- HUD oversees RESPA, a federal law that requires mortgage lenders and banks and brokers to disclose required information to home borrowers or purchasers. These laws are necessary to help home buyers have information readily available so that they can be prepared and make better buying decisions. Prior to RESPA, many unscrupulous mortgage and land deals took place because there were no controls to keep it from happening.
- Most disclosure laws pertain to informing home buyers about things such radon emissions and chemical spills on the property; defects in the property (the condition of the property)---the land and the home itself---that could cause them to rethink their decision or decide if they want the risk. Disclosure also pertains to real estate escrow accounts. The law, as well as mandating what should happen prior to a real estate sale, also dictates what happens if something goes wrong, such as ability to sue and recover legal fees. Disclosures also have to happen when brokers and lenders and real estate agents have close personal working relationships with one another that could encourage kickbacks, fee-padding and overcharges that inflate real estate settlement costs above and beyond what are reasonably accepted. The same laws apply, whether the property is being sold or foreclosed upon.
- Real estate, except for HUD and RESPA, is a state-governed matter and varies per state in which the actual property is located. Look to your state's property laws for specific guidance on what disclosures are required besides the ones HUD makes available.
- Puffery is making verbal claims about homes and their real or aesthetic value that turn out not to be true, such as how "great" or "wonderful" a neighborhood is. Purchasers would do well to do their homework and decide for themselves how "great" a neighborhood is. Unethical sales tactics that misrepresent certain factors about the property are often used by real estate agents. RESPA, of federal guidelines, are in place to oversee the states' stance on these matters and will overrule state law, if and when necessary.
- Disclosures can be verbal; many are required to be in writing. Sellers of property are required to make certain disclosures in writing; lenders are required to make certain disclosures in writing. In all real estate deals, there are only two important disclosure documents: The Promissory Note and the Deed, or Mortgage. The rest of the documents are what is commonly known as "junk" docs---not because they are "junk," but because they are the minimum information you are required to have by law. In any case, it is always recommended to have your own lawyer look over these documents before you close. All parties to the transaction, with the exception of the purchaser, represent the lender's interests. If the closing fails, no one makes a dime and the purchaser cannot be billed for out-of-pocket expenses that vendors paid upfront. The closing agent or attorney, the real estate agent, the mortgage broker, the builder; and, for the most part, the seller, are on one side of the equation: The lender's.
