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Knowing the Documentation

It is important to know what you are signing when you purchase a home. Recently, consumers in their haste to purchase a home and build wealth and equity, made purchases that were simply unwise. They signed mortgage paperwork that, in effect, constrained them to mortgage products that were wrong for them. Mortgage brokers should have better represented these buyers by educating them about the process and urging them to delay their purchase because of their credit and debt profile.

Unfortunately, mortgage brokers were enthralled with the opportunity for fast cash and breached their business responsibilities. Federal and state regulators were asleep at the switch and did not protect potential homeowners. While these organizations provided appropriate oversight on recently enacted regulations, they failed to ensure that home purchases understood their rights. The following are documents that homeowners must sign to purchase a home. At Renewalfinancial.com, we believe you should have a clear understanding about each document.

Real Estate Settlement Procedures Act (RESPA)

According to the U.S. Department of Housing and Urban Development (HUD), RESPA is about closing costs and settlement procedures. RESPA requires that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process.

RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

Individuals have one (1) year to bring a private law suit to enforce violations of Section 8 or 9. A person may bring an action for violations of Section 6 within three years. Lawsuits for violations of Section 6, 8, or 9 may be brought in any federal district court in the district in which the property is located or where the violation is alleged to have occurred.

HUD, a State Attorney General or State insurance commissioner may bring an injunctive action to enforce violations of Section 6, 8 or 9 of RESPA within three (3) years.

Truth in Lending Disclosure Statement (TIL)

The Truth in Lending Act is intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably. Before its enactment, consumers were faced with a bewildering array of credit terms and rates. It was difficult to compare loans because they were seldom presented in the same format. Now, all creditors must use the same credit terminology and expressions of rates. In addition to providing a uniform system for disclosures, the act is designed to:

  • Protect consumers against inaccurate and unfair credit billing and credit card practices;
  • Provide consumers with rescission rights;
  • Provide for rate caps on certain dwelling-secured loans; and
  • Impose limitations on home equity lines of credit and certain closed-end home mortgages.

The TILA and Regulation Z do not, however, tell banks how much interest they may charge or whether they must grant a consumer a loan. Click Here to review a copy of the TIL form.

HUD-1 Form (Settlement Statement)

The HUD-1 is a form used by the settlement agent (also called the closing agent) to itemize all charges imposed upon a borrower and seller for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.

Fees associated with the transaction but paid prior to closing are also included on the HUD. They are normally marked "POC," for Paid Outside of Closing.

Please click on the following link to review a copy of the HUD-1 Form (Settlement Statement). Download HUD-1 form here.

Mortgage Note

A mortgage note is a promissory note related to a specified mortgage loan. It represents a promise between the purchaser of a home and the mortgage company or underwriter, to repay the mortgage with interest (specifically designated). The title to the property is pledged against the mortgage note. The mortgage note states the amount of the debt and the interest rate.

Security Instrument (Mortgage or "Deed of Trust")

Slightly more than half of the states in the U.S. use mortgages as security instruments while the others use a deed of trust. These instruments do the following:

  • A deed of trust is a special kind of deed that is recorded in public records, where it tells everyone that there is a lien on your property.
  • A deed of trust involves three parties. The ‘trustor’, the lender, and a third party or ‘trustee’.
  • The trustee should be a neutral third party, someone who won't favor either the trustor or the lender if problems arise.
  • The trustee cannot take a trustor’s property for no reason.
  • The deed of trust is cancelled when the debt is paid.