In 1974 the federal government enacted the Real Estate Settlement Procedures Act (RESPA). The RESPA law enacted by Congress was a means to protect homebuyers against deceptive lending practices as well as to provide them with financial disclosures during their settlements. As a result, all lenders are required to use a standard HUD-1 Settlement Statement to notify borrowers of all their actual loan costs during a settlement (i.e. buying a home).
During the home-buying process settlements are final transactions that are between settlement agents or licensed attorneys. When a home is being sold the property seller needs to provide a written deed transferring ownership of the home to the buyer. If the buyer needed a loan to buy the home then their lender needs to provide them with all federal disclosures, as required by RESPA.
In a means to help homebuyers understand all their actual loan settlement costs and to encourage transparency, the federal government has endorsed the use of the HUD-1 for all loan transactions regarding real estate purchases. The HUD-1 Settlement Statement is published by the U.S. Department of Housing and Urban Development which is the official settlement form.
To see a HUD-1 statement click on this link: http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf
RESPA also requires that all lenders give homebuyers, within three days of applying for their home mortgage loan, HUD's official "Settlement Cost Booklet".
Furthermore, the federal government also encourages homebuyers to shop around for settlement services and fees. These fees and charges are listed on the HUD-1 Settlement Statement and include items such as lending costs, settlement fees, borrower's costs, and tax fees to name just a few.
In 2009, HUD declared that the Natural Hazard Disclosure Statement ("NHDS") is a settlement service and thus it also needed to be listed on the HUD-1. Since the State of California legally requires a real estate transaction to include the disclosure of natural hazards before closing escrow, and since the NHDS is now deemed a settlement service that must be added to the HUD-1, failure to do so is a violation of RESPA.
This article is intended for informational purposes only. Individuals should consult with qualified professionals on each individual's particular situation. This article should not be construed as legal advice.