House Passes RESPA Home Warranty Clarification Act

On Wednesday, Aug. 1, 2012, the U.S. House of Representatives passed “The RESPA Home Warranty Clarification Act of 2011″ (H.R. 2446). The bipartisan legislation is designed to counter an erroneous Department of Housing and Urban Development interpretive rule that reversed decades of common understanding of RESPA.

Real estate professional and home warranty companies routinely partner to provide home warranties to consumers. For nearly two decades, the industry was led to believe there were no problems with this under RESPA. In 2008, HUD issued an informal letter that called into question the practice and led to several class action lawsuits. HUD compounded the problem by issuing an interpretive rule in 2010 that made the situation worse.

The effect of the HUD action was more lawsuits and the removal of the real estate professional from the warranty sales process. This is detrimental to consumers because the real estate professional is in the best position to explain the warranty and also service it should there be a problem.

According to legal experts, RESPA was not envisioned to cover warranties, which are not required to close a real estate and mortgage transaction. H.R. 2446 restates Congress’ intent that warranties are not covered by RESPA and also requires disclosure of any relationship between the real estate professional and the warranty company, a common practice already. NAR and its industry partners will continue to work on the legislation with the Senate.

 

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