(a) General. This section sets out the requirements for an escrow
account that a lender establishes in connection with a federally related
mortgage loan. It sets limits for escrow accounts using calculations
based on monthly payments and disbursements within a calendar year.
If an escrow account involves biweekly or any other payment period,
the requirements in this section shall be modified accordingly. A
Public Guidance Document entitled “Biweekly Payments—Example” provides
examples of biweekly accounting and a Public Guidance Document entitled
“Annual Escrow Account Disclosure Statement—Example” provides examples
of a 3-year accounting cycle that may be used in accordance with paragraph
(c)(9) of this section. A Public Guidance Document entitled “Consumer
Disclosure for Voluntary Escrow Account Payments” provides a model
disclosure format that originators and servicers are encouraged, but
not required, to provide to consumers when the originator or servicer
anticipates a substantial increase in disbursements from the escrow account
after the first year of the loan. The disclosures in that model format
may be combined with or included in the Initial Escrow Account Statement
required in section 1024.17(g).
6-1423.1
(b) Definitions. As used in this section:
Aggregate (or) composite analysis, hereafter
called aggregate analysis, means an accounting method a servicer
uses in conducting an escrow account analysis by computing the sufficiency
of escrow account funds by analyzing the account as a whole. Appendix
E to this part sets forth examples of aggregate escrow account analyses.
Annual escrow account statement means a statement containing all of the information set forth in
section 1024.17(i). As noted in section 1024.17(i), a servicer shall
submit an annual escrow account statement to the borrower within 30
calendar days of the end of the escrow account computation year, after
conducting an escrow account analysis.
6-1423.11
Cushion
or reserve (hereafter cushion) means funds that a servicer may
require a borrower to pay into an escrow account to cover unanticipated
disbursements or disbursements made before the borrower’s payments
are available in the account, as limited by section 1024.17(c).
6-1423.12
Deficiency is the amount of a negative balance
in an escrow account. As noted in section 1024.17(f), if a servicer
advances funds for a borrower, then the servicer must perform an escrow
account analysis before seeking repayment of the deficiency.
Delivery means the placing of a document in the
United States mail, first-class postage paid, addressed to the last
known address of the recipient. Hand delivery also constitutes delivery.
Disbursement date means the
date on which the servicer actually pays an escrow item from the escrow
account.
6-1423.13
Escrow account means any account that a servicer
establishes or controls on behalf of a borrower to pay taxes, insurance
premiums (including flood insurance), or other charges with respect
to a federally related mortgage loan, including charges that the borrower
and servicer have voluntarily agreed that the servicer should collect
and pay. The definition encompasses any account established for this
purpose, including a “trust account”, “reserve account”, “impound
account”, or other term in different localities. An “escrow account”
includes any arrangement where the servicer adds a portion of the
borrower’s payments to principal and subsequently deducts from principal
the disbursements for escrow account items. For purposes of this section,
the term “escrow account” excludes any account that is under the borrower’s
total control.
Escrow account
analysis means the accounting that a servicer conducts in the
form of a trial running balance for an escrow account to:
(1) Determine the appropriate target balances;
(2) Compute the borrower’s
monthly payments for the next escrow account computation year and
any deposits needed to establish or maintain the account; and
(3) Determine whether shortages,
surpluses or deficiencies exist.
6-1423.14
Escrow account computation year is a 12-month period
that a servicer establishes for the escrow account beginning with
the borrower’s initial payment date. The term includes each 12-month
period thereafter, unless a servicer chooses to issue a short year
statement under the conditions stated in section 1024.17(i)(4).
Escrow account item or separate item means any separate expenditure category, such as
“taxes” or “insurance”, for which funds are collected in the escrow
account for disbursement. An escrow account item with installment
payments, such as local property taxes, remains one escrow
account item regardless of multiple disbursement dates to the tax
authority.
6-1423.15
Initial escrow account statement means the
first disclosure statement that the servicer delivers to the borrower
concerning the borrower’s escrow account. The initial escrow account
statement shall meet the requirements of section 1024.17(g) and be
in substantially the format set forth in section 1024.17(h).
Installment payment means one of two or more payments
payable on an escrow account item during an escrow account computation
year. An example of an installment payment is where a jurisdiction
bills quarterly for taxes.
6-1423.16
Payment
due date means the date each month when the borrower’s monthly
payment to an escrow account is due to the servicer. The initial payment
date is the borrower’s first payment due date to an escrow account.
Penalty means a late charge
imposed by the payee for paying after the disbursement is due. It
does not include any additional charge or fee imposed by the payee
associated with choosing installment payments as opposed to annual
payments or for choosing one installment plan over another.
Pre-accrual is a practice some servicers use to
require borrowers to deposit funds, needed for disbursement and maintenance
of a cushion, in the escrow account some period before the disbursement
date. Pre-accrual is subject to the limitations of section 1024.17(c).
Shortage means an amount
by which a current escrow account balance falls short of the target
balance at the time of escrow analysis.
Single-item analysis means an accounting method
servicers use in conducting an escrow account analysis by computing
the sufficiency of escrow account funds by considering each escrow
item separately. Appendix E to this part sets forth examples of single-item
analysis.
Submission (of
an escrow account statement) means the delivery of the statement.
Surplus means an amount by
which the current escrow account balance exceeds the target balance
for the account.
System of recordkeeping means the servicer’s method of keeping information that reflects
the facts relating to that servicer’s handling of the borrower’s escrow
account, including, but not limited to, the payment of amounts from
the escrow account and the submission of initial and annual escrow
account statements to borrowers.
6-1423.19
Target
balance means the estimated month end balance in an escrow account
that is just sufficient to cover the remaining disbursements from
the escrow account in the escrow account computation year, taking
into account the remaining scheduled periodic payments, and a cushion,
if any.
Trial running balance means the accounting process that derives the target balances over
the course of an escrow account computation year. Section 1024.17(d)
provides a description of the steps involved in performing a trial
running balance.
6-1423.2
(c) Limits
on payments to escrow accounts.
(1) A lender or servicer (hereafter servicer)
shall not require a borrower to deposit into any escrow account, created
in connection with a federally related mortgage loan, more than the
following amounts:
(i) Charges
at settlement or upon creation of an escrow account. At the time
a servicer creates an escrow account for a borrower, the servicer
may charge the borrower an amount sufficient to pay the charges respecting
the mortgaged property, such as taxes and insurance, which are attributable
to the period from the date such payment(s) were last paid until the
initial payment date. The “amount sufficient to pay” is computed so
that the lowest month end target balance projected for the escrow
account computation year is zero (-0-) (see Step 2 in Appendix E to
this part). In addition, the servicer may charge the borrower a cushion that
shall be no greater than one-sixth (⅙) of the estimated total annual
payments from the escrow account.
(ii) Charges
during the life of the escrow account. Throughout the life of
an escrow account, the servicer may charge the borrower a monthly
sum equal to one-twelfth (1⁄12) of the total
annual escrow payments which the servicer reasonably anticipates paying
from the account. In addition, the servicer may add an amount to maintain
a cushion no greater than one-sixth (⅙) of the estimated total annual
payments from the account. However, if a servicer determines through
an escrow account analysis that there is a shortage or deficiency,
the servicer may require the borrower to pay additional deposits to
make up the shortage or eliminate the deficiency, subject to the limitations
set forth in section 1024.17(f).
6-1423.21
(2) Escrow analysis
at creation of escrow account. Before establishing an escrow
account, the servicer must conduct an escrow account analysis to determine
the amount the borrower must deposit into the escrow account (subject
to the limitations of paragraph (c)(1)(i) of this section), and the
amount of the borrower’s periodic payments into the escrow account
(subject to the limitations of paragraph (c)(1)(ii) of this section).
In conducting the escrow account analysis, the servicer must estimate
the disbursement amounts according to paragraph (c)(7) of this section.
Pursuant to paragraph (k) of this section, the servicer must use a
date on or before the deadline to avoid a penalty as the disbursement
date for the escrow item and comply with any other requirements of
paragraph (k) of this section. Upon completing the initial escrow
account analysis, the servicer must prepare and deliver an initial
escrow account statement to the borrower, as set forth in paragraph
(g) of this section. The servicer must use the escrow account analysis
to determine whether a surplus, shortage, or deficiency exists and
must make any adjustments to the account pursuant to paragraph (f)
of this section.
6-1423.22
(3) Subsequent
escrow account analyses. For each escrow account, the servicer
must conduct an escrow account analysis at the completion of the escrow
account computation year to determine the borrower’s monthly escrow
account payments for the next computation year, subject to the limitations
of paragraph (c)(1)(ii) of this section. In conducting the escrow
account analysis, the servicer must estimate the disbursement amounts
according to paragraph (c)(7) of this section. Pursuant to paragraph
(k) of this section, the servicer must use a date on or before the
deadline to avoid a penalty as the disbursement date for the escrow
item and comply with any other requirements of paragraph (k) of this
section. The servicer must use the escrow account analysis to determine
whether a surplus, shortage, or deficiency exists, and must make any
adjustments to the account pursuant to paragraph (f) of this section.
Upon completing an escrow account analysis, the servicer must prepare
and submit an annual escrow account statement to the borrower, as
set forth in paragraph (i) of this section.
6-1423.23
(4) Aggregate
accounting required. All servicers must use the aggregate accounting
method in conducting escrow account analyses.
6-1423.24
(5) Cushion. The cushion must be no greater than one-sixth (⅙) of the estimated
total annual disbursements from the escrow account.
(6) Restrictions
on pre-accrual. A servicer must not practice pre-accrual.
6-1423.25
(7) Servicer
estimates of disbursement amounts. To conduct an escrow account
analysis, the servicer shall estimate the amount of escrow account items
to be disbursed. If the servicer knows the charge for an escrow item
in the next computation year, then the servicer shall use that amount
in estimating disbursement amounts. If the charge is unknown to the
servicer, the servicer may base the estimate on the preceding year’s
charge, or the preceding year’s charge as modified by an amount not
exceeding the most recent year’s change in the national Consumer Price
Index for all urban consumers (CPI, all items). In cases of unassessed
new construction, the servicer may base an estimate on the assessment
of comparable residential property in the market area.
6-1423.26
(8) Provisions in federally related mortgage documents. The servicer
must examine the federally related mortgage loan documents to determine
the applicable cushion for each escrow account. If any such documents
provide for lower cushion limits, then the terms of the loan documents
apply. Where the terms of any such documents allow greater payments
to an escrow account than allowed by this section, then this section
controls the applicable limits. Where such documents do not specifically
establish an escrow account, whether a servicer may establish an escrow
account for the loan is a matter for determination by other Federal
or State law. If such documents are silent on the escrow account limits
and a servicer establishes an escrow account under other Federal or
State law, then the limitations of this section apply unless applicable
Federal or State law provides for a lower amount. If such documents
provide for escrow accounts up to the RESPA limits, then the servicer
may require the maximum amounts consistent with this section, unless
an applicable Federal or State law sets a lesser amount.
6-1423.27
(9) Assessments for periods longer than one year. Some escrow account
items may be billed for periods longer than one year. For example,
servicers may need to collect flood insurance or water purification
escrow funds for payment every three years. In such cases, the servicer
shall estimate the borrower’s payments for a full cycle of disbursements.
For a flood insurance premium payable every 3 years, the servicer
shall collect the payments reflecting 36 equal monthly amounts. For
two out of the three years, however, the account balance may not reach
its low monthly balance because the low point will be on a three-year
cycle, as compared to an annual one. The annual escrow account statement
shall explain this situation (see example in the Public Guidance Document
entitled “Annual Escrow Account Disclosure Statement—Example”, available
in accordance with section 1024.3).
6-1423.28
(d) Methods of escrow account
analysis.
(1) The following sets forth the steps
servicers must use to determine whether their use of aggregate analysis
conforms with the limitations in section 1024.17(c)(1). The steps
set forth in this section result in maximum limits. Servicers may
use accounting procedures that result in lower target balances. In
particular, servicers may use a cushion less than the permissible
cushion or no cushion at all. This section does not require the use
of a cushion.
6-1423.29
(2) Aggregate
analysis.
(i) In conducting the escrow account
analysis using aggregate analysis, the target balances may not exceed
the balances computed according to the following arithmetic operations:
(A) The servicer first projects a trial balance for the account as
a whole over the next computation year (a trial running balance).
In doing so the servicer assumes that it will make estimated disbursements
on or before the earlier of the deadline to take advantage of discounts,
if available, or the deadline to avoid a penalty. The servicer
does not use pre-accrual on these disbursement dates. The servicer
also assumes that the borrower will make monthly payments equal to
one-twelfth of the estimated total annual escrow account disbursements.
(B) The servicer then examines
the monthly trial balances and adds to the first monthly balance an
amount just sufficient to bring the lowest monthly trial balance to
zero, and adjusts all other monthly balances accordingly.
(C) The servicer then adds to
the monthly balances the permissible cushion. The cushion is two months
of the borrower’s escrow payments to the servicer or a lesser amount
specified by state law or the mortgage document (net of any increases
or decreases because of prior year shortages or surpluses, respectively).
(ii) Lowest monthly balance. Under aggregate
analysis, the lowest monthly target balance for the account shall
be less than or equal to one-sixth of the estimated total annual escrow
account disbursements or a lesser amount specified by state law or
the mortgage document. The target balances that the servicer derives
using these steps yield the maximum limit for the escrow account.
Appendix E to this part illustrates these steps.
6-1423.31
(e) Transfer of servicing.
(1) If the new servicer changes
either the monthly payment amount or the accounting method used by
the transferor (old) servicer, then the new servicer shall provide
the borrower with an initial escrow account statement within 60 days
of the date of servicing transfer.
(i) Where a new servicer
provides an initial escrow account statement upon the transfer of
servicing, the new servicer shall use the effective date of the transfer
of servicing to establish the new escrow account computation year.
(ii) Where the new
servicer retains the monthly payments and accounting method used by
the transferor servicer, then the new servicer may continue to use
the escrow account computation year established by the transferor
servicer or may choose to establish a different computation year using
a short-year statement. At the completion of the escrow account computation
year or any short year, the new servicer shall perform an escrow analysis
and provide the borrower with an annual escrow account statement.
6-1423.32
(2) The new servicer shall treat shortages,
surpluses and deficiencies in the transferred escrow account according
to the procedures set forth in section 1024.17(f).
6-1423.33
(f) Shortages, surpluses, and
deficiencies requirements.
(1) Escrow account
analysis. For each escrow account, the servicer shall conduct
an escrow account analysis to determine whether a surplus, shortage
or deficiency exists.
(i) As noted in section 1024.17(c)(2)
and (3), the servicer shall conduct an escrow account analysis upon
establishing an escrow account and at completion of the escrow account
computation year.
(ii) The servicer may conduct an escrow account analysis at other
times during the escrow computation year. If a servicer advances funds
in paying a disbursement, which is not the result of a borrower’s
payment default under the underlying mortgage document, then the servicer
shall conduct an escrow account analysis to determine the extent of
the deficiency before seeking repayment of the funds from the borrower
under this paragraph (f).
6-1423.34
(2) Surpluses.
(i) If an escrow account analysis discloses
a surplus, the servicer shall, within 30 days from the date of the
analysis, refund the surplus to the borrower if the surplus is greater
than or equal to 50 dollars ($50). If the surplus is less than 50
dollars ($50), the servicer may refund such amount to the borrower,
or credit such amount against the next year’s escrow payments.
(ii) These provisions
regarding surpluses apply if the borrower is current at the time of
the escrow account analysis. A borrower is current if the servicer
receives the borrower’s payments within 30 days of the payment due
date. If the servicer does not receive the borrower’s payment within
30 days of the payment due date, then the servicer may retain the
surplus in the escrow account pursuant to the terms of the federally
related mortgage loan documents.
(iii) After an initial or annual escrow
analysis has been performed, the servicer and the borrower may enter
into a voluntary agreement for the forthcoming escrow accounting year
for the borrower to deposit funds into the escrow account for that
year greater than the limits established under paragraph (c) of this
section. Such an agreement shall cover only one escrow accounting
year, but a new voluntary agreement may be entered into after the
next escrow analysis is performed. The voluntary agreement may not
alter how surpluses are to be treated when the next escrow analysis
is performed at the end of the escrow accounting year covered by the
voluntary agreement.
6-1423.35
(3) Shortages.
(i) If an escrow account analysis discloses
a shortage of less than one month’s escrow account payment, then the
servicer has three possible courses of action:
(A) The servicer
may allow a shortage to exist and do nothing to change it;
(B) The servicer may require the
borrower to repay the shortage amount within 30 days; or
(C) The servicer may require
the borrower to repay the shortage amount in equal monthly payments
over at least a 12-month period.
(ii) If an escrow account analysis discloses
a shortage that is greater than or equal to one month’s escrow account
payment, then the servicer has two possible courses of action:
(A) The servicer may allow a shortage to exist and do nothing to
change it; or
(B) The
servicer may require the borrower to repay the shortage in equal monthly
payments over at least a 12-month period.
6-1423.36
(4) Deficiency. If the escrow account analysis confirms a deficiency, then the servicer
may require the borrower to pay additional monthly deposits to the
account to eliminate the deficiency.
(i) If the deficiency is
less than one month’s escrow account payment, then the servicer:
(A) May allow the deficiency to exist and do nothing to change it;
(B) May require the borrower
to repay the deficiency within 30 days; or
(C) May require the borrower to repay the
deficiency in 2 or more equal monthly payments.
(ii) If the deficiency
is greater than or equal to 1 month’s escrow payment, the servicer
may allow the deficiency to exist and do nothing to change it or may
require the borrower to repay the deficiency in two or more equal
monthly payments.
(iii) These provisions regarding deficiencies apply if the borrower
is current at the time of the escrow account analysis. A borrower
is current if the servicer receives the borrower’s payments within
30 days of the payment due date. If the servicer does not receive
the borrower’s payment within 30 days of the payment due date, then
the servicer may recover the deficiency pursuant to the terms of the
federally related mortgage loan documents.
6-1423.37
(5) Notice of
shortage or deficiency in escrow account. The servicer shall
notify the borrower at least once during the escrow account
computation year if there is a shortage or deficiency in the escrow
account. The notice may be part of the annual escrow account statement
or it may be a separate document.
6-1423.38
(g) Initial escrow account statement.
(1) Submission at settlement, or within 45 calendar days of settlement. As noted in section 1024.17(c)(2), the servicer shall conduct an
escrow account analysis before establishing an escrow account to determine
the amount the borrower shall deposit into the escrow account, subject
to the limitations of section 1024.17(c)(1)(i). After conducting the
escrow account analysis for each escrow account, the servicer shall
submit an initial escrow account statement to the borrower at settlement
or within 45 calendar days of settlement for escrow accounts that
are established as a condition of the loan.
(i) The initial escrow
account statement shall include the amount of the borrower’s monthly
mortgage payment and the portion of the monthly payment going into
the escrow account and shall itemize the estimated taxes, insurance
premiums, and other charges that the servicer reasonably anticipates
to be paid from the escrow account during the escrow account computation
year and the anticipated disbursement dates of those charges. The
initial escrow account statement shall indicate the amount that the
servicer selects as a cushion. The statement shall include a trial
running balance for the account.
(ii) Pursuant to section 1024.17(h)(2),
the servicer may incorporate the initial escrow account statement
into the HUD-1 or HUD-1A settlement statement. If the servicer does
not incorporate the initial escrow account statement into the HUD-1
or HUD-1A settlement statement, then the servicer shall submit the
initial escrow account statement to the borrower as a separate document.
6-1423.39
(2) Time of submission of initial escrow account statement for an escrow
account established after settlement. For escrow accounts established
after settlement (and which are not a condition of the loan), a servicer
shall submit an initial escrow account statement to a borrower within
45 calendar days of the date of establishment of the escrow account.
6-1423.4
(h) Format for initial escrow
account statement.
(1) The format and a completed example
for an initial escrow account statement are set out in Public Guidance
Documents entitled “Initial Escrow Account Disclosure Statement—Format”
and “Initial Escrow Account Disclosure Statement—Example,” available
in accordance with the direction in the definition of Public Guidance
Documents in section 1024.2.
(2) Incorporation
of initial escrow account statement into HUD-1 or HUD-1A settlement
statement. Pursuant to section 1024.9(a)(11), a servicer may
add the initial escrow account statement to the HUD-1 or HUD-1A settlement
statement. The servicer may include the initial escrow account statement
in the basic text or may attach the initial escrow account statement
as an additional page to the HUD-1 or HUD-1A settlement statement.
(3) Identification of payees. The initial escrow
account statement need not identify a specific payee by name if it
provides sufficient information to identify the use of the funds.
For example, appropriate entries include: county taxes, hazard insurance,
condominium dues, etc. If a particular payee, such as a taxing body,
receives more than one payment during the escrow account computation
year, the statement shall indicate each payment and disbursement date.
If there are several taxing authorities or insurers, the statement
shall identify each taxing body or insurer (e.g., “City Taxes”, “School
Taxes”, “Hazard Insurance”, or “Flood Insurance,” etc.).
6-1423.41
(i) Annual escrow account
statements. For each escrow account, a servicer shall submit an annual
escrow account statement to the borrower within 30 days of the completion
of the escrow account computation year. The servicer shall also submit
to the borrower the previous year’s projection or initial escrow account
statement. The servicer shall conduct an escrow account analysis before
submitting an annual escrow account statement to the borrower.
(1) Contents
of annual escrow account statement. The annual escrow account
statement shall provide an account history, reflecting the activity
in the escrow account during the escrow account computation year,
and a projection of the activity in the account for the next year.
In preparing the statement, the servicer may assume scheduled payments
and disbursements will be made for the final 2 months of the escrow
account computation year. The annual escrow account statement must
include, at a minimum, the following (the items in paragraphs (i)(1)(i)
through (i)(1)(iv) must be clearly itemized):
(i) The amount
of the borrower’s current monthly mortgage payment and the portion
of the monthly payment going into the escrow account;
(ii) The amount of the past year’s monthly
mortgage payment and the portion of the monthly payment that went
into the escrow account;
(iii) The total amount paid into the
escrow account during the past computation year;
(iv) The total amount paid out of the
escrow account during the same period for taxes, insurance premiums,
and other charges (as separately identified);
(v) The balance in the escrow account
at the end of the period;
(vi) An explanation of how any surplus
is being handled by the servicer;
(vii) An explanation of how any shortage
or deficiency is to be paid by the borrower; and
(viii) If applicable, the reason(s)
why the estimated low monthly balance was not reached, as indicated
by noting differences between the most recent account history and
last year’s projection. Public Guidance Documents entitled “Annual
Escrow Account Disclosure Statement—Format” and “Annual Escrow Account
Disclosure Statement—Example” set forth an acceptable format and methodology
for conveying this information.
6-1423.42
(2) No annual statements in the case of default, foreclosure, or bankruptcy. This paragraph (i)(2) contains an exemption from the provisions
of section 1024.17(i)(1). If at the time the servicer conducts the
escrow account analysis the borrower is more than 30 days overdue,
then the servicer is exempt from the requirements of submitting an
annual escrow account statement to the borrower under section 1024.17(i).
This exemption also applies in situations where the servicer has brought
an action for foreclosure under the underlying federally related mortgage
loan, or where the borrower is in bankruptcy proceedings. If the servicer
does not issue an annual statement pursuant to this exemption and
the loan subsequently is reinstated or otherwise becomes current,
the servicer shall provide a history of the account since the last
annual statement (which may be longer than 1 year) within 90 days
of the date the account became current.
(3) Delivery
with other material. The servicer may deliver the annual escrow
account statement to the borrower with other statements or materials,
including the Substitute 1098, which is provided for Federal income
tax purposes.
6-1423.43
(4) Short year
statements. A servicer may issue a short year annual escrow account
statement (“short year statement”) to change one escrow account computation
year to another. By using a short year statement a servicer may adjust
its production schedule or alter the escrow account computation year
for the escrow account.
(i) Effect
of short year statement. The short year statement shall end the
“escrow account computation year” for the escrow account and establish
the beginning date of the new escrow account computation year. The
servicer shall deliver the short year statement to the borrower within
60 days from the end of the short year.
(ii) Short
year statement upon servicing transfer. Upon the transfer of
servicing, the transferor (old) servicer shall submit a short year
statement to the borrower within 60 days of the effective date of
transfer.
(iii) Short year statement upon loan payoff. If
a borrower pays off a federally related mortgage loan during the escrow
account computation year, the servicer shall submit a short year statement
to the borrower within 60 days after receiving the payoff funds.
6-1423.44
(j) Formats for annual escrow account statement. The formats and
completed examples for annual escrow account statements using single-item
analysis (pre-rule accounts) and aggregate analysis are set out in
Public Guidance Documents entitled “Annual Escrow Account Disclosure
Statement—Format” and “Annual Escrow Account Disclosure Statement—Example”.
6-1423.45
(k) Timely payments.
(1) If the terms of any federally
related mortgage loan require the borrower to make payments to an
escrow account, the servicer must pay the disbursements in a timely
manner, that is, on or before the deadline to avoid a penalty, as
long as the borrower’s payment is not more than 30 days overdue.
(2) The servicer must
advance funds to make disbursements in a timely manner as long as
the borrower’s payment is not more than 30 days overdue. Upon advancing
funds to pay a disbursement, the servicer may seek repayment from
the borrower for the deficiency pursuant to paragraph (f) of this
section.
(3) For the
payment of property taxes from the escrow account, if a taxing jurisdiction
offers a servicer a choice between annual and installment disbursements,
the servicer must also comply with this paragraph (k)(3). If the taxing
jurisdiction neither offers a discount for disbursements on a lump
sum annual basis nor imposes any additional charge or fee for installment
disbursements, the servicer must make disbursements on an installment
basis. If, however, the taxing jurisdiction offers a discount for
disbursements on a lump sum annual basis or imposes any additional
charge or fee for installment disbursements, the servicer may, at
the servicer’s discretion (but is not required by RESPA to), make
lump sum annual disbursements in order to take advantage of the discount
for the borrower or avoid the additional charge or fee for installments,
as long as such method of disbursement complies with paragraphs (k)(1)
and (k)(2) of this section. The Bureau encourages, but does not require,
the servicer to follow the preference of the borrower, if such preference
is known to the servicer.
(4) Notwithstanding paragraph (k)(3) of this section, a servicer
and borrower may mutually agree, on an individual case basis, to a
different disbursement basis (installment or annual) or disbursement
date for property taxes from that required under paragraph (k)(3)
of this section, so long as the agreement meets the requirements of
paragraphs (k)(1) and (k)(2) of this section. The borrower must voluntarily
agree; neither loan approval nor any term of the loan may be conditioned
on the borrower’s agreeing to a different disbursement basis or disbursement
date.
(5) Timely payment of hazard insurance.
(i) In general. Except as provided
in paragraph (k)(5)(iii) of this section, with respect to a borrower
whose mortgage payment is more than 30 days overdue, but who has established
an escrow account for the payment for hazard insurance, as defined
in section 1024.31, a servicer may not purchase force-placed insurance,
as that term is defined in section 1024.37(a), unless a servicer is
unable to disburse funds from the borrower’s escrow account to ensure
that the borrower’s hazard insurance premium charges are paid in a timely
manner.
(ii) Inability to disburse funds.
(A) When inability exists. A servicer is considered
unable to disburse funds from a borrower’s escrow account to ensure
that the borrower’s hazard insurance premiums are paid in a timely
manner only if the servicer has a reasonable basis to believe either
that the borrower’s hazard insurance has been canceled (or was not
renewed) for reasons other than nonpayment of premium charges or that
the borrower’s property is vacant.
(B) When inability
does not exist. A servicer shall not be considered unable to
disburse funds from the borrower’s escrow account because the escrow
account contains insufficient funds for paying hazard insurance premium
charges.
(C) Recoupment of advances. If a servicer advances
funds to an escrow account to ensure that the borrower’s hazard insurance
premium charges are paid in a timely manner, a servicer may seek repayment
from the borrower for the funds the servicer advanced, unless otherwise
prohibited by applicable law.
(iii) Small
servicers. Notwithstanding paragraphs (k)(5)(i) and (k)(5)(ii)(B)
of this section and subject to the requirements in section 1024.37,
a servicer that qualifies as a small servicer pursuant to 12 CFR 1026.41(e)(4)
may purchase force-placed insurance and charge the cost of that insurance
to the borrower if the cost to the borrower of the force-placed insurance
is less than the amount the small servicer would need to disburse
from the borrower’s escrow account to ensure that the borrower’s hazard
insurance premium charges were paid in a timely manner.
6-1423.6
(l) Discretionary
payments. Any borrower’s discretionary payment (such as credit
life or disability insurance) made as part of a monthly mortgage payment
is to be noted on the initial and annual statements. If a discretionary
payment is established or terminated during the escrow account computation
year, this change should be noted on the next annual statement. A
discretionary payment is not part of the escrow account unless the
payment is required by the lender, in accordance with the definition
of “settlement service” in section 1024.2, or the servicer chooses
to place the discretionary payment in the escrow account. If a servicer
has not established an escrow account for a federally related mortgage
loan and only receives payments for discretionary items, this section
is not applicable.
