California real estate disclosure laws California Real Estate Disclosures | Page 59

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Affiliated Business Arrangements. Several businesses that offer
settlement services may be owned or controlled by a common parent.
These businesses are known as “affiliates.” When a lender, a real estate
broker, a real estate broker acting as a mortgage broker, or other
participant in the settlement or loan escrow refers the borrower to an
affiliate for a settlement service (e.g., a real estate broker refers a buyer
to a mortgage broker affiliate), RESPA requires the referring party to
give the borrower an Affiliated Business Arrangement Disclosure. This
form states that the buyer/borrower is generally not required, with
certain exceptions, to use the affiliate and is free to shop for other
service providers. Affiliated business arrangements may also exist
between creditors/lenders and settlement service providers and may
include continuing business relationships arising from agreements
between the parties.

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HUD-1 Settlement Statement. One business day before the settlement
or the anticipated close of the loan escrow, the borrower has the right to
inspect the proposed HUD-1 Settlement Statement. This statement
itemizes the services provided and the fees charged and the costs and
expenses imposed. This form is filled out by the settlement agent or the
escrow holder who is conducting the settlement or the escrow. The fully
completed and final HUD-1 Settlement Statement generally must be
delivered or mailed to the borrower on or before the settlement or the
close of the loan escrow. In cases where the principals of the settlement
or of the escrow do not meet, the settlement or escrow agent will mail
the HUD-1 statement after settlement or loan closing.

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Escrow Account Operation and Disclosures. At the settlement or loan
closing or within the next 45 days, the loan servicer must give an initial
escrow account statement. The form will show all of the payments
which are expected to be deposited into the escrow account and all of
the disbursements which are expected to be made from the escrow
account during the year ahead. The lender or servicer will annually
review the escrow account (a trust account maintained for the future
payment of insurance premiums and property taxes) and send a
disclosure each year which shows the prior year’s activity and any
adjustments necessary in the escrow payments that will be made in the
forthcoming year.

RESPA prohibits any “kickbacks” or the payment of unearned fees to any
person or entity (including a real estate broker) as compensation for referrals
to any real estate settlement/escrow service provider. This includes non-cash
inducement offers to brokers such as paid vacations. RESPA does not
prohibit a lender or settlement service provider from offering an incentive to
a borrower, provided that the incentive is not based on the borrower

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