RESPA RequirementsABAD

Affiliated Business Arrangement Disclosure (ABAD): Compliance Guidelines for Brokers and Agents
Under the Real Estate Settlement Procedures Act (RESPA), there are specific disclosure requirements when it comes to settlement service providers (such as lenders, title companies, appraisers, real estate brokers, attorneys, home warranty companies, etc.). Here are the key ones:
1. Affiliated Business Arrangement Disclosure (ABAD)

• If a real estate brokerage, lender, or other settlement service provider refers a consumer to a company with which they have an ownership or other beneficial interest, they must provide a written Affiliated Business Arrangement Disclosure (ABAD) at or prior to the time of referral.
• The disclosure must:
  • Identify the nature of the relationship (ownership or other financial interest).
  • Disclose the estimated charge or range of charges generally made by the referred provider.
  • State that the consumer is not required to use the referred provider and is free to shop for services elsewhere.

2. Required Use Prohibition

• RESPA prohibits requiring a borrower to use a specific settlement service provider (except for attorney, credit reporting agency, or appraiser chosen by the lender to represent its own interests).

3. Kickbacks and Unearned Fees

• Settlement service providers must disclose any compensation arrangements that could create a conflict of interest.
• RESPA strictly prohibits kickbacks, referral fees, or fee-splitting between providers unless they are for actual, bona fide services rendered.

4. Good Faith Estimate (GFE) / Loan Estimate (LE) Disclosures

• Before TRID replaced the old GFE in 2015, lenders had to disclose a Good Faith Estimate of settlement charges.
• Now, under TRID (which incorporates RESPA and TILA), the Loan Estimate and Closing Disclosure are required.
  • These documents disclose the settlement service providers and their costs, including whether the consumer can shop for those services.

Overall, RESPA ensures that consumers are fully informed about settlement service relationships, costs, and their freedom of choice—while prohibiting abusive practices like kickbacks and forced use.