
year after either the date of transfer of foreclosure, allowed by the underlying
servicing or the date that the mortgage mortgage loan instruments.
servicing loan amount was paid in full, (f) Damages and costs. (1) Whoever
whichever date is applicable. fails to comply with any provision of
(3) Action with respect to the inquiry. this section shall be liable to the bor-
Not later than 60 business days after rower for each failure in the following
receiving a qualified written request amounts:
from the borrower, and, if applicable, (i) Individuals. In the case of any ac-
before taking any action with respect tion by an individual, an amount equal
to the inquiry, the servicer shall: to the sum of any actual damages sus-
(i) Make appropriate corrections in tained by the individual as the result
the account of the borrower, including of the failure and, when there is a pat-
the crediting of any late charges or tern or practice of noncompliance with
penalties, and transmit to the borrower the requirements of this section, any
additional damages in an amount not
a written notification of the correc-
to exceed $1,000.
tion. This written notification shall in-
(ii) Class actions. In the case of a class
clude the name and telephone number
action, an amount equal to the sum of
of a representative of the servicer who
any actual damages to each borrower
can provide assistance to the borrower;
in the class that result from the failure
or
and, when there is a pattern or practice
(ii) After conducting an investiga- of noncompliance with the require-
tion, provide the borrower with a writ- ments of this section, any additional
ten explanation or clarification that damages in an amount not greater
includes: than $1,000 for each class member.
(A) To the extent applicable, a state- However, the total amount of any addi-
ment of the servicer’s reasons for con- tional damages in a class action may
cluding the account is correct and the not exceed the lesser of § 500,000 or 1
name and telephone number of an em- percent of the net worth of the
ployee, office, or department of the servicer.
servicer that can provide assistance to (iii) Costs. In addition, in the case of
the borrower; or any successful action under paragraph
(B) Information requested by the bor- (f) of this section, the costs of the ac-
rower, or an explanation of why the in- tion and any reasonable attorneys’ fees
formation requested is unavailable or incurred in connection with the action.
cannot be obtained by the servicer, and (2) Nonliability. A transferor or trans-
the name and telephone number of an feree servicer shall not be liable for
employee, office, or department of the any failure to comply with the require-
servicer that can provide assistance to ments of this section, if within 60 days
the borrower. after discovering an error (whether
(4) Protection of credit rating. (i) Dur- pursuant to a final written examina-
ing the 60-business day period begin- tion report or the servicer’s own proce-
ning on the date of the servicer receiv- dures) and before commencement of an
ing from a borrower a qualified written action under this section and the re-
request relating to a dispute on the ceipt of written notice of the error
borrower’s payments, a servicer may from the borrower, the servicer notifies
not provide adverse information re- the person concerned of the error and
garding any payment that is the sub- makes whatever adjustments are nec-
ject of the qualified written request to essary in the appropriate account to
any consumer reporting agency (as ensure that the person will not be re-
that term is defined in section 603 of quired to pay an amount in excess of
the Fair Credit Reporting Act, 15 any amount that the person otherwise
U.S.C. 1681a). would have paid.
299
Pt. 3500, App. A 24 CFR Ch. XX (4–1–06 Edition)
(g) Timely payments by servicer. If the which its use is not legally required. Refer to
terms of any mortgage servicing loan the definitions section of Regulation X for
require the borrower to make pay- specific definitions of many of the terms
ments to the servicer of the loan for which are used in these instructions.
deposit into an escrow account for the General Instructions
purpose of assuring payment of taxes,
insurance premiums, and other charges Information and amounts may be filled in
with respect to the mortgaged prop- by typewriter, hand printing, computer
printing, or any other method producing
erty, the servicer shall make payments
clear and legible results. Refer to Regulation
from the escrow account in a timely X regarding rules applicable to reproduction
manner for the taxes, insurance pre- of the HUD–1. An additional page(s) may be
miums, and other charges as the pay- attached to the HUD–1 for the purpose of in-
ments become due, as governed by the cluding customary recitals and information
requirements in § 3500.17(k). used locally in settlements, for example, a
(h) Preemption of State laws. A lender breakdown of payoff figures; a breakdown of
who makes a mortgage servicing loan the Borrower’s total monthly mortgage pay-
or a servicer shall be considered to ments; check disbursements; a statement in-
have complied with the provisions of dicating receipt of funds; applicable special
stipulations between Borrower and Seller,
any State law or regulation requiring
and the date funds are transferred.
notice to a borrower at the time of ap-
The settlement agent shall complete the
plication for a loan or transfer of serv- HUD–1 to itemize all charges imposed upon
icing of a loan if the lender or servicer the Borrower and the Seller by the Lender
complies with the requirements of this and all sales commissions, whether to be
section. Any State law requiring notice paid at settlement or outside of settlement,
to the borrower at the time of applica- and any other charges which either the Bor-
tion or at the time of transfer of serv- rower or the Seller will pay for at settle-
icing of the loan is preempted, and ment. Charges to be paid outside of settle-
there shall be no additional borrower ment, including cases where a non-settle-
disclosure requirements. Provisions of ment agent (i.e., attorneys, title companies,
escrow agents, real estate agents or brokers)
State law, such as those requiring addi-
holds the Borrower’s deposit against the
tional notices to insurance companies sales price (earnest money) and applies the
or taxing authorities, are not pre- entire deposit towards the charge for the set-
empted by section 6 of RESPA or this tlement service it is rendering, shall be in-
section, and this additional informa- cluded on the HUD–1 but marked ‘‘P.O.C.’’
tion may be added to a notice prepared for ‘‘Paid Outside of Closing’’ (settlement)
under this section, if the procedure is and shall not be included in computing to-
allowable under State law. tals. P.O.C. items should not be placed in the
Borrower or Seller columns, but rather on
(Approved by the Office of Management and the appropriate line next to the columns.
Budget under control number 2502–0458) Blank lines are provided in section L for
any additional settlement charges. Blank
APPENDIX A TO PART 3500—INSTRUC- lines are also provided for additional inser-
TIONS FOR COMPLETING HUD–1 AND tions in sections J and K. The names of the
HUD–1A SETTLEMENT STATEMENTS; recipients of the settlement charges in sec-
SAMPLE HUD–1 AND HUD–1A STATE- tion L and the names of the recipients of ad-
MENTS justments described in section J or K should
be included on the blank lines.
The following are instructions for com- Lines and columns in section J which re-
pleting sections A through L of the HUD–1 late to the Borrower’s transaction may be
settlement statement, required under sec- left blank on the copy of the HUD–1 which
tion 4 of RESPA and Regulation X of the De- will be furnished to the Seller. Lines and col-
partment of Housing and Urban Development umns in section K which relate to the Sell-
(24 CFR part 3500). This form is to be used as er’s transaction may be left blank on the
a statement of actual charges and adjust- copy of the HUD–1 which will be furnished to
ments to be given to the parties in connec- the Borrower.
tion with the settlement. The instructions
for completion of the HUD–1 are primarily Line Item Instructions
for the benefit of the settlement agents who
prepare the statements and need not be Instructions for completing the individual
transmitted to the parties as an integral items on the HUD–1 follow.
part of the HUD–1. There is no objection to Section A. This section requires no entry
the use of the HUD–1 in transactions in of information.
300
Office of Asst. Sec. for Housing, HUD Pt. 3500, App. A
Section B. Check appropriate loan type premiums, if the Borrower is being sub-
and complete the remaining items as appli- stituted as an insured under the same policy;
cable. mortgage insurance in loan assumption
Section C. This section provides a notice cases; planned unit development or condo-
regarding settlement costs and requires no minium association assessments paid in ad-
additional entry of information. vance; fuel or other supplies on hand, pur-
Sections D and E. Fill in the names and chased by the Seller, which the Borrower
current mailing addresses and zip codes of will use when Borrower takes possession of
the Borrower and the Seller. Where there is the property; and ground rent paid in ad-
more than one Borrower or Seller, the name vance.
and address of each one is required. Use a Line 120 is for the total of Lines 101
supplementary page if needed to list mul- through 112.
tiple Borrowers or Sellers. Line 201 is for any amount paid against the
Section F. Fill in the name, current mail- sales price prior to settlement.
ing address and zip code of the Lender. Line 202 is for the amount of the new loan
Section G. The street address of the prop- made by the Lender or first user loan (a loan
erty being sold should be given. If there is no
to finance construction of a new structure or
street address, a brief legal description or
purchase of manufactured home where the
other location of the property should be in-
structure was constructed for sale or the
serted. In all cases give the zip code of the
manufactured home was purchased for pur-
property.
poses of resale and the loan is used as or con-
Section H. Fill in name, address, and zip
verted to a loan to finance purchase by the
code of settlement agent; address and zip
first user). For other loans covered by Regu-
code of ‘‘place of settlement.’’
Section I. Date of settlement. lation X which finance construction of a new
Section J. Summary of Borrower’s Trans- structure or purchase of a manufactured
action. Line 101 is for the gross sales price of home, list the sales price of the land on Line
the property being sold, excluding the price 104, the construction cost or purchase price
of any items of tangible personal property if of manufactured home on Line 105 (Line 101
Borrower and Seller have agreed to a sepa- would be left blank in this instance) and
rate price for such items. amount of the loan on Line 202. The remain-
Line 102 is for the gross sales price of any der of the form should be completed taking
items of tangible personal property excluded into account adjustments and charges re-
from Line 101. Personal property could in- lated to the temporary financing and perma-
clude such items as carpets, drapes, stoves, nent financing and which are known at the
refrigerators, etc. What constitutes personal date of settlement.
property varies from state to state. Manufac- Line 203 is used for cases in which the Bor-
tured homes are not considered personal rower is assuming or taking title subject to
property for this purpose. an existing loan or lien on the property.
Line 103 is used to record the total charges Lines 204–209 are used for other items paid
to Borrower detailed in Section L and to- by or on behalf of the Borrower. Examples
taled on Line 1400. include cases in which the Seller has taken a
Lines 104 and 105 are for additional trade-in or other property from the Borrower
amounts owed by the Borrower or items paid in part payment for the property being sold.
by the Seller prior to settlement but reim- They may also be used in cases in which a
bursed by the Borrower at settlement. For Seller (typically a builder) is making an
example, the balance in the Seller’s reserve ‘‘allowance’’ to the Borrower for carpets or
account held in connection with an existing drapes which the Borrower is to purchase
loan, if assigned to the Borrower in a loan separately. Lines 204–209 can also be used to
assumption case, will be entered here. These indicate any Seller financing arrangements
lines will also be used when a tenant in the or other new loan not listed in Line 202. For
property being sold has not yet paid the example, if the Seller takes a note from the
rent, which the Borrower will collect, for a Borrower for part of the sales price, insert
period of time prior to the settlement. The the principal amount of the note with a brief
lines will also be used to indicate the treat- explanation on Lines 204–209.
ment for any tenant security deposit. The Lines 210 through 219 are for items which
Seller will be credited on Lines 404–405. have not yet been paid, and which the Bor-
Lines 106 through 112 are for items which rower is expected to pay, but which are at-
the Seller had paid in advance, and for which tributable in part to a period of time prior to
the Borrower must therefore reimburse the the settlement. In jurisdictions in which
Seller. Examples of items for which adjust- taxes are paid late in the tax year, most
ments will be made may include taxes and cases will show the proration of taxes in
assessments paid in advance for an entire these lines. Other examples include utilities
year or other period, when settlement occurs used but not paid for by the Seller, rent col-
prior to the expiration of the year or other lected in advance by the Seller from a tenant
period for which they were paid. Additional for a period extending beyond the settlement
examples include flood and hazard insurance date, and interest on loan assumptions.
301
Line 220 is for the total of Lines 201 other utility bills which cannot be prorated
through 219. between the parties at settlement because
Lines 301 and 302 are summary lines for the the amounts used by the Seller prior to set-
Borrower. Enter total in Line 120 on Line 301. tlement are not yet known. Subsequent dis-
Enter total in Line 220 on Line 302. closure of the actual amount of these post-
Line 303 may indicate either the cash re- settlement items to be paid from settlement
quired from the Borrower at settlement (the funds is optional. Any amounts entered on
usual case in a purchase transaction) or cash Lines 204–209 including Seller financing ar-
payable to the Borrower at settlement (if, rangements should also be entered on Lines
for example, the Borrower’s deposit against 506–509.
the sales price (earnest money) exceeded the Instructions for the use of Lines 510
Borrower’s cash obligations in the trans- through 519 are the same as those for Lines
action). Subtract Line 302 from Line 301 and 210 to 219 above.
enter the amount of cash due to or from the Line 520 is for the total of Lines 501
Borrower at settlement on Line 303. The ap- through 519.
propriate box should be checked. Lines 601 and 602 are summary lines for the
Section K. Summary of Seller’s Trans- Seller. Enter total in Line 420 on Line 610.
action. Instructions for the use of Lines 101 Enter total in Line 520 on Line 602.
and 102 and 104–112 above, apply also to Lines Line 603 may indicate either the cash re-
401–412. Line 420 is for the total of Lines 401 quired to be paid to the Seller at settlement
through 412.
(the usual case in a purchase transaction) or
Line 501 is used if the Seller’s real estate
cash payable by the Seller at settlement.
broker or other party who is not the settle-
Subtract Line 602 from Line 601 and enter
ment agent has received and holds the de-
the amount of cash due to or from the Seller
posit against the sales price (earnest money)
at settlement on Line 603. The appropriate
which exceeds the fee or commission owed to
box should be checked.
that party, and if that party will render the
excess deposit directly to the Seller, rather Section L. Settlement Charges.
than through the settlement agent, the For all items except for those paid to and
amount of excess deposit should be entered retained by the Lender, the name of the per-
on Line 501 and the amount of the total de- son or firm ultimately receiving the pay-
posit (including commissions) should be en- ment should be shown. In the case of ‘‘no
tered on Line 201. cost’’ or ‘‘no point’’ loans, the charge to be
Line 502 is used to record the total charges paid by the lender to an affiliated or inde-
to the Seller detailed in section L and to- pendent service provider should be shown as
taled on Line 1400. P.O.C. (Paid Outside of Closing) and should
Line 503 is used if the Borrower is assum- not be used in computing totals. Such
ing or taking title subject to existing liens charges also include indirect payments or
which are to be deducted from sales price. back-funded payments to mortgage brokers
Lines 504 and 505 are used for the amounts that arise from the settlement transaction.
(including any accrued interest) of any first When used, ‘‘P.O.C.’’ should be placed in the
and/or second loans which will be paid as appropriate lines next to the identified item,
part of the settlement. not in the columns themselves.
Line 506 is used for deposits paid by the Line 700 is used to enter the sales commis-
Borrower to the Seller or other party who is sion charged by the sales agent or broker. If
not the settlement agent. Enter the amount the sales commission is based on a percent-
of the deposit in Line 201 on Line 506 unless age of the price, enter the sales price, the
Line 501 is used or the party who is not the percentage, and the dollar amount of the
settlement agent transfers all or part of the total commission paid by the Seller.
deposit to the settlement agent in which Lines 701–702 are to be used to state the
case the settlement agent will note in paren- split of the commission where the settlement
theses on Line 507 the amount of the deposit agent disburses portions of the commission
which is being disbursed as proceeds and to two or more sales agents or brokers.
enter in column for Line 506 the amount re- Line 703 is used to enter the amount of
tained by the above described party for set- sales commission disbursed at settlement. If
tlement services. If the settlement agent the sales agent or broker is retaining a part
holds the deposit insert a note in Line 507 of the deposit against the sales price (earnest
which indicates that the deposit is being dis- money) to apply towards the sales agent’s or
bursed as proceeds. broker’s commission, include in Line 703
Lines 506 through 509 may be used to list only that part of the commission being dis-
additional liens which must be paid off bursed at settlement and insert a note on
through the settlement to clear title to the Line 704 indicating the amount the sales
property. Other payoffs of Seller obligations agent or broker is retaining as a ‘‘P.O.C.’’
should be shown on Lines 506–509 (but not on item.
Lines 1303–1305). They may also be used to in- Line 704 may be used for additional charges
dicate funds to be held by the settlement made by the sales agent or broker, or for a
agent for the payment of water, fuel, or sales commission charged to the Borrower,
302
which will be disbursed by the settlement in the 1000 series) including flood insurance,
agent. mortgage life insurance, credit life insurance
Line 801 is used to record the fee charged and disability insurance premiums. These
by the Lender for processing or originating lines are also used to list amounts paid at
the loan. If this fee is computed as a percent- settlement for insurance not required by the
age of the loan amount, enter the percentage Lender.
in the blank indicated. Lines 1000–1008. This series is used for
Line 802 is used to record the loan discount amounts collected by the Lender from the
or ‘‘points’’ charged by the Lender, and, if it Borrower and held in an account for the fu-
is computed as a percentage of the loan ture payment of the obligations listed as
amount, enter the percentage in the blank they fall due. Include the time period (num-
indicated. ber of months) and the monthly assessment.
Line 803 is used for appraisal fees if there In many jurisdictions this is referred to as
is a separate charge for the appraisal. Ap- an ‘‘escrow’’, ‘‘impound’’, or ‘‘trust’’ ac-
praisal fees for HUD and VA loans are also count. In addition to the items listed, some
included on Line 803. Lenders may require reserves for flood insur-
Line 804 is used for the cost of the credit ance, condominium owners’ association as-
report if there is a charge separate from the sessments, etc.
origination fee. After itemizing individual deposits in the
Line 805 is used only for inspections by the 1000 series using single-item accounting, the
Lender or the Lender’s agents. Charges for servicer shall make an adjustment based on
other pest or structural inspections required aggregate accounting. This adjustment
to be stated by these instructions should be equals the difference between the deposit re-
entered in Lines 1301–1305. quired under aggregate accounting and the
Line 806 should be used for an application sum of the deposits required under single-
fee required by a private mortgage insurance item accounting. The computation steps for
company. both accounting methods are set out in
Line 807 is provided for convenience in § 3500.17(d). The adjustment will always be a
using the form for loan assumption trans- negative number or zero (-0-). The settlement
actions. agent shall enter the aggregate adjustment
Lines 808–811 are used to list additional amount on a final line in the 1000 series of
items payable in connection with the loan the HUD–1 or HUD–1A statement.
including a CLO Access fee, a mortgage During the phase-in period, as defined in
broker fee, fees for real estate property taxes § 3500.17(b), an alternative procedure is avail-
or other real property charges. able. If a servicer has not yet conducted the
Lines 901–905. This series is used to record escrow account analysis to determine the ag-
the items which the Lender requires (but gregate accounting starting balance, the set-
which are not necessarily paid to the lender, tlement agent may initially calculate the
i.e., FHA mortgage insurance premium) to be 1000 series deposits for the HUD–1 and HUD–
paid at the time of settlement, other than 1A settlement statement using single-item
reserves collected by the Lender and re- analysis with a one-month cushion (unless
corded in 1000 series. the mortgage loan documents indicate a
Line 901 is used if interest is collected at smaller amount). In the escrow account
settlement for a part of a month or other pe- analysis conducted within 45 days of settle-
riod between settlement and the date from ment, the servicer shall adjust the escrow
which interest will be collected with the first account to reflect the aggregate accounting
regular monthly payment. Enter that balance.
amount here and include the per diem Lines 1100–1113. This series covers title
charges. If such interest is not collected charges and charges by attorneys. The title
until the first regular monthly payment, no charges include a variety of services per-
entry should be made on Line 901. formed by title companies or others and in-
Line 902 is used for mortgage insurance cludes fees directly related to the transfer of
premiums due and payable at settlement, ex- title (title examination, title search, docu-
cept reserves collected by the Lender and re- ment preparation) and fees for title insur-
corded in the 1000 series. A lump sum mort- ance. The legal charges include fees for
gage insurance premium paid at settlement Lender’s, Seller’s or Buyer’s attorney, or the
should be inserted on Line 902, with a note attorney preparing title work. The series
that indicates that the premium is for the also includes any fees for settlement or clos-
life of the loan. ing agents and notaries. In many jurisdic-
Line 903 is used for hazard insurance pre- tions the same person (for example, an attor-
miums which the Lender requires to be paid ney or a title insurance company) performs
at the time of settlement except reserves several of the services listed in this series
collected by the Lender and recorded in the and makes a single overall charge for such
1000 series. services. In such cases, enter the overall fee
Lines 904 and 905 are used to list additional on Line 1107 (for attorneys), or Line 1108 (for
items required by the Lender (except for re- title companies), and enter on that line the
serves collected by the Lender and recorded item numbers of the services listed which are
303
covered in the overall fee. If this is done, no in some jurisdictions would include a fee to
individual amounts need be entered into the a private tax service, a fee to a county tax
borrower’s and seller’s columns for the indi- collector for a tax certificate, or a fee to a
vidual items which are covered by the over- public title registrar for a certificate of title
all fee. In transactions involving more than in a Torrens Act transaction. Line 1113
one attorney, one attorney’s fees should ap- should be used to disclose services that are
pear on Line 1107 and the other attorney’s covered by the commission of an attorney
fees should be on Line 1111, 1112 or 1113. If an acting as a title agent when Line 1107 is al-
attorney is representing a buyer, seller, or ready being used to disclose the fees and
lender and is also acting as a title agent, in- services of the attorney in representing the
dicate on line 1107 which services are covered buyer, seller, or lender in the real estate
by the attorney fee and on line 1113 which transaction.
services are covered by the insurance com- Lines 1201–1205 are used for government re-
mission. cording and transfer charges. Recording and
Line 1101 is used for the settlement agent’s transfer charges should be itemized. Addi-
fee. tional recording or transfer charges should
Lines 1102 and 1103 are used for the fees for be listed on Lines 1204 and 1205.
the abstract or title search and title exam- Lines 1301 and 1302, or any other available
ination. In some jurisdictions the same per- blank line in the 1300 series, are used for fees
son both searches the title (that is, performs for survey, pest inspection, radon inspection,
the necessary research in the records) and lead-based paint inspection, or other similar
examines title (that is, makes a determina- inspections.
tion as to what matters affect title, and pro- Lines 1303–1305 are used for any other set-
vides a title report or opinion). If such a per- tlement charges not referable to the cat-
son charges only one fee for both services, it egories listed above on the HUD–1, which are
should be entered on Line 1103 unless the required to be stated by these instructions.
person performing these tasks is an attorney Examples may include structural inspections
or a title company in which case the fees or pre-sale inspection of heating, plumbing,
should be entered as described in the general or electrical equipment. These inspection
directions for Lines 1100–1113. If separate per- charges may include a fee for insurance or
sons perform these tasks, or if separate warranty coverage.
charges are made for searching and examina- Line 1400 is for the total settlement
tion, they should be listed separately. charges paid from Borrower’s funds and Sell-
Line 1104 is used for the title insurance er’s funds. These totals are also entered on
binder which is also known as a commitment Lines 103 and 502, respectively, in sections J
to insure. and K.
Line 1105 is used for charges for prepara-
tion of deeds, mortgages, notes, etc. If more Line Item Instructions for Completing HUD–1A
than one person receives a fee for such work
in the same transaction, show the total paid NOTE: HUD–1A is an optional form that
in the appropriate column and the individual may be used for refinancing and subordinate
charges on the line following the word ‘‘to.’’ lien federally related mortgage loans, as well
Line 1106 is used for the fee charged by a as for any other one-party transaction that
notary public for authenticating the execu- does not involve the transfer of title to resi-
tion of settlement documents. dential real property. The HUD–1 form may
Line 1107 is used to disclose the attorney’s also be used for such transactions, by uti-
fees for the transaction. The instructions are lizing the borrower’s side of the HUD–1 and
discussed in the general directions for Lines following the relevant parts of the instruc-
1100–1113. This line should include any tions as set forth above. The use of either
charges by an attorney to represent a buyer, the HUD–1 or HUD–1A is not mandatory for
seller or lender in the real estate trans- open-end lines of credit (home-equity plans),
action. as long as the provisions of Regulation Z are
Lines 1108–1110 are used for information re- followed.
garding title insurance. Enter the total
Background
charge for title insurance (except for the
cost of the title binder) on Line 1108. Enter The HUD–1A settlement statement is to be
on Lines 1109 and 1110 the individual charges used as a statement of actual charges and
for the Lender’s and owner’s policies. Note adjustments to be given to the borrower at
that these charges are not carried over into settlement, as defined in this part. The in-
the Borrower’s and Seller’s columns, since to structions for completion of the HUD–1A are
do so would result in a duplication of the for the benefit of the settlement agent who
amount in Line 1108. If a combination Lend- prepares the statement; the instructions are
er’s/owner’s policy is purchased, show this not a part of the statement and need not be
amount as an additional entry on Lines 1109 transmitted to the borrower. There is no ob-
and 1110. jection to using the HUD–1A in transactions
Lines 1111–1113 are for the entry of other in which it is not required, and its use in
title charges not already itemized. Examples open-end lines of credit transactions (home-
304
equity plans) is encouraged. It may not be the HUD–1, with minor changes or omissions,
used as a substitute for a HUD–1 in any including deletion of lines 700 through 704,
transaction in which there is a transfer of relating to real estate broker commissions.
title and a first lien is taken as security. The instructions for section L in the HUD–1,
Refer to the ‘‘definitions’’ section of Regu- should be followed insofar as possible. Inap-
lation X for specific definitions of terms used plicable charges should be ignored, as should
in these instructions. any instructions regarding seller items.
Line 1400 in the HUD–1A is for the total
General Instructions settlement charges charged to the borrower.
Information and amounts may be filled in Enter this total on line 1602 as well. This
by typewriter, hand printing, computer total should include section L amounts from
printing, or any other method producing additional pages, if any are attached to this
clear and legible results. Refer to § 3500.9 re- HUD–1A.
garding rules for reproduction of the HUD– Section M. Disbursement to Others. This
1A. Additional pages may be attached to the section is used to list payees, other than the
HUD–1A for the inclusion of customary recit- borrower, of all or portions of the loan pro-
als and information used locally for settle- ceeds (including the lender, if the loan is
ments or if there are insufficient lines on the paying off a prior loan made by the same
lender), when the payee will be paid directly
HUD–1A.
out of the settlement proceeds. It is not used
The settlement agent shall complete the
to list payees of settlement charges, nor to
HUD–1A to itemize all charges imposed upon
list funds disbursed directly to the borrower,
the borrower by the lender, whether to be
even if the lender knows the borrower’s in-
paid at settlement or outside of settlement,
tended use of the funds.
and any other charges that the borrower will
For example, in a refinancing transaction,
pay for at settlement. In the case of ‘‘no
the loan proceeds are used to pay off an ex-
cost’’ or ‘‘no point’’ loans, these charges in-
isting loan. The name of the lender for the
clude any payments the lender will make to
loan being paid off and the pay-off balance
affiliated or independent settlement service would be entered in section M. In a home im-
providers relating to this settlement. These provement transaction when the proceeds
charges shall be included on the HUD–1A, are to be paid to the home improvement con-
but marked ‘‘P.O.C.’’ for ‘‘paid outside of tractor, the name of the contractor and the
closing,’’ and shall not be used in computing amount paid to the contractor would be en-
totals. Such charges also include indirect tered in section M. In a consolidation loan,
payments or back-funded payments to mort- or when part of the loan proceeds is used to
gage brokers that arise from the settlement pay off other creditors, the name of each
transaction. When used, ‘‘P.O.C.’’ should be creditor and the amount paid to that cred-
placed in the appropriate lines next to the itor would be entered in section M. If the
identified item, not in the columns them- proceeds are to be given directly to the bor-
selves. rower and the borrower will use the proceeds
Blank lines are provided in section L for to pay off existing obligations, this would
any additional settlement charges. Blank not be reflected in section M.
lines are also provided in section M for re- Section N. Net Settlement. Line 1600 nor-
cipients of all or portions of the loan pro- mally sets forth the principal amount of the
ceeds. The names of the recipients of the set- loan as it appears on the related note for this
tlement charges in section L and the names loan. In the event this form is used for an
of the recipients of the loan proceeds in sec- open-ended home equity line whose approved
tion M should be set forth on the blank lines. amount is greater than the initial amount
advanced at settlement, the amount shown
Line Item Instructions
on Line 1600 will be the loan amount ad-
The identification information at the top vanced at settlement. Line 1601 is used for
of the HUD–1A should be completed as fol- all settlement charges that are both included
lows: in the totals for lines 1400 and 1602 and are
The borrower’s name and address is en- not financed as part of the principal amount
tered in the space provided. If the property of the loan. This is the amount normally re-
securing the loan is different from the bor- ceived by the lender from the borrower at
rower’s address, the address or other loca- settlement, which would occur when some or
tion information on the property should be all of the settlement charges were paid in
entered in the space provided. The loan num- cash by the borrower at settlement, instead
ber is the lender’s identification number for of being financed as part of the principal
the loan. The settlement date is the date of amount of the loan. Failure to include any
settlement in accordance with § 3500.2, not such amount in line 1601 will result in an
the end of any applicable rescission period. error in the amount calculated on line 1604.
The name and address of the lender should be P.O.C. amounts should not be included in
entered in the space provided. line 1601.
Section L. Settlement Charges. This sec- Line 1602 is the total amount from line
tion of the HUD–1A is similar to section L of 1400.
305
Line 1603 is the total amount from line gether the amounts for lines 1600 and 1601,
1520. and then subtracting any amounts listed on
Line 1604 is the amount disbursed to the lines 1602 and 1603.
borrower. This is determined by adding to-
306
ER10FE94.007</GPH>
307
ER10FE94.008</GPH>
308
ER10FE94.009</GPH>
(Approved by the Office of Management and Budget under control number 2502–0265)
[57 FR 49607, Nov. 2, 1992; 57 FR 56857, Dec. 1, 1992, as amended at 59 FR 6515, Feb. 10, 1994;
59 FR 53908, Oct. 26, 1994; 60 FR 8816, Feb. 15, 1995; 60 FR 24735, May 9, 1995; 61 FR 13251, Mar.
26, 1996; 63 FR 3237, Jan. 21, 1998]
309
ER10FE94.010</GPH>
Pt. 3500, App. B 24 CFR Ch. XX (4–1–06 Edition)
APPENDIX B TO PART 3500—ILLUSTRA- Here A really is being compensated for a re-

TIONS OF REQUIREMENTS OF RESPA ferral of business to B.
4. Facts: A is an attorney who, as a part of
The following illustrations provide addi- his legal representation of clients in residen-
tional guidance on the meaning and coverage tial real estate transactions, orders and re-
of the provisions of RESPA. Other provisions views title insurance policies for his clients.
of Federal or State law may also be applica- A enters into a contract with B, a title com-
ble to the practices and payments discussed pany, to be an agent of B under a program
in the following illustrations. set up by B. Under the agreement, A agrees
1. Facts: A, a provider of settlement serv- to prepare and forward title insurance appli-
ices, provides settlement services at abnor- cations to B, to re-examine the preliminary
mally low rates or at no charge at all to B, title commitment for accuracy and if he
a builder, in connection with a subdivision chooses to attempt to clear exceptions to the
being developed by B. B agrees to refer pur- title policy before closing. A agrees to as-
chasers of the completed homes in the sub- sume liability for waiving certain exceptions
division to A for the purchase of settlement to title, but never exercises this authority. B
services in connection with the sale of indi- performs the necessary title search and ex-
vidual lots by B. amination work, determines insurability of
Comments: The rendering of services by A title, prepares documents containing sub-
to B at little or no charge constitutes a stantive information in title commitments,
thing of value given by A to B in return for handles closings for A’s clients and issues
title policies. A receives a fee from his client
the referral of settlement services business
for legal services and an additional fee for
and both A and B are in violation of section
his title agent ‘‘services’’ from the client’s
8 of RESPA.
title insurance premium to B.
2. Facts: B, a lender, encourages persons
Comments: A and B are violating section 8
who receive federally-related mortgage loans of RESPA. Here, A’s clients are being double
from it to employ A, an attorney, to perform billed because the work A performs as a
title searches and related settlement serv- ‘‘title agent’’ is that which he already per-
ices in connection with their transaction. B forms for his client in his capacity as an at-
and A have an understanding that in return torney. For A to receive a separate payment
for the referral of this business A provides as a title agent, A must perform necessary
legal services to B or B’s officers or employ- core title work and may not contract out the
ees at abnormally low rates or for no charge. work. To receive additional compensation as
Comments: Both A and B are in violation of a title agent for this transaction, A must
section 8 of RESPA. Similarly, if an attor- provide his client with core title agent serv-
ney gives a portion of his or her fees to an- ices for which he assumes liability, and
other attorney, a lender, a real estate broker which includes, at a minimum, the evalua-
or any other provider of settlement services, tion of the title search to determine insur-
who had referred prospective clients to the ability of the title, and the issuance of a
attorney, section 8 would be violated by both title commitment where customary, the
persons. clearance of underwriting objections, and the
3. Facts: A, a real estate broker, obtains all actual issuance of the policy or policies on
necessary licenses under state law to act as behalf of the title company. A may not be
a title insurance agent. A refers individuals compensated for the mere re-examination of
who are purchasing homes in transactions in work performed by B. Here, A is not per-
which A participates as a broker to B, an un- forming these services and may not be com-
affiliated title company, for the purchase of pensated as a title agent under section
title insurance services. A performs mini- 8(c)(1)(B). Referral fees or splits of fees may
mal, if any, title services in connection with not be disguised as title agent commissions
the issuance of the title insurance policy when the core title agent work is not per-
(such as placing an application with the title formed. Further, because B created the pro-
company). B pays A a commission (or A re- gram and gave A the opportunity to collect
tains a portion of the title insurance pre- fees (a thing of value) in exchange for the re-
mium) for the transactions or alternatively ferral of settlement service business, it has
B receives a portion of the premium paid di- violated section 8 of RESPA.
rectly from the purchaser. 5. Facts: A, a ‘‘mortgage originator,’’ re-
Comments: The payment of a commission or ceives loan applications, funds the loans
portion of the title insurance premium by B with its own money or with a wholesale line
to A, or receipt of a portion of the payment of credit for which A is liable, and closes the
for title insurance under circumstances loans in A’s own name. Subsequently, B, a
where no substantial services are being per- mortgage lender, purchases the loans and
formed by A is a violation of section 8 of compensates A for the value of the loans, as
RESPA. It makes no difference whether the well as for any mortgage servicing rights.
payment comes from B or the purchaser. The Comments: Compensation for the sale of a
amount of the payment must bear a reason- mortgage loan and servicing rights con-
able relationship to the services rendered. stitutes a secondary market transaction,
310
Office of Asst. Sec. for Housing, HUD Pt. 3500, App. B
rather than a referral fee, and is beyond the ing A, and the distribution of annual divi-
scope of section 8 of RESPA. For purposes of dends is not based on the amount of business
section 8, in determining whether a bona fide referred or expected to be referred.
transfer of the loan obligation has taken Comments: If A and B meet the require-
place, HUD examines the real source of fund- ments of the affiliated business arrangement
ing, and the real interest of the named set- exemption there is not a violation of
tlement lender. RESPA. Since the payment is a return on
6. Facts. A, a credit reporting company, ownership interests, A and B will be exempt
places a facsimile transmission machine from section 8 if (1) A also did not require
(FAX) in the office of B, a mortgage lender, anyone to use the services of B, and (2) A dis-
so that B can easily transmit requests for closed its ownership interest in B on a sepa-
credit reports and A can respond. A supplies rate disclosure form and provided an esti-
the FAX machine at no cost or at a reduced mate of B’s charges to each person referred
rental rate based on the number of credit re- by A to B (see appendix D of this part), and
ports ordered. (3) B makes no payment (nor is there any
Comments: Either situation violates section other thing of value exchanged) to A other
8 of RESPA. The FAX machine is a thing of than dividends.
value that A provides in exchange for the re- 9. Facts: A, a franchisor for franchised real
ferral of business from B. Copying machines, estate brokers, owns B, a provider of settle-
computer terminals, printers, or other like ment services. C, a franchisee of A, refers
items which have general use to the recipi- business to B.
ent and which are given in exchange for re-
Comments: This is an affiliated business ar-
ferrals of business also violate RESPA.
rangement. A, B and C will all be exempt
7. Facts: A, a real estate broker, refers title
from section 8 if C discloses its franchise re-
business to B, a company that is a licensed
lationship with the owner of B on a separate
title agent for C, a title insurance company.
disclosure form and provides an estimate of
A owns more than 1% of B. B performs the
title search and examination, makes deter- B’s charges to each person referred to B (see
minations of insurability, issues the com- appendix D of this part) and C does not re-
mitment, clears underwriting objections, and quire anyone to use B’s services and A gives
issues a policy of title insurance on behalf of no thing a value to C under the franchise
C, for which C pays B a commission. B pays agreement (such as an adjusted level of fran-
annual dividends to its owners, including A, chise payment based on the referrals), and B
based on the relative amount of business makes no payments to A other than divi-
each of its owners refers to B. dends representing a return on ownership in-
Comments: The facts involve an affiliated terest (rather than, e.g., an adjusted level of
business arrangement. The payments of a payment being based on the referrals). Nor
commission by C to B is not a violation of may B pay C anything of value for the refer-
section 8 of RESPA if the amount of the ral.
commission constitutes reasonable com- 10. Facts: A is a real estate broker who re-
pensation for the services performed by B for fers business to its affiliate title company B.
C. The payment of a dividend or the giving of A makes all required written disclosures to
any other thing of value by B to A that is the homebuyer of the arrangement and esti-
based on the amount of business referred to mated charges and the homebuyer is not re-
B by A does not meet the affiliated business quired to use B. B refers or contracts out
agreement exemption provisions and such business to C who does all the title work and
actions violate section 8. Similarly, if the splits the fee with B. B passes its fee to A in
amount of stock held by A in B (or, if B were the form of dividends, a return on ownership
a partnership, the distribution of partnership interest.
profits by B to A) varies based on the Comments: The relationship between A and
amount of business referred or expected to be B is an affiliated business arrangement.
referred, or if B retained any funds for subse- However, the affiliated business arrange-
quent distribution to A where such funds ment exemption does not provide exemption
were generally in proportion to the amount between an affiliated entity, B, and a third
of business A referred to B relative to the party, C. Here, B is a mere ‘‘shell’’ and pro-
amount referred by other owners such ar- vides no substantive services for its portion
rangements would violate section 8. The ex- of the fee. The arrangement between B and C
emption for controlled business arrange- would be in violation of section 8(a) and (b).
ments would not be available because the Even if B had an affiliate relationship with
payments here would not be considered re- C, the required exemption criteria have not
turns on ownership interests. Further, the been met and the relationship would be sub-
required disclosure of the affiliated business ject to section 8.
arrangement and estimated charges have not 11. Facts: A, a mortgage lender is affiliated
been provided. with B, a title company, and C, an escrow
8. Facts: Same as illustration 7, but B pays company and offers consumers a package of
annual dividends in proportion to the mortgage title and escrow services at a dis-
amount of stock held by its owners, includ- count from the prices at which such services
311
Pt. 3500, App. B 24 CFR Ch. XX (4–1–06 Edition)
would be sold if purchased separately. Nei- do not perform settlement services in any
ther A, B, nor C, requires consumers to pur- transaction and disclosure is made. This per-
chase the services of their sister companies mits a company to employ a person whose
and each company sells such services sepa- primary function is to market the employ-
rately and as part of the package. A also er’s or its affiliate’s settlement services (fre-
pays its employees (i.e., loan officers, secre- quently referred to as a Financial Services
taries, etc.,) a bonus for each loan, title in- Representative, or ‘‘FSR’’). An FSR may not
surance or closing that A’s employees gen-
perform any settlement services including,
erate for A, B, or C respectively. A pays such
for example, those services of a real estate
employee bonuses out of its own funds and
receives no payments or reimbursements for agent, loan processor, settlement agent, at-
such bonuses from B or C. At or before the torney, or mortgage broker. In accordance
time that customers are told by A or its em- with the terms of the exemption at
ployees about the services offered by B and C § 3500.14(g)(1)(ix), the marketing of a settle-
and/of the package of services that is avail- ment service or product of an affiliated enti-
able, the customers are provided with an af- ty, including the collection and conveyance
filiated business disclosure form. of information or the taking of an applica-
Comments: A’s selling of a package of set- tion or order for the services of an affiliated
tlement services at a discount to a settle- entity, does not constitute the performance
ment service purchaser does not violate sec- of a settlement service. Under the exemp-
tion 8 of RESPA. A’s employees are making tion, marketing of a settlement service or
appropriate affiliated business disclosures product also may include incidental commu-
and since the services are available sepa- nications with the consumer after the appli-
rately and as part of a package, there is not cation or order, such as providing the con-
‘‘required use’’ of the additional services. A’s
sumer with information about the status of
payments of bonuses to its employees for the
an application or order; marketing may not
referral of business to A or A’s affiliates, B
and C, are exempt from section 8 under sec- include serving as the ongoing point of con-
tion 3500.14(g)(1). However, if B or C reim- tact for coordinating the delivery and provi-
bursed A for any bonuses that A paid to its sion of settlement services.
employees for referring business to B or C, Thus, in the circumstances described, F
such reimbursements would violate section and M may receive the additional compensa-
8. Similarly, if B or C paid bonuses to A’s tion without violating RESPA.
employees directly for generating business Also, employers may pay managerial em-
for them, such payments would violate sec- ployees compensation in the form of bonuses
tion 8. based on a percentage of transactions com-
12. Facts: A, a real estate broker, is affili- pleted by an affiliated company (frequently
ated with B, a mortgage lender, and C, a title called a ‘‘capture rate’’), as long as the pay-
agency. A employs F to advise and assist any ment is not directly calculated as a multiple
customers of A who have executed sales con-
of the number or value of the referrals. 24
tracts regarding mortgage loans and title in-
CFR 3500.14(g)(1)(viii). A managerial em-
surance. F collects and transmits (by com-
puter, fax, mail, or other means) loan appli- ployee who receives compensation for per-
cations or other information to B and C for forming settlement services in three or fewer
processing. A pays F a small salary and a transactions in any calendar year ‘‘does not
bonus for every loan closed with B or title routinely’’ deal directly with the consumer
insurance issued with C. F furnishes the con- and is not precluded from receiving manage-
trolled business disclosure to consumers at rial compensation.
the time of each referral. F receives no other 13. Facts. A is a mortgage broker who pro-
compensation from the real estate or mort- vides origination services to submit a loan to
gage transaction and performs no settlement a Lender for approval. The mortgage broker
services in any transaction. At the end of charges the borrower a uniform fee for the
each of A’s fiscal years, M, a managerial em- total origination services, as well as a direct
ployee of A, receives a $1,000 bonus if 20% of up-front charge for reimbursement of credit
the consumers who purchase a home through reporting, appraisal services or similar
A close a loan on the home with B and have charges.
the title issued by C. During the year, M
Comment. The mortgage broker’s fee must
acted as a real estate agent for his neighbor
be itemized in the Good Faith Estimate and
and received a real estate sales commission
on the HUD–1 Settlement Statement. Other
for selling his neighbor’s home.
Comments: Under § 3500.14(g)(1), employers charges which are paid for by the borrower
may pay their own bona fide employees for and paid in advance are listed as P.O.C. on
generating business for their employer the HUD–1 Settlement Statement, and re-
(§ 3500.14(g)(1)(vii)). Employers may also pay flect the actual provider charge for such
their own bona fide employees for generating services. Also, any other fee or payment re-
business for their affiliate business entities ceived by the mortgage broker from either
(§ 3500.14(g)(1)(ix)), as long as the employees the lender or the borrower arising from the
312
Office of Asst. Sec. for Housing, HUD Pt. 3500, App. C
initial funding transaction, including a serv- and C are subsidiaries of H, a holding com-
icing release premium or yield spread pre- pany, which also controls a retail stock bro-
mium, is to be noted on the Good Faith Esti- kerage firm, D. None of A, B, or C requires
mate and listed in the 800 series of the HUD– consumers to purchase the services of its sis-
1 Settlement Statement. ter companies, and each company sells such
14. Facts. A is a dealer in home improve- services separately and as part of the pack-
ments who has established funding arrange- age. A also pays an employee T, a full-time
ments with several lenders. Customers for bank teller who does not perform settlement
home improvements receive a proposed con- services, a bonus for each loan, title insur-
tract from A. The proposal requires that cus- ance binder, or closing that T generates for
tomers both execute forms authorizing a A, B, or C. A pays T these bonuses out of A’s
credit check and employment verification, own funds and receives no reimbursements
and, frequently, execute a dealer consumer for these bonuses from B, C, or H. At the
credit contract secured by a lien on the cus- time that T refers customers to B and C, T
tomer’s (borrower’s) 1- to 4-family residen- provides the customers with a disclosure
tial property. Simultaneously with the com- using the controlled business arrangement
pletion and certification of the home im- disclosure format. Also, Z, a stockbroker em-
provement work, the note is assigned by the ployee of D, occasionally refers her cus-
dealer to a funding lender. tomers to A, B, or C; gives a statement in
Comments. The loan that is assigned to the the controlled business disclosure format;
funding lender is a loan covered by RESPA, and receives a payment from D for each re-
when a lien is placed on the borrower’s 1- to ferral.
4-family residential structure. The dealer Comments: Selling a package of settlement
loan or consumer credit contract originated services at a discount is not prohibited by
by a dealer is also a RESPA-covered trans- RESPA, consistent with the definition of
action, except when the dealer is not a ‘‘required use’’ in 24 CFR 3500.2. Also, A is al-
‘‘creditor’’ under the definition of ‘‘federally ways allowed to compensate its own employ-
related mortgage loan’’ in § 3500.2. The lender ees for business generated for A’s company.
to whom the loan will be assigned is respon- Here, A may also compensate T, an employee
sible for assuring that the lender or the deal- who does not perform settlement services in
er delivers to the borrower a Good Faith Es- this or any transaction, for referring busi-
timate of closing costs consistent with Regu- ness to a business entity in an affiliate rela-
lation X, and that the HUD–1 or HUD–1A tionship with A. Z, who does not perform set-
Settlement Statement is used in conjunction tlement services in this or any transaction,
with the settlement of the loan to be as- can also be compensated by D, but not by
signed. A dealer who, under § 3500.2, is cov- anyone else. Employees who perform settle-
ered by RESPA as a creditor is responsible ment services cannot be compensated for re-
for the Good Faith Estimate of Closing Costs ferrals to other settlement service providers.
and the use of the appropriate settlement None of the entities in an affiliated relation-
statement in connection with the loan. ship with each other may pay for referrals
received from an affiliate’s employees. Sec-
[57 FR 49607, Nov. 2, 1992; 57 FR 56857, Dec. 1, tions 3500.15(b)(3)(i)(A) and (B) set forth the
1992, as amended at 59 FR 6521, Feb. 10, 1994; permissible exchanges of funds between con-
61 FR 13251, Mar. 26, 1996; 61 FR 29253, June trolled business entities. In all cir-
7, 1996; 61 FR 58476, Nov. 15, 1996] cumstances described a statement in the
EFFECTIVE DATE NOTE: At 61 FR 29253, June controlled business disclosure format must
7, 1996, appendix B to part 3500 was amended be provided to a potential consumer at or be-
by revising Illustration 11, redesignating Il- fore the time that the referral is made.
lustrations 12 and 13 as Illustrations 13 and
14, respectively, and adding a new Illustra- * * * * *
tion 12, effective Oct. 7, 1996. At 61 FR 51782,
Oct. 4, 1996, the effective date was delayed APPENDIX C TO PART 3500—SAMPLE
until further notice. For the convenience of
FORM OF GOOD FAITH ESTIMATE
the user, the revised text is set forth as fol-
lows: [Name of Lender] 1
APPENDIX B TO PART 3500—ILLUSTRATIONS OF The information provided below reflects
REQUIREMENTS OF RESPA estimates of the charges which you are like-
ly to incur at the settlement of your loan.
The fees listed are estimates—the actual
* * * * *
charges may be more or less. Your trans-
11. Facts: A, a mortgage lender, is affiliated action may not involve a fee for every item
with B, a title company, and C, an escrow listed.
company, and offers consumers a package of The numbers listed beside the estimates
mortgage, title, and escrow services at a dis- generally correspond to the numbered lines
count from the prices at which such services contained in the HUD–1 or HUD–1A settle-
would be sold if purchased separately. A, B, ment statement that you will be receiving at
313
Pt. 3500, App. C 24 CFR Ch. XX (4–1–06 Edition)
settlement. The HUD–1 or HUD–1A settle- llllllllllllllllllllllll
ment statement will show you the actual Applicant
cost for items paid at settlement. llllllllllllllllllllllll
Date
HUD–1 or Amount or
Item 2 HUD–1A range llllllllllllllllllllllll
Authorized Official
Loan origination fee 801 ................. $llll These estimates are provided pursuant to
Loan discount fee .. 802 ................. $llll the Real Estate Settlement Procedures Act
Appraisal fee .......... 803 ................. $llll of 1974, as amended (RESPA). Additional in-
Credit report ........... 804 ................. $llll formation can be found in the HUD Special
Inspection fee ......... 805 ................. $llll Information Booklet, which is to be provided
Mortgage broker fee [Use blank line $llll to you by your mortgage broker or lender, if
in 800 Sec- your application is to purchase residential
tion]. real property and the Lender will take a first
CLO access fee ..... [Use blank line $llll lien on the property.
in 800 Sec-
tion]. FOOTNOTES
Tax related service [Use blank line $llll 1 The name of the lender shall be placed at
fee. in 800 Sec- the top of the form. Additional information
tion]. identifying the loan application and property
Interest for [X] days 901 ................. $llll may appear at the bottom of the form or on
at $llll per a separate page. Exception: If the disclosure
day. is being made by a mortgage broker who is
Mortgage insurance 902 ................. $llll not an exclusive agent of the lender, the
premium. lender’s name will not appear at the top of
Hazard insurance 903 ................. $llll the form, but the following legend must ap-
premiums. pear:
Reserves 3 .............. 1000–1005 ..... $llll This Good Faith Estimate is being pro-
Settlement fee ........ 1101 ............... $llll vided by llllllll, a mortgage broker,
Abstract or title 1102 ............... $llll and no lender has yet been obtained.
search. 2 Items for which there is estimated to be
Title examination .... 1103 ............... $llll no charge to the borrower are not required
Document prepara- 1105 ............... $llll to be listed. Any additional items for which
tion fee. there is estimated to be a charge to the bor-
Attorney’s fee ......... 1107 ............... $llll rower shall be listed if required on the HUD–
Title insurance ........ 1108 ............... $llll 1.
Recording fees ....... 1201 ............... $llll 3 As an alternative to using aggregate ac-
City/County tax 1202 ............... $llll counting with no more than a two-month
stamps. cushion, the estimate may be obtained by
State tax ................. 1203 ............... $llll using single-item accounting with no more
Survey .................... 1301 ............... $llll than a one-month cushion.
Pest inspection ....... 1302 ............... $llll
[Other fees—list ........................ $llll [58 FR 17165, Apr. 1, 1993, as amended at 59
here]. FR 6521, Feb. 10, 1994; 63 FR 3237, Jan. 21,
1998]
314
Office of Asst. Sec. for Housing, HUD Pt. 3500, App. C
ER15NO96.001</GPH>
315
ER15NO96.000</GPH>
Pt. 3500, App. E 24 CFR Ch. XX (4–1–06 Edition)
[61 FR 58477, Nov. 15, 1996] STEP 2—ADJUSTED TRIAL BALANCE—Continued
[Increase monthly balances to eliminate negative balances]
APPENDIX E TO PART 3500—ARITHMETIC
STEPS Aggregate
I. Example Illustrating Aggregate Analysis: pmt disb bal
ASSUMPTIONS: Nov ...................................... 130 0 570

Dec ...................................... 130 700 0
Disbursements: Jan ....................................... 130 0 130
$360 for school taxes disbursed on Sep- Feb ...................................... 130 0 260
tember 20 Mar ...................................... 130 0 390
$1,200 for county property taxes: Apr ....................................... 130 0 520
May ...................................... 130 0 650
$500 disbursed on July 25
Jun ....................................... 130 0 780
$700 disbursed on December 10
Cushion: One-sixth of estimated annual dis-
bursements STEP 3—TRIAL BALANCE WITH CUSHION
Settlement: May 15
First Payment: July 1 Aggregate
pmt disb bal

STEP 1—INITIAL TRIAL BALANCE
Jun ....................................... 0 0 1040
Aggregate Jul ........................................ 130 500 670
Aug ...................................... 130 0 800
pmt disb bal
Sep ...................................... 130 360 570
Jun ....................................... 0 0 0 Oct ....................................... 130 0 700
Jul ........................................ 130 500 ¥370 Nov ...................................... 130 0 830
Aug ...................................... 130 0 ¥240 Dec ...................................... 130 700 260
Sep ...................................... 130 360 ¥470 Jan ....................................... 130 0 390
Oct ....................................... 130 0 ¥340 Feb ...................................... 130 0 520
Nov ...................................... 130 0 ¥210 Mar ...................................... 130 0 650
Dec ...................................... 130 700 ¥780 Apr ....................................... 130 0 780
Jan ....................................... 130 0 ¥650 May ...................................... 130 0 910
Feb ...................................... 130 0 ¥520 Jun ....................................... 130 0 1040
Mar ...................................... 130 0 ¥390
Apr ....................................... 130 0 ¥260
May ...................................... 130 0 ¥130
II. Example Illustrating Single-Item Analysis
Jun ....................................... 130 0 0 (Existing Accounts)
ASSUMPTIONS:
STEP 2—ADJUSTED TRIAL BALANCE Disbursements:
[Increase monthly balances to eliminate negative balances] $360 for school taxes disbursed on Sep-
Aggregate
tember 20
$1,200 for county property taxes:
pmt disb bal $500 disbursed on July 25
$700 disbursed on December 10
Jun ....................................... 0 0 780
Jul ........................................ 130 500 410
Cushion: One-sixth of estimated annual dis-
Aug ...................................... 130 0 540 bursements
Sep ...................................... 130 360 310 Settlement: May 15
Oct ....................................... 130 0 440 First Payment: July 1
STEP 1—INITIAL TRIAL BALANCE

Single-item
Taxes School taxes
pmt disb bal pmt disb bal
June ........................................................................................... 0 0 0 0 0 0
July ............................................................................................ 100 500 ¥400 30 0 30
August ....................................................................................... 100 0 ¥300 30 0 60
September ................................................................................. 100 0 ¥200 30 360 ¥270
October ...................................................................................... 100 0 ¥100 30 0 ¥240
November .................................................................................. 100 0 0 30 0 ¥210
December .................................................................................. 100 700 ¥600 30 0 ¥180
January ...................................................................................... 100 0 ¥500 30 0 ¥150
February .................................................................................... 100 0 ¥400 30 0 ¥120
March ........................................................................................ 100 0 ¥300 30 0 ¥90
April ........................................................................................... 100 0 ¥200 30 0 ¥60
May ............................................................................................ 100 0 ¥100 30 0 ¥30
June ........................................................................................... 100 0 0 30 0 0
316
Office of Asst. Sec. for Housing, HUD Pt. 3500, App. E
STEP 2—ADJUSTED TRIAL BALANCE (INCREASE MONTHLY BALANCES TO ELIMINATE NEGATIVE

BALANCES)
Single-item
Taxes School taxes
Jun ............................................................................................. 0 0 600 0 0 270

Jul .............................................................................................. 100 500 200 30 0 300
Aug ............................................................................................ 100 0 300 30 0 330
Sep ............................................................................................ 100 0 400 30 360 0
Oct ............................................................................................. 100 0 500 30 0 30
Nov ............................................................................................ 100 0 600 30 0 60
Dec ............................................................................................ 100 700 0 30 0 90
Jan ............................................................................................. 100 0 100 30 0 120
Feb ............................................................................................ 100 0 200 30 0 150
Mar ............................................................................................ 100 0 300 30 0 180
Apr ............................................................................................. 100 0 400 30 0 210
May ............................................................................................ 100 0 500 30 0 240
Jun ............................................................................................. 100 0 600 30 0 270
STEP 3—TRIAL BALANCE WITH CUSHION

Single-Item
Taxes School taxes
Jun ............................................................................................. 0 0 800 0 0 330

Jul .............................................................................................. 100 500 400 30 0 360
Aug ............................................................................................ 100 0 500 30 0 390
Sep ............................................................................................ 100 0 600 30 360 60
Oct ............................................................................................. 100 0 700 30 0 90
Nov ............................................................................................ 100 0 800 30 0 120
Dec ............................................................................................ 100 700 200 30 0 150
Jan ............................................................................................. 100 0 300 30 0 180
Feb ............................................................................................ 100 0 400 30 0 210
Mar ............................................................................................ 100 0 500 30 0 240
Apr ............................................................................................. 100 0 600 30 0 270
May ............................................................................................ 100 0 700 30 0 300
Jun ............................................................................................. 100 0 800 30 0 330
[59 FR 53908, Oct. 26, 1994, as amended at 60 FR 8816, Feb. 15, 1995. Redesignated at 61 FR 58479,
Nov. 15, 1996]
317
318
ER19DE94.007</GPH>
319
ER19DE94.008</GPH>
320
ER19DE94.009</GPH>
[59 FR 65452, Dec. 19, 1994; 60 FR 2643, Jan. 10, 1995; 60 FR 5962, Jan. 31, 1995]
321
ER10JA95.001</GPH>
322
ER26MR96.000</GPH>
323
ER26MR96.001</GPH>
Pt. 3800 24 CFR Ch. XX (4–1–06 Edition)
[61 FR 13252, Mar. 26, 1996]
PART 3800—INVESTIGATIONS IN § 3800.20 Subpoenas in investigations.

CONSUMER REGULATORY PRO- (a) The Secretary may issue sub-
GRAMS poenas relating to any matter under
investigation. A subpoena may:
Sec. (1) Require testimony to be taken by
3800.10 Scope of rules. interrogatories;
3800.20 Subpoenas in investigations. (2) Require the attendance and testi-
3800.30 Subpoena enforcement in district mony of witnesses at a specific time
court. and place;
3800.40 Investigational proceedings. (3) Require access to, examination of,
3800.50 Rights of witnesses in investiga- and the right to copy documents; and
tional proceedings. (4) Require the production of docu-
3800.60 Settlements. ments at a specific time and place.
AUTHORITY: 12 U.S.C. 2601 et seq.; 15 U.S.C. (b) A subpoenaed person may petition
1714; 42 U.S.C. 3535(d) and 5413. the Secretary or the Secretary’s des-
SOURCE: 61 FR 10441, Mar. 13, 1996, unless
ignee to modify or withdraw a sub-
otherwise noted. poena by filing the petition within 10
days after service of the subpoena. The
§ 3800.10 Scope of rules. petition may be in letter form, but
must set forth the facts and law upon
This part applies to investigations which the petition is based.
and investigational proceedings under-
taken by the Secretary, or the Sec- § 3800.30 Subpoena enforcement in
retary’s designee, pursuant to the fol- district court.
lowing: In the case of contumacy of a witness
(a) The Interstate Land Sales Full or a witness’s refusal to obey a sub-
Disclosure Act, 15 U.S.C. 1701 et seq.; poena or order of the Secretary, the
(b) The National Manufactured Hous- United States district court for the ju-
ing Construction and Safety Standards risdiction in which an investigation is
Act of 1974, 42 U.S.C. 5401 et seq.; and carried on may issue an order requiring
(c) The Real Estate Settlement Pro- compliance with the subpoena. HUD
cedures Act of 1974, 12 U.S.C. 2601 et seq. headquarters in Washington, DC, is one
of the locations in which the Secretary
324
ER26MR96.002</GPH>

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Real Estate Settlement Procedures Act

Background • Made in connection with a housing or urban

tion. A relationship exists if any of the following Printing and Duplication

Relationship to State Law (§ 3500.21(h))

by any maker of mortgage loans speci- of ‘‘settlement services’’ in this sec-

abstract preparation, insurability de- transaction is not a secondary market

U.S.C. 1601 et seq., so long as all re- is in an affiliated business relationship

but the HUD–1 or HUD–1A may be § 3500.9 Reproduction of settlement

§ 3500.13 Relation to State laws. § 3500.14 Prohibition against kick-

or business incident thereto, except if termine whether it is a bona fide return

Aggregate (or) composite analysis, here- serve account’’, ‘‘impound account’’, or

if a servicer determines through an es- quirements of paragraph (k) of this sec-

shall not divide an escrow account a servicer establishes an escrow ac-

evidence or the post-hearing briefs, made as part of a monthly mortgage

(C) As appropriate, the following servicer of any mortgage servicing loan

(C) Commencement of proceedings by comply with the requirements of para-

regarding information relating to the (ii) In accordance with section 17 of

APPENDIX B TO PART 3500—ILLUSTRA- Here A really is being compensated for a re-

I. Example Illustrating Aggregate Analysis: pmt disb bal

ASSUMPTIONS: Nov ...................................... 130 0 570

pmt disb bal

STEP 1—INITIAL TRIAL BALANCE

Taxes School taxes

pmt disb bal pmt disb bal

STEP 2—ADJUSTED TRIAL BALANCE (INCREASE MONTHLY BALANCES TO ELIMINATE NEGATIVE

Taxes School taxes

pmt disb bal pmt disb bal

Jun ............................................................................................. 0 0 600 0 0 270

STEP 3—TRIAL BALANCE WITH CUSHION

Taxes School taxes

pmt disb bal pmt disb bal

Jun ............................................................................................. 0 0 800 0 0 330

[61 FR 13252, Mar. 26, 1996]

PART 3800—INVESTIGATIONS IN § 3800.20 Subpoenas in investigations.

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