| Real Estate Settlement Procedures Act |
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Purpose It was created because various companies associated with the buying and selling of real estate, such as lenders, realtors, and title insurance companies were often engaging in providing undisclosed kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait and switch tactics. For example, a lender advertising a home loan might have advertised the loan with a 5% interest rate, but then when one applies for the loan one is told that one must use the lender's affiliated title insurance company and pay $5,000 for the service (whereas the normal rate is $1,000). The title company would then have paid $4,000 to the lender. This was made illegal. Restrictions The Act prohibits kickbacks between different parties in the real estate settlement process, and also requires lenders to provide a good faith estimate for all the costs of a particular loan.
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