Public Law 93-533
93rd Congress, S.3164
December 22, 1974
An Act
To further the national housing goal of encouraging
homeownership by regulating certain lending practices and
closing and settlement procedures in federally related mortgage
transactions to the end that unnecessary costs and difficulties of
purchasing housing are minimized, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SHORT TITLE
SECTION 1. This Act may be cited as the "Real Estate Settlement
Procedures Act of 1974".
FINDINGS AND PURPOSE
SEC. 2.
(a) The Congress finds that significant reforms in the real
estate settlement process are needed to insure that
consumers throughout the Nation are provided with
greater and more timely information on the nature and
costs of the settlement process and are protected from
unnecessarily high settlement charges caused by certain
abusive practices that have developed in some areas of
the country. The Congress also finds that it has been
over two years since the Secretary of Housing and Urban
Development and the Administrator of Veterans' Affairs
submitted their joint report to the Congress on "Mortgage
Settlement Costs" and that the time has come for the
recommendations for Federal legislative action made in
that report to be implemented.
(b) It is the purpose of this Act to effect certain changes in
the settlement process for residential real estate that will
result -
(1) in more effective advance disclosure to home buyers
and sellers of settlement costs;
(2) in the elimination of kickbacks or referral fees that
tend to increase unnecessarily the costs of certain
settlement services;
(3) in a reduction in the amounts home buyers are
required to place in escrow accounts established to
insure the payment of real estate taxes and
insurance; and
(4) in significant reform and modernization of local
record keeping of land title information.
DEFINITIONS
SEC. 3. For purposes of this Act -
(1) the term "federally related mortgage loan" includes any
loan which -
(A) is secured by residential real property (including
individual units of condominiums and cooperatives)
designed principally for the occupancy of from one to
four families; and
(B)(i) is made in whole or in part by any lender the
deposits or accounts of which are insured by any
agency of the Federal Government, or is made in
whole or in part by any lender which is regulated
by any agency of the Federal Government; or
(ii) is made in whole or in part, or insured,
guaranteed, supplemented, or assisted in any
way, by the Secretary or any other officer or
agency of the Federal Government or under or in
connection with a housing or urban development
program administered by the Secretary or a
housing or related program administered by any
other such officer or agency; or
(iii) is eligible for purchase by the Federal National
Mortgage Association, the Government National
Mortgage Association, or the Federal Home Loan
Mortgage Corporation, or from any financial
institution from which it could be purchased by
the Federal Home Loan Mortgage Corporation; or
(iv) is made in whole or in part by any "creditor", as
defined in section 103(f) of the Consumer Credit
Protection Act (15 U.S.C. 1602(f)), who makes or
invests in residential real estate loans
aggregating more than $1,000,000 per year;
(2) the term "thing of value" includes any payment, advance,
funds, loan, service, or other consideration;
(3) the term "settlement services" includes any service
provided in connection with a real estate settlement
including, but not limited to, the following: title searches,
title examinations, the provision of title certificates, title
insurance, services rendered by an attorney, the
preparation of documents, property surveys, the
rendering of credit reports or appraisals, pest and fungus
inspections, services rendered by a real estate agent or
broker, and the handling of the processing, and closing or
settlement;
(4) the term "title company" means any institution which is
qualified to issue title insurance, directly or through its
agents, and also refers to any duly authorized agent of a
title company;
(5) the term "person" includes individuals, corporations,
associations, partnerships, and trusts; and
(6) the term "Secretary" means the Secretary of Housing and
Urban Development.
UNIFORM SETTLEMENT STATEMENT
SEC. 4.
The Secretary, in consultation with the Administrator of
Veterans' Affairs, the Federal Deposit Insurance Corporation,
and the Federal Home Loan Bank Board, shall develop and
prescribe a standard form for the statement of settlement
costs which shall be used (with such minimum variations as
may be necessary to reflect unavoidable differences in legal
and administrative requirements or practices in different areas
of the country) as the standard real estate settlement form in
all transactions in the United States which involve federally
related mortgage loans. Such form shall conspicuously and
clearly itemize all charges imposed upon the borrower and all
charges imposed upon the seller in connection with the
settlement and shall indicate whether any title insurance
premium included in such charges covers or insures the
lenders's interest in the property, the borrower's interest, or
both. Such forms shall include all information and data
required to be provided for such transactions under the Truth
in Lending Act and regulations issued thereunder by the
Federal Reserve Board, and may be used in satisfaction of
the disclosure requirements of that Act, and shall also include
provision for execution of the waiver allowed by section 6(c).
SPECIAL INFORMATION BOOKLETS
SEC. 5.
(a) The Secretary shall prepare and distribute booklets to
help persons borrowing money to finance the purchase of
residential real estate better to understand the nature and
costs of real estate settlement services. The Secretary
shall distribute such booklets to all lenders which make
federally related mortgage loans.
(b) Each booklet shall be in such form and detail as the
Secretary shall prescribe and, in addition to such other
information as the Secretary may provide, shall include in
clear and concise language-
(1) a description and explanation of the nature and
purpose of each cost incident to a real estate
settlement;
(2) an explanation and sample of the standard real
estate settlement form developed and prescribed
under section 4;
(3) a description and explanation of the nature and
purpose of escrow accounts when used in connection
with loans secured by residential real estate;
(4) an explanation of the choices available to buyers of
residential real estate in selecting persons to provide
necessary services incident to a real estate
settlement; and
(5) an explanation of the unfair practices and
unreasonable or unnecessary charges to be avoided
by the prospective buyer with respect to a real estate
settlement.
Such booklets shall take into consideration differences in
real estate settlement procedures which may exist among
the several states and territories of the United States and
among separate political subdivisions with the same State
and territory.
(c) Each lender referred to in subsection (a) shall provide the
booklet described in such subsection to each person from
whom it receives an application to borrow money to
finance the purchase of residential real estate. Such
booklet shall be provided at the time of receipt of such
application.
(d) Booklets may be printed and distributed by lenders if their
form and content are approved by the Secretary as
meeting the requirements of subsection (b) of this
section.
ADVANCE DISCLOSURE OF SETTLEMENT COSTS
SEC. 6.
(a) Any lender agreeing to make a federally related mortgage
loan shall provide or cause to be provided to the
prospective borrower, to the prospective seller, and to
any officer or agency of the Federal Government
proposing to insure, guarantee, supplement, or assist
such loan, at the time of the loan commitment, but in no
case later than twelve calendar days prior to settlement,
upon the standard real estate settlement form developed
and prescribed by the Secretary specifically for the
purposes of this section, and in accordance with
regulations prescribed by the Secretary, and itemized
disclosure in writing of each charge arising in connection
with such settlement. For the purposes of complying with
this section, it shall be the duty of the lender agreeing to
make the loan to obtain or cause to be obtained from
persons who provide or will provide services in
connection with such settlement the amount of each
charge they intend to make. In the event the exact
amount of each charge is not available, a good faith
estimate of such charge may be provided.
(b) If any lender fails to provide a prospective borrower or
seller with the disclosure as required by subsection (a),
it shall be liable to such borrower or seller, as the case
may be, in an amount equal to-
(1) the actual damages involved or $500, whichever is
greater, and
(2) in the case of any successful action to enforce the
foregoing liability, the court costs of the action
together with a reasonable attorney's fee as
determined by the court;
except that a lender may not be held liable for a violation
in any action brought under this subsection if it shows by
a preponderance of the evidence that the violation was
not intentional and resulted from a bona fide error not
withstanding the maintenance of procedures adopted to
avoid any such error.
(c) The provisions of subsection (a) shall be deemed to be
satisfied with respect to a borrower or seller in connection
with any settlement involving a federally related mortgage
loan if the disclosure required by subsection (a) is
provided at any time prior to settlement and the
prospective borrower or seller, as the case may be,
executes, under terms and conditions prescribed by the
regulations to be issued by the Secretary after
consultation with the appropriate Federal agencies, a
waiver of the requirement that the disclosure be provided
at least twelve calendar days prior to such settlement. In
issuing such regulations, the Secretary shall take into
account the need to protect the borrower's and the
sellers's right to a timely disclosure.
(d) With respect to any particular transaction involving a
federally related mortgage loan, no borrower shall
maintain an action or separate actions against any lender
under both provisions of this section and the provisions
of section 130 of the Consumer Credit Protection Act (15
U.S.C. 1640).
(e) The provisions of this Act shall supersede the provisions
of section 121(c) of the Consumer Credit Protection Act
insofar as the latter applies to federally related mortgage
loans as defined in this Act.
DISCLOSURE OF PREVIOUS SELLING PRICE OF EXISTING REAL PROPERTY
SEC. 7.
(a) No lender shall make any commitment for a federally
related mortgage loan on a residence on which
construction has been completed more than twelve
months prior to the date of such commitment unless it
has confirmed that the following information has been
disclosed in writing by the seller or his agent to the buyer-
(1) the name and address of the present owner of the
property being sold;
(2) the date the property was acquired by the present
owner (the year only if the property was acquired
more than two years previously); and
(3) if the seller has not owned the property for at least
two years prior to the date of the loan application and
has not used the property as a place of residence,
the date and purchase price of the last arm's length
transfer of the property, a list of any subsequent
improvements made to the property (excluding
maintenance repairs) and the cost of such
improvements.
(b) the obligations imposed upon a lender by this section
shall be deemed satisfied and a commitment for a
federally related mortgage loan may thereafter be made
if the lender receives a copy of the written statement
provided by the seller to the buyer supplying the
information required by subsection (a).
(c) Whoever knowingly and willfully provides false
information under this section or otherwise willfully fails to
comply with its requirements shall be fined not more than
$10,000 or imprisoned for not more than one year, or
both.
PROHIBITION AGAINST KICKBACKS AND UNEARNED FEES
SEC. 8.
(a) No person shall give and no person shall accept any fee,
kickback, or thing of value pursuant to any agreement or
understanding, oral or otherwise, that business incident
to or a part of a real estate settlement service involving a
federally related mortgage loan shall be referred to any
person.
(b) No person shall give and no person shall accept any
portion, split, or percentage of any charge made or
received for the rendering of a real estate settlement
service in connection with a transaction involving a
federally related mortgage loan other than for services
actually performed.
(c) Nothing in this section shall be construed as prohibiting
(1) the payment of a fee
(A) to attorneys at law for services actually rendered
or
(B) by a title company to its duly appointed agent for
services actually performed in the issuance of a
policy of title insurance or
(C) by a lender to its duly appointed agent for
services actually performed in the making of a
loan, or
(2) the payment to any person of a bona fide salary or
compensation or other payment for goods or facilities
actually furnished or for services actually performed.
(d) (1) Any person or persons who violate the provisions of
this section shall be fined not more than $10,000 or
imprisoned for not more than one year, or both.
(2) In addition to the penalties provided by paragraph (1)
of this subsection, any person or persons who violate
the provisions of subsection (a) shall be jointly and
severally liable to the person or persons whose
business has been referred in an amount equal to
three times the value or amount of the fee or thing of
value, and any person or persons who violate the
provisions of subsection (b) shall be jointly and
severally liable to the person or persons charged for
the settlement services involved in an amount equal
to three times the amount of the portion, split, or
percentage. In any successful action to enforce the
liability under this paragraph, the court may award
the court costs of the action together with a
reasonable attorney's fee as determined by the court.
TITLE COMPANIES
SEC. 9.
(a) No seller of property that will be purchased with the
assistance of a federally related mortgage loan shall
require directly or indirectly, as a condition to selling the
property, that title insurance covering the property be
purchased by the buyer from any particular title company.
(b) Any seller who violates the provisions of subsection (a)
shall be liable to the buyer in an amount equal to three
times all charges made for such title insurance.
LIMITATIONS ON REQUIREMENT OF ADVANCE DEPOSITS IN ESCROW ACCOUNTS
SEC.10.
No lender, in connection with a federally related mortgage
loan, shall require the borrower or prospective borrower-
(1) to deposit in any escrow account which may be
established in connection with such loan for the purpose
of assuring payment of taxes and insurance premiums
with respect to the property, prior to or upon the date of
settlement, an aggregate sum (for such purpose) in
excess of-
(A) in any jurisdiction where such taxes and insurance
premiums are postpaid, the total amount of such
taxes and insurance premiums which will actually be
due and payable on the date of settlement and the
pro rata portion thereof which has accrued, or
(B) in any jurisdiction where such taxes and insurance
premiums are prepaid, a pro rata portion of the
estimated taxes and insurance premiums
corresponding to the number of months from the last
date of payment to the date of settlement,
plus one-twelfth of the estimated total amount of such
taxes and insurance premiums which will become due
and payable during the twelve-month period beginning on
the date of settlement; or
(2) to deposit in any such escrow account in any month
beginning after the date of settlement a sum (for the
purpose assuring payment of taxes and insurance
premiums with respect to the property) in excess of one-
twelfth of the total amount of the estimated taxes and
insurance premiums which will become due and payable
during the twelve-month period beginning on the first day
of such month, except that in the event the lender
determines there will be a deficiency on the due date he
shall not be prohibited from requiring additional monthly
deposits in such escrow account of pro rata portions of
the deficiency corresponding to the number of months
from the date of the lender's determination of such
deficiency to the date upon which such taxes and
insurance premiums become due and payable.
LIMITATIONS AND DISCLOSURES WITH RESPECT TO
CERTAIN FEDERALLY RELATED MORTGAGE LOANS
SEC. 11.
(a) The Federal Deposit Insurance Act is amended by adding
at the end thereof the following new section:
"SEC. 25.
(a) No insured bank, or mutual savings or
cooperative bank which is not an insured bank,
shall make any federally related mortgage loan to
any agent, trustee, nominee, or other person
acting in a fiduciary capacity without the prior
condition that the identity of the person receiving
the beneficial interest of such loan shall at all
times be revealed to the bank. At the request of
the Corporation, the bank shall report to the
Corporation on the identity of such person and
the nature and amount of the loan, discount, or
other extension of credit.
(b) In addition to other available remedies, this
section may be enforced with respect to mutual
savings and cooperative banks which are not
insured banks in accordance with Section 8 of
this Act, and for such purpose such mutual
savings and cooperative banks shall be held and
considered to be State nonmember insured
banks and the appropriate Federal agency with
respect to such mutual savings and cooperative
banks shall be the Federal Deposit Insurance
Corporation. "
(b) Title IV of the National Housing Act is amended by
adding at the end thereof the following new section:
"SEC. 413. No insured institution shall make any federally
related mortgage loan to any agent, trustee, nominee, or
other person acting in a fiduciary capacity without the
prior condition that the identity of the person receiving the
beneficial interest of such loan shall at all times be
revealed to the institution. At the request of the Federal
Home Loan Bank Board, the insured institution shall
report to the Board on the identity of such person and the
nature and amount of the loan."
(c) The Federal Deposit Insurance Corporation or the
Federal Home Loan Bank Board as appropriate may by
regulation exempt classes or types of transactions from
the provisions added by this section if the Corporation or
the Board determines that the purposes of such
provisions would not be advanced materially by their
application to such transactions.
FEE FOR PREPARATION OF TRUTH-IN-LENDING AND
UNIFORM SETTLEMENT STATEMENTS
SEC. 12.
No fee shall be imposed or charge made upon any other
person (as a part of settlement costs or otherwise) by a
lender in connection with a federally related mortgage loan
made by it (or a loan for the purchase of a mobile home), for
or on account of the preparation and submission by such
lender of the statement or statements required (in connection
with such loan) by sections 4 and 6 of this Act or by the Truth
in Lending Act.
ESTABLISHMENT ON DEMONSTRATION BASIS OF
LAND PARCEL RECORDATION SYSTEM
SEC. 13.
The Secretary shall establish and place in operation on a
demonstration basis, in representative political subdivisions
(selected by him) in various areas of the United States, a
model system or systems for the recordation of land title
information in a manner and form calculated to facilitate and
simplify land transfers and mortgage transactions and reduce
the cost thereof, with a view to the possible development
(utilizing the information and experience gained under this
section) of a nationally uniform system of land parcel
recordation.
REPORT OF THE SECRETARY ON NECESSITY
FOR FURTHER CONGRESSIONAL ACTION
SEC. 14.
(a) The Secretary, after consultation with the Administrator of
Veterans' Affairs, the Federal Deposit Insurance
Corporation, and the Federal Home Loan Bank Board,
and after such study, investigation, and hearings (at
which representatives of consumers groups shall be
allowed to testify) as he deems appropriate, shall, not
less than three years nor more than five years from the
effective date of this Act, report to the Congress on
whether, in view of the implementation of the provisions
of this Act imposing certain requirements and prohibiting
certain practices in connection with real estate
settlements, there is any necessity for further legislation
in this area.
(b) If the Secretary concludes that there is necessity for
further legislation, he shall report to the Congress on the
specific practices or problems that should be the subject
of such legislation and the corrective measures that need
to be taken. In addition, the Secretary shall include in his
report-
(1) recommendations on the desirability of requiring
lenders of federally related mortgage loans to bear
the costs of particular real estate settlement services
that would otherwise be paid for by borrowers;
(2) recommendations on whether Federal regulation of
the charges for real estate settlement services in
federally related mortgage transactions is necessary
and desirable, and, if he concludes that such
regulation is necessary and desirable, a description
and analysis of the regulatory scheme he believes
Congress should adopt; and
(3) recommendations on the ways in which the Federal
Government can assist and encourage local
governments to modernize their methods for the
recordation of land title information, including the
feasibility of providing financial assistance or
incentives to local governments that seek to adopt
one of the model systems developed by the
Secretary in accordance with the provisions of
section 13 of this Act.
DEMONSTRATION TO DETERMINE FEASIBILITY OF
INCLUDING STATEMENTS OF SETTLEMENT COSTS
IN SPECIAL INFORMATION BOOKLETS
SEC. 15.
The Secretary shall, on a demonstration basis in selected
housing market areas, have prepared and included in the
special information booklets required to be furnished under
Section 5 of this Act, statements of the range of costs for
specific settlement services in such areas. Not later than
June 30, 1976, the Secretary shall transmit to the Congress
a full report on the demonstration conducted under this
section. Such report shall contain the Secretary's
assessment of the feasibility of preparing and including
settlement cost range statements for all housing market areas
in the special information booklets for such areas.
JURISDICTION OF COURTS
SEC. 16.
Any action to recover damages pursuant to the provisions of
section 6, 8, or 9 may be brought in the United States district
court for the district in which the property involved is located,
or in any other court of competent jurisdiction, within one year
from the date of the occurrence of the violation.
VALIDITY OF CONTRACTS AND LIENS
SEC. 17.
Nothing in this Act shall affect the validity or enforceability of
any sale or contract for the sale of real property or any loan,
loan agreement, mortgage, or lien made or arising in
connection with a federally related mortgage loan.
RELATION TO STATE LAWS
SEC. 18.
(a) This Act does not annul, alter, or affect, or exempt any
person subject to the provisions of this Act from
complying with, the laws of any State with respect to
settlement practices, except to the extent that those laws
are inconsistent with any provision of this Act, and then
only to the extent of the inconsistency. The Secretary is
authorized to determine whether such inconsistencies
exist. The Secretary may not determine that any State
law is inconsistent with any provision of this Act if the
Secretary determines that such law gives greater
protection to the consumer. In making these
determinations the Secretary shall consult with the
appropriate Federal agencies.
(b) No provision of this Act or of the laws of any State
imposing any liability shall apply to any act done or
omitted in good faith in conformity with any rule,
regulation, or interpretation thereof by the Secretary,
notwithstanding that after such act or omission has
occurred, such rule, regulation, or interpretation is
amended, rescinded, or determined by judicial or other
authority to be invalid for any reason.
EFFECTIVE DATE
SEC. 19.
The provisions of this Act, and the amendments made
thereby, shall become effective one hundred and eighty days
after the date of the enactment of this Act.
Approved December 22, 1974.
-----------------------
Legislative History:
House Reports: No. 93-1177 accompanying H.R. 9989 (Comm on
Banking and Currency) and No. 93-1526 (Comm. on Conference).
Senate Reports: No. 93-866 (Comm. on Banking, Housing and
Urban Affairs).
CONGRESSIONAL RECORD, Vol. 120 (1974)
July 16, 23, 24, considered and passed Senate.
Aug 14, considered and passed House, amended, in lieu of H.R. 9989
Dec. 9, Senate agreed to conference report.
Dec. 11, House agreed to conference report.
