California Real Estate Broker ExaminationPractice of Real Estate and Mandated DisclosuresMedium
A real estate transaction involves a loan secured by a dwelling. The lender requires the borrower to obtain homeowner's insurance from a specific insurance company that is affiliated with the lender, despite the borrower finding a cheaper, comparable policy elsewhere. This practice is most likely a violation of which federal law?
- AThe Fair Housing Act
- BThe Equal Credit Opportunity Act (ECOA)
- CThe Truth in Lending Act (TILA)
- DThe Real Estate Settlement Procedures Act (RESPA)
Show answer & explanationAnswer & explanation
Correct answer: D. The Real Estate Settlement Procedures Act (RESPA)
RESPA prohibits kickbacks and unearned fees, and specifically addresses affiliated business arrangements. Requiring a borrower to use an affiliated service provider, like an insurance company, can be a violation if not properly disclosed or if it limits the borrower's choice, which is often tied to the anti-tying provisions of RESPA.
Why the other options are wrong
- A. The Fair Housing Act prohibits discrimination in housing, unrelated to the choice of insurance providers for a loan.
- B. ECOA prohibits discrimination in credit, not mandatory use of affiliated services.
- C. TILA focuses on disclosure of credit costs, not on mandating specific service providers.
RESPA Section 8 (Affiliated Business)
Section of RESPA prohibiting kickbacks and unearned fees, and regulating affiliated business arrangements to ensure consumer choice and proper disclosure.
- Prohibits requiring use of specific providers for settlement services.
- Requires disclosure of affiliated business arrangements.
- Aims to prevent anti-competitive practices and protect consumers from inflated costs.
Memory trick: Loan Laws: RESPA Stops the Tied-Up Flaws!