The residential housing boom has involved increasing numbers of Americans in the settlement or "closing" process, a legal, financial and emotional ordeal for many - especially the first-time homeowner.
The maze of brokers' commissions, mortgage financing, title searches and insurance, tax escrows, legal representation and the recording of deeds with local governments can be both complicated and costly. Each step brings a charge to either the seller or the buyer or both.
To guide consumers through the labyrinth, the federal housing agency has prepared an informative brochure which explains the settlement process as well as the provisions of the two-year-old Real Estate Settlement Procedures Act. The statute was designed to standardize property documents and protect buyers in transferring property.
RESPA covers most residential mortgage loans used to finance the purchase of one-to-four-family houses condominiums or cooperative apartments. It also covers the purchase of lots with mobile homes or a lot on which an individual will build a house or place a mobile home, according to the Department of Housing and Urban Development, which supervises RESPA.
A HUD brochure says that RESPA was designed to provide information "to take the mystery out of the settlement process."
The 31-page booklet (Settlement Costs and You - a HUD Guide for Home Buyers) guides the home purchaser from the time the decision to buy is made through the financing process to the settlement table, where the transaction is completed.
The booklet suggests questions to be asked of lenders, attorneys and other to clarify what services they will provide for the charges quoted. It also containes information on the rights and remedies available to buyers under RESPA and alerts individuals to unfair or illegal practices.
One of the key parts of the booklet is an item-by-item explanation of settlement services and costs, with sample forms and worksheets to make cost comparisons possible.
Real estate attorneys agreed that one of the principal benefits of RESPA is the uniform settlement sheet it requires for all residential transactions, replacing the confusing variations that had been effect in different areas for years. "The consumer will see the same sheets wherever he goes," a Northern Virginia property attorney said.
But the scope of RESPA goes farther than the booklet and its procedures.
One section of the act contains antikickback provisions and lists the criminal penalties.
The law prohibits anyone from giving or taking a fee, kickback, or anything of value under an agreement that business will be referred to a specific person or organization. It is also illegal to charge or accept a fee or part of a fee where no service has actually been performed.
The Department of Justice is stepping up enforcement activity regarding kickbacks. Price fixing and illegal referral fee complaints are under investigation by the FBI and U.S. attorneys' offices around the nation.
Some of the cases filed so far involve title insurance companies tht do not process insurance but are apid fees, real estate brokers or sales agents directing persons to certain lenders or attorneys and accepting a fee for such referral.
Attorneys in the metropolitan area said most sales agents provide buyers with the names of several attorneys on the basis of past records of satisfactory service.
While the Justice Department is placing its enforcement clout behind RESPA, HUD also is moving to assure the fulfillment of the statute's mandate.
The agency will ask for research proposals soon on the establishment of model deed recording systems for local governemtns. Simplifying the two basic recording systems now in use in this country would reduce transfer costs for both the buyer and local governments and improve access to public records.
While the act seeks to encourage greater competition among realtors and others involved in the purchase process, metropolitan area lenders, title insurance executives and settlement attorneys say home purchasing procedures and costs already are competitive in this aprt of the nation.
William MacHale, a real estate attorney in Montgomery County, said he disagrees with the RESPA handbook's advice "to shop for settlement services to ensure that you will receive good value for your money."
McHale said he considers himself a property expert and sets his fees on that basis. "And the best is not always the cheapest," he added, "whether it be an automobile, a refrigerator or even a newspaper ad. You usually get what you pay for."
In terms of lawyers' closing costs in Montgomery County, MacHale insisted that there is considerable competition. He recently lowered his own fee schedule as a result - but he does not make it public, except to a potential client.
He said fees usually are based on the price of the property involved but tht the legal work on a $50,000 house in Takoma Park might turn out to be far more extensive and time-consuming that a settlement on a $150,000 house in Bethesda or Potomac.
MacHale said he customarily represents both buyer and seller in a transaction. In the "rare" case where there is a real problem, he said he would advise the seller to retain his own attorney.
Attorney Beau James Brincefield of Northern Virginia said the real thrust of RESPA should be to "give the purchaser the opportunity to compare prices of financing." He said few purchasers "loan shop." Most are willing to accept what the real estate broker can arrange.
As a matter of actual practice, most large brokerage firms dealing in residential properties offer financing help to prospective buyers in order to facilitate sales.
Brincefield said one of the current settlement problems is obtaining prompt payments. Attorneys, brokers, title companies and realtors have been working to decrease the lag between the time the prior lender on a resale house is paid off and the time that the new lender takes over the loan. He cited delays of weeks during which the seller might still be liable for mortgage interest while the buyer is paying interest on a new loan. The overlap, he said, is caused by mail service, heavy work loads delays, check clearing problems or unwillingness of the new lender to take over the loan until documents are reworded.
Brincefield said the purchaser must expect to pay for several hours of an attorney's time for pre-settlement and settlement paperwork.
Josephine Reynolds, a vice president of National Permanent Federal Savings and Loan Association, said borrowers are given an estimate of closing costs at the time an application for a loan is filed. Equal lending opportunity and anti-discrimination protections are outlined at the same time.
But she said many buyers continue to ask questions about borrowing that are answered in the RESPA booklet.