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The Department of Housing and Urban Development has an excellent
repository of questions and answers about the Escrow Disclosure
and Aggregate Accounting on the below:
http://www.hud.gov/offices/hsg/sfh/res/respafaq.cfm
Please consult a professional
before making legal or financial decisions.
Section 10 of the Real Estate Settlement Procedures Act (RESPA)
limits the amount of money a lender may require the borrower to
hold in an escrow account for payment of taxes, insurance, etc.
RESPA also requires the lender to provide initial and annual
escrow account statements. The newest escrow account regulations
became effective in October 1997.
Does RESPA require borrowers to maintain an escrow
account?
NO. It is the lender's decision whether the
borrower must maintain an escrow account for the purpose of paying
taxes and other items. The HUD regulations only limit the maximum
amount that a lender can require a borrower to maintain in an
account.
Does RESPA require lenders to maintain a cushion?
NO. The RESPA statute and regulations do
not require the lender to maintain a cushion. However,
since 1976 the RESPA statute has allowed lenders
to maintain a cushion equal to one-sixth of the total amount of
items paid out of the account, or approximately two months of
escrow payments. If state law or mortgage documents allow for a
lesser amount, the lesser amount prevails.
The new accounting method generally requires borrowers to maintain
lesser amount in the account than the single-item method
predominately used by lenders. However, many lenders have recently
increased the escrow account cushion to the maximum allowed by
law.
The recent regulations require lenders to reduce the size of the
cushion in some accounts. Unfortunately, to avoid customer
disapproval, some lenders may be giving their customers the
impression that the HUD regulations require them to make this
increase. This is a false impression. The lender, not HUD, has
chosen to increase the cushion.
Can HUD require lenders to pay interest on escrow
accounts?
NO. In 1992 and 1993, legislation was introduced
in Congress that would have required lenders to pay interest on
escrow account balances, but it never passed. Some states do
require interest to be paid on escrow account funds, but many do
not.
My escrow account payments went up, rather than down. Why?
There could be a couple of reasons why your servicer is charging
more for your escrow account. First, your bills may have gone up
and the account changed to reflect that. Or, the servicer has
changed the amount of cushion to the maximum amount allowed by
RESPA. Check your statement from the servicer. You may also want
to check your loan documents to figure out what is the appropriate
cushion. If the mortgage loan documents are silent on the amount
of the cushion or pre-accrual practices, then the RESPA "two
month" limits apply, unless state law provides for a lower amount.
I got a notice from the county that my lender did not pay my taxes
on time and the county is assessing a penalty. Do I have to pay
this bill?
Send the bill to the lender. The lender should pay the penalty for
failing to pay the taxes on time as long you were current in your
mortgage payments. If the lender refuses, you may wish to follow
the guidelines for filing a complaint.
Are lenders required to pay taxes on an annual basis if a discount
is offered to the consumer?
NO. The Department published a new rule in the
Federal Register in January 1998. The rule clarifies what a lender
should do when a taxing jurisdiction offers a choice of payment on
an installment basis or an annual basis. If there is a discount to
the consumer when disbursing on an annual basis or there is an
additional charge for disbursing on an installment basis, the
lender may disburse on an annual basis. Otherwise, the lender
should disburse tax payments on an installment basis. The borrower
and the lender may mutually agree to another disbursement basis or
date. The Department encourages lenders to follow the preference
of the borrower.
What steps should I take if the lender does not pay my hazard
insurance on time or at all and my insurance is canceled?
Lenders are required by Section 6 to make escrow account
disbursements on time. If a lender fails to do so, a borrower may
bring a private law suit under this Section. Therefore, if you
incur any damages due to the lender's negligence, you may wish to
consult an attorney.
You should also contact your lender immediately and send a copy of
the bill. Some lenders list a special address and/or FAX number
for insurance and tax bills. Keep checking with the insurance
company to make certain the bill is paid. You may wish to pay the
insurance company directly to avoid cancellation of your policy
and then seek a refund from your lender. Keep copies of all your
correspondence and payments. If you incur any damages due to the
lender's negligence, you may wish to consult an attorney.
I got a notice that my hazard insurance has been canceled. My
lender force-placed hazard insurance with a different company and
it costs a lot more. Can a lender do this?
As long as your mortgage payment is not more than 30 days late,
Section 6 of RESPA requires the lender to make escrow payments,
for taxes, insurance, etc., in a timely manner. You should write
to your lender and complain. If your lender does not refund the
difference or otherwise resolve your complaint satisfactorily, you
may wish to file a complaint with HUD or the Consumer Protection
Office of your State Attorney General's Office. You may also wish
to consult an attorney.
What steps should I take if I think the lender is
requiring too much money in my escrow account?
First, figure out the maximum amount RESPA allows to be required
in your escrow account from the example. If you still believe your
lender is requiring too much money, you should contact your lender
for an explanation.
Section 6 of RESPA provides that borrowers may make a "qualified
written request" to the lender concerning the servicing of their
loan account. The request should not be included with the monthly
mortgage payment. The lender must acknowledge the complaint within
20 business days and must resolve the complaint within 60 business
days. If you do not get a satisfactory answer from the lender, you
may wish to file a complaint with HUD. You should continue to make
your mortgage payment during this time.
Please do not hesitate to send us an e-mail (info@ruthtechnology.com) if you have questions, comments or if
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