Which practice does RESPA prohibit?

RESPA, the Real Estate Settlement Procedures Act, is primarily designed to ensure transparency in real estate transactions and to protect consumers from abusive practices within the real estate settlement process. One key aspect of RESPA is the prohibition of kickbacks and referral fees between settlement service providers.

Kickbacks for referrals are payments made to someone for directing business to another person, which can create conflicts of interest and inflate the costs involved in real estate transactions. RESPA explicitly prohibits any form of compensation that would influence the decision-making of consumers regarding their choice of service providers, such as title companies or mortgage brokers. This prohibition helps to maintain fair competition and ensures that consumers receive unbiased advice and options when selecting services related to their real estate transactions.

In contrast, disclosures about lending criteria, contract cancellations, and flipping properties do not fall under the prohibited practices outlined by RESPA. Disclosures are essential for informing consumers, while contract cancellations are a standard part of real estate agreements. Flipping properties, while it can raise other regulatory concerns, is not specifically addressed by RESPA in this context.