RESPA violations could land you in prison

The Real Estate Settlement Procedures Act  (RESPA) dictates that disclosure forms must clearly itemize all of the charges that a buyer and that a seller must pay at settlement. If the settlement statement does not accurately reflect all of the charges attributable to each party, we have a RESPA violation.

One of the RESPA requirements is for a closing agent to use a single integrated disclosure form that satisfies the disclosure requirements under both RESPA and the Truth In Lending Act. In today’s settlements, these disclosures are provided through the TIL disclosure and the HUD-1 Settlement Statement.

When we talk about RESPA violations, most people immediately think of the anti-kickback provisions and the prohibitions against paying referral fees. It is also a RESPA violation to falsify the information on the settlement sheet. What are some of the consequences that attorneys, title agents and real estate agents can face for participating in real estate transactions where the settlement sheet does not accurately reflect what charges have been paid and by whom?

Two Pennsylvania mortgage brokers were recently convicted of mortgage fraud for their part in a scheme in which they promised financially distressed homeowners they would find an investor to help them save their home. They and other co-conspirators falsified settlement statements and other loan documents in order to hide the nature of the scheme until after the loan was funded. One broker was sentenced to five years in prison ordered to forfeit $400,000, fined $12,500, and pay a special assessment of $1,000. The other broker is awaiting sentencing.

A mortgage broker from Missouri was recently indicted in an alleged mortgage fraud scheme that included falsifying HUD-1 to conceal the fact that proceeds from the sale of the property were diverted back to the buyer, and used these funds to finance the borrower’s down payment for the same transaction. He faces 32 years in prison and up to a $1 million fine.

A New Jersey branch of Wells Fargo Home Mortgage saw one of its mortgage brokers plead guilty to conspiring with nine others to submit mortgage loans to his employer for unqualified straw purchasers based in part upon false information contained in HUD-1 statements. He faces up to 30 years in prison and up to a $1 million fine.

In Connecticut, a mortgage broker faces up to 30 years in prison for his role in a mortgage fraud scheme in which he provided false information to mortgage lenders, including verifications of income, verifications of down payments, and false HUD-1 forms.

These are extreme situations with serious consequences. Before you minimize the value that these cases might offer you, think for a moment how many times YOU have signed a settlement sheet because your seller (for example) could not or did not want to come to settlement. Have you ever signed a HUD-1 that did not include some payment, credit, or compensation that was done “off the sheet?” Every time you did that, you violated RESPA.

The authorities are aggressively prosecuting RESPA violations, and those who continue to disregard the obligations of RESPA could face serious fines, loss of their license to practice their profession, and even prison time. Before you decide to take action, please consult with an attorney who understands what RESPA permits and what it prohibits.

Mr. Woodburn is an attorney with Caldwell & Kearns and serves as associate counsel to PAR. Mr. Swartz is also an attorney with Caldwell & Kearns.  A substantial portion of their practices is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. They routinely counsel employers on employee relations issues as two of the voices of the PAR Legal Hotline. They may be reached at www.cklegal.net.