Another real estate scam has been put to rest by a law that has just come in to effect January 1 of this year. This scam was one that hurt home buyers, and one the mortgage industry has gotten away with for years.

It has actually been a law for years that if you apply for a real estate loan, you are supposed to get an estimate of what that credit will cost you within 3 days of the day the loan application was taken.  For the most part the mortgage industry did that, except the estimate was just that. Merely an estimate and it was rarely correct.  If you’ve ever bought a home you know exactly what I’m talking about. It’s that piece of paper that puts you into shock when you look and see the $100,000.00 you’re borrowing to buy that $120,000.00 house is actually going to cost you $300,300. to pay back, or something like that. They figure in the APR which is the amount of the fees, etc. you are paying and shows what your loan may adjust to if you have an adjustable rate.

In the past, you’ve gone through the escrow period, you’ve gotten loan approval, you’re at the title company to sign off on the house you’re buying and low and behold, these are not the costs the lender had told you about. This is not the interest rate you applied for.  Welcome to one of the most stealth real estate scams ever run. You are at the perfect point where if you don’t agree to what’s before you in escrow, you don’t get your house. This was the perfect spot to insert a little “emotional blackmail”. This was an industry standard for many years and I personally have never seen one person in escrow refuse to sign.

Finally there is a new law to protect home buyers from this type of thing in the future. Oh sure, where there’s a will, there’s always a way, but for now it will be a little tougher. There is a “uniform” form to be filled out, lender fees cannot change between when you get the statement and when you get to escrow. All fees for closing costs where the lender has provided the service provider have to be within 10% of actual costs (which to me is still too much leeway). They still have to give you the estimate within the allotted 3 day time period from when they take your application, but for the most part there will be no more drastic and last minute changes in escrow.

This is supposed to provide a lot more transparency into actual fees the new buyer is paying, and to avoid any more of one of the oldest real estate scams on the books.

To see the new law, actually made in 2008 to take effect Jan. 1, 2010, just visit the HUD website, and click on RESPA. The FAQ’S may be easier to understand, and you can find them here RESPA.

If you have any comments or questions, don’t hesitate to leave a comment. If you’re looking to buy or sell a home, or if you’re a homeowner in trouble, visit my website at SiliconValleyRealEstateOnline.com and get some free information.