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(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 HUD
Public Guidance Document entitled ``Biweekly Payments--Example''
provides examples of biweekly accounting and a HUD 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 HUD Public Guidance Document entitled "Consumer Disclosure for
Voluntary Escrow Account Payments" provides a model disclosure format
that originators and services 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 3500.17(g)
(b) Definitions. As used in this section:
Acceptable accounting method means an accounting method that a
servicer uses to conduct an escrow account analysis for an escrow
account subject to the provisions of Sec. 3500.17(c).
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 Sec. 3500.17(i). As noted in Sec.
3500.17(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.
Conversion date means the date three years after the
publication date of the rule adding this section (i.e., October 27,
1997) by which date all servicers shall use aggregate analysis.
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 Sec.
3500.17(c).
Deficiency is the amount of a negative balance in an escrow
account. As noted in Sec. 3500.17(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.
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. 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 Sec. 3500.17(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.
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 Sec. 3500.17(g) and be in substantially the
format set forth in Sec. 3500.17(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.
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.
Phase-in period means the period beginning on May 24, 1995, and
ending on the conversion date, i.e., October 27, 1997, by which date
all servicers shall use the aggregate accounting method in conducting
escrow account analyses.
Post-rule account means an escrow account established in
connection with a federally related mortgage loan whose settlement
date is on or after May 24, 1995.
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 Sec. 3500.17(c).
Pre-rule account is an escrow account established in connection
with a federally related mortgage loan whose settlement date is before
May 24, 1995.
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.
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 3500.17(d) provides a description of the steps involved
in performing a trial running balance.
(c) Limits on payments to escrow accounts; acceptable accounting
methods to determine limits.
(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 (\1/6\) 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 (\1/6\) 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 Sec. 3500.17(f).
(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 shall 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 complying with any other requirements of paragraph (k) of
this section. Upon completing the initial escrow account analysis, the
servicer shall 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.
(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 earlier 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 shall make any adjustments to the account
pursuant to paragraph (f) of this section. Upon completing an escrow
account analysis, the servicer shall prepare and submit an annual
escrow account statement to the borrower, as set forth in paragraph (i)
of this section.
(4) Acceptable accounting methods to determine escrow limits.
The following are acceptable accounting methods that servicers may use
in conducting an escrow account analysis.
(i) Pre-rule accounts. For pre-rule accounts, servicers may use
either single-item analysis or aggregate-analysis during the phase-in
period. In conducting the escrow account analysis, servicers shall use
``month-end'' accounting. Under month-end accounting, the timing of
the disbursements and payments within the month is irrelevant. As of
the conversion date, all pre-rule accounts shall comply with the
requirements for post-rule accounts in paragraph (c)(4)(ii) of this
section. During the phase-in period, the transfer of servicing of a
pre- rule account to another servicer does not convert the account to
a post- rule account. After May 24, 1995, refinancing transactions (as
defined in Sec. 3500.2) shall comply with the requirements for
post-rule accounts.
(ii) Post-rule accounts. For post-rule accounts, servicers shall
use aggregate accounting to conduct an escrow account analysis. In
conducting the escrow account analysis, servicers shall use ``month-
end'' accounting. Under month-end accounting, the timing of the
disbursements and payments within the month is irrelevant.
(5) Cushion. For post-rule accounts, the cushion shall be no
greater than one-sixth (\1/6\) of the estimated total annual
disbursements from the escrow account using aggregate analysis
accounting. For pre-rule accounts, the cushion may not exceed the
total of one-sixth of the estimated annual disbursements for each
escrow account item using single-item analysis accounting. In
determining the cushion using single-item analysis, a servicer shall
not divide an escrow account item into sub- accounts, even if the
payee requires installment payments.
(6) Restrictions on pre-accrual. For pre-rule accounts, a
servicer shall not require any pre-accrual that results in the escrow
account balance exceeding the limits of paragraph (c)(1) of this
section. In addition, if the mortgage documents in a pre-rule account
are silent about the amount of pre-accrual, the servicer shall not
require in excess of one month of pre-accrual, subject to the
additional limitations provided in paragraph (c)(8) of this section.
For post-rule accounts, a servicer shall not practice pre-accrual.
(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.
(8) Provisions in mortgage documents. The servicer shall examine
the mortgage loan documents to determine the applicable cushion and
limitations on pre-accrual for each escrow account. If the mortgage
loan documents provide for lower cushion limits or less pre-accrual
than this section, then the terms of the loan documents apply. Where
the terms of any mortgage loan document allow greater payments to an
escrow account than allowed by this section, then this section
controls the applicable limits. Where the mortgage loan 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 State law. If the mortgage loan document is silent on the escrow
account limits (for cushion or pre-accrual) and a servicer establishes
an escrow account under State law, then the limitations of this
section apply unless State law provides for a lower amount. If the
loan 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 State law sets a lesser amount.
(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 HUD Public Guidance Document entitled ``Annual Escrow
Account Disclosure Statement--Example'', available in accordance with
Sec. 3500.3).
(d) Methods of escrow account analysis. Paragraph (c) of this section
prescribes acceptable accounting methods. The following sets forth the
steps servicers shall use to determine whether their use of an
acceptable accounting method conforms with the limitations in Sec.
3500.17(c)(1). The steps set forth in this section derive 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.
(1) Aggregate analysis. (i) When a servicer uses aggregate
analysis in conducting the escrow account 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.
(2) Single-item or other non-aggregate analysis method. (i) When
a servicer uses single-item analysis or any hybrid accounting method
in conducting an escrow account analysis during the phase-in period,
the target balances may not exceed the balances computed according to
the following arithmetic operations:
(A) The servicer first projects a trial balance for each item
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 periodic payments equal to one-twelfth of
the estimated total annual escrow account disbursements.
(B) The servicer then examines the monthly trial balance for
each escrow account item and adds to the first monthly balance for
each separate item an amount just sufficient to bring the lowest
monthly trial balance for that item to zero, and then adjusts all
other monthly balances accordingly.
(C) The servicer then adds the permissible cushion, if any, to
the monthly balance for the separate escrow account item. The
permissible cushion is two months of escrow payments for the escrow
account item (net of any increases or decreases because of prior year
shortages or surpluses, respectively) or a lesser amount specified by
State law or the mortgage document.
(D) The servicer then examines the balances for each item to
make certain that the lowest monthly balance for that item is less
than or equal to one-sixth of the estimated total annual escrow
account disbursements for that item or a lesser amount specified by
State law or the mortgage document.
(ii) In performing an escrow account analysis using single-item
analysis, servicers may account for each escrow account item
separately, but servicers shall not further divide accounts into
sub-accounts, even if the payee of a disbursement requires installment
payments. The target balances that the servicer derives using these
steps yield the maximum limit for the escrow account. Appendix F to
this part illustrates these steps.
(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.
(2) The new servicer shall treat shortages, surpluses and
deficiencies in the transferred escrow account according to the
procedures set forth in Sec. 3500.17(f).
(3) A pre-rule account remains a pre-rule account upon the
transfer of servicing to a new servicer so long as the transfer occurs
before the conversion date.
(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 Sec. 3500.17(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).
(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 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.
(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.
(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 mortgage loan documents.
(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.
(g) Initial escrow account statement. (1) Submission at
settlement, or within 45 calendar days of settlement. As noted in Sec.
3500.17(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 Sec. 3500.17(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 Sec. 3500.17(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.
(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.
(h) Format for initial escrow account statement.
(1) The format and a completed example for an initial escrow
account statement are set out in HUD Public Guidance Documents
entitled ``Initial Escrow Account Disclosure Statement--Format'' and
``Initial Escrow Account Disclosure Statement--Example'', available in
accordance with Sec. 3500.3.
(2) Incorporation of initial escrow account statement into HUD-1
or HUD-1A settlement statement. Pursuant to Sec. 3500.9(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.).
(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. The annual escrow account statement must include, at a
minimum, the following (the items in paragaphs (i)(1)(i) throught (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.
HUD 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.
(2) No annual statements in the case of default, foreclosure, or
bankruptcy. This paragraph (i)(2) contains an exemption from the
provisions of Sec. 3500.17(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 Sec. 3500.17(i).
This exemption also applies in situations where the servicer has
brought an action for foreclosure under the underlying 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.
(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 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 pay-off funds.
(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 HUD Public Guidance Documents entitled ``Annual Escrow
Account Disclosure Statement--Format'' and ``Annual Escrow Account
Disclosure Statement--Example''.
(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. HUD 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.
(l) System of recordkeeping. (1) Each servicer shall keep
records, which may involve electronic storage, microfiche storage, or
any method of computerized storage, so long as the information is
easily retrievable, reflecting the servicer's handling of each
borrower's escrow account. The servicer's records shall include, but
not be limited to, the payment of amounts into and from the escrow
account and the submission of initial and annual escrow account
statements to the borrower.
(2) The servicer responsible for servicing the borrower's escrow
account shall maintain the records for that account for a period of at
least five years after the servicer last serviced the escrow account.
(3) A servicer shall provide the Secretary with information
contained in the servicer's records for a specific escrow account, or
for a number or class of escrow accounts, within 30 days of the
Secretary's written request for the information. The servicer shall
convert any information contained in electronic storage, microfiche or
computerized storage to paper copies for review by the Secretary.
(i) To aid in investigations, the Secretary may also issue an
administrative subpoena for the production of documents, and for the
testimony of such witnesses as the Secretary deems advisable.
(ii) If the subpoenaed party refuses to obey the Secretary's
administrative subpoena, the Secretary is authorized to seek a court
order requiring compliance with the subpoena from any United States
district court. Failure to obey such an order of the court may be
punished as contempt of court.
(4) Borrowers may seek information contained in the servicer's
records by complying with the provisions set forth in 12 U.S.C.
2605(e) and Sec. 3500.21(f).
(5) After receiving a request (by letter or subpoena) from the
Department for information relating to whether a servicer submitted an
escrow account statement to the borrower, the servicer shall respond
within 30 days. If the servicer is unable to provide the Department
with such information, the Secretary shall deem that lack of
information to be evidence of the servicer's failure to submit the
statement to the borrower.
(m) Penalties. (1) A servicer's failure to submit to a borrower
an initial or annual escrow account statement meeting the requirements
of this part shall constitute a violation of section 10(d) of RESPA
(12 U.S.C. 2609(d)) and this section. For each such violation, the
Secretary shall assess a civil penalty of 55 dollars ($55), except
that the total of the assessed penalties shall not exceed $110,000 for
any one servicer for violations that occur during any consecutive
12-month period.
(2) Violations described in paragraph (m)(1) of this section do
not require any proof of intent. However, if a lender or servicer is
shown to have intentionally disregarded the requirements that it
submit the escrow account statement to the borrower, then the
Secretary shall assess a civil penalty of $110 for each violation,
with no limit on the total amount of the penalty.
(n) Civil penalties procedures. The following procedures shall
apply whenever the Department seeks to impose a civil money penalty
for violation of section 10(c) of RESPA (12 U.S.C. 2609(c)):
(1) Purpose and scope. This paragraph (n) explains the
procedures by which the Secretary may impose penalties under 12 U.S.C.
2609(d). These procedures include administrative hearings, judicial
review, and collection of penalties. This paragraph (n) governs
penalties imposed under 12 U.S.C. 2609(d) and, when noted, adopts
those portions of 24 CFR part 30 that apply to all other civil penalty
proceedings initiated by the Secretary.
(2) Authority. The Secretary has the authority to impose civil
penalties under section 10(d) of RESPA (12 U.S.C. 2609(d)).
(3) Notice of intent to impose civil money penalties. Whenever
the Secretary intends to impose a civil money penalty for violations
of section 10(c) of RESPA (12 U.S.C. 2609(c)), the responsible program
official, or his or her designee, shall serve a written Notice of
Intent to Impose Civil Money Penalties (Notice of Intent) upon any
servicer on which the Secretary intends to impose the penalty. A copy
of the Notice of Intent must be filed with the Chief Docket Clerk,
Office of Administrative Law Judges, at the address provided in the
Notice of Intent. The Notice of Intent will provide:
(i) A short, plain statement of the facts upon which the
Secretary has determined that a civil money penalty should be imposed,
including a brief description of the specific violations under 12
U.S.C. 2609(c) with which the servicer is charged and whether such
violations are believed to be intentional or unintentional in nature,
or a combination thereof;
(ii) The amount of the civil money penalty that the Secretary
intends to impose and whether the limitations in 12 U.S.C. 2609(d)(1),
apply;
(iii) The right of the servicer to a hearing on the record to
appeal the Secretary's preliminary determination to impose a civil
penalty;
(iv) The procedures to appeal the penalty;
(v) The consequences of failure to appeal the penalty; and
(vi) The name, address, and telephone number of the
representative of the Department, and the address of the Chief Docket
Clerk, Office of Administrative Law Judges, should the servicer decide
to appeal the penalty.
(4) Appeal procedures. (i) Answer. To appeal the imposition of a
penalty, a servicer shall, within 30 days after receiving service of
the Notice of Intent, file a written Answer with the Chief Docket
Clerk, Office of Administrative Law Judges, Department of Housing and
Urban Development, at the address provided in the Notice of Intent.
The Answer shall include a statement that the servicer admits, denies,
or does not have (and is unable to obtain) sufficient information to
admit or deny each allegation made in the Notice of Intent. A
statement of lack of information shall have the effect of a denial.
Any allegation that is not denied shall be deemed admitted. Failure to
submit an Answer within the required period of time will result in a
decision by the Administrative Law Judge based upon the Department's
submission of evidence in the Notice of Intent.
(ii) Submission of evidence. A servicer that receives the Notice
of Intent has a right to present evidence. Evidence must be submitted
within 45 calendar days from the date of service of the Notice of
Intent, or by such other time as may be established by the
Administrative Law Judge (ALJ). The servicer's failure to submit
evidence within the required period of time will result in a decision
by the Administrative Law Judge based upon the Department's submission
of evidence in the Notice of Intent. The servicer may present evidence
of the following:
(A) The servicer did submit the required escrow account
statement(s) to the borrower(s); or
(B) Even if the servicer did not submit the required statement(s),
that the failure was not the result of an intentional disregard of the
requirements of RESPA (for purposes of determining the penalty).
(iii) Review of the record. The Administrative Law Judge will
review the evidence submitted by the servicer, if any, and that
submitted by the Department. The Administrative Law Judge shall make a
determination based upon a review of the written record, except that
the Administrative Law Judge may order an oral hearing if he or she
finds that the determination turns on the credibility or veracity of a
witness, or that the matter cannot be resolved by review of the
documentary evidence. If the Administrative Law Judge decides that an
oral hearing is appropriate, then the procedural rules set forth at 24
CFR part 30 shall apply, to the extent that they are not inconsistent
with this section.
(iv) Burden of proof. The burden of proof or the burden of going
forward with the evidence shall be upon the proponent of an action.
The Department's submission of evidence that the servicer's system of
records lacks information that the servicer submitted the escrow
account statement(s) to the borrower(s) shall satisfy the Department's
burden. Upon the Department's presentation of evidence of this lack of
information in the servicer's system of records, the burden of proof
shifts from the Secretary to the servicer to provide evidence that it
submitted the statement(s) to the borrower.
(v) Standard of proof. The standard of proof shall be the
preponderance of the evidence.
(5) Determination of the Administrative Law Judge.
(i) Following the hearing or the review of the written record,
the Administrative Law Judge shall issue a decision that shall contain
findings of fact, conclusions of law, and the amount of any penalties
imposed. The decision shall include a determination of whether the
servicer has failed to submit any required statements and, if so,
whether the servicer's failure was the result of an intentional
disregard for the law's requirements.
(ii) The Administrative Law Judge shall issue the decision to
all parties within 30 days of the submission of the evidence or the
post- hearing briefs, whichever is the last to occur.
(iii) The decision of the Administrative Law Judge shall
constitute the final decision of the Department and shall be final and
binding on the parties.
(6) Judicial review. (i) A person against whom the Department
has imposed a civil money penalty under this part may obtain a review
of the Department's final decision by filing a written petition for a
review of the record with the appropriate United States district
court.
(ii) The petition must be filed within 30 days after the
decision is filed with the Chief Docket Clerk, Office of
Administrative Law Judges.
(7) Collection of penalties. (i) If any person fails to comply
with the Department's final decision imposing a civil money penalty,
the Secretary, if the time for judicial review of the decision has
expired, may request the Attorney General to bring an action in an
appropriate United States district court to obtain a judgment against
the person that has failed to comply with the Department's final
decision.
(ii) In any such collection action, the validity and
appropriateness of the Department's final decision imposing the civil
penalty shall not be subject to review in the district court.
(iii) The Secretary may obtain such other relief as may be
available, including attorney fees and other expenses in connection
with the collection action.
(iv) Interest on and other charges for any unpaid penalty may be
assessed in accordance with 31 U.S.C. 3717.
(8) Offset. In addition to any other rights as a creditor, the
Secretary may seek to collect a civil money penalty through
administrative offset.
(9) At any time before the decision of the Administrative Law
Judge, the Secretary and the servicer may enter into an administrative
settlement. The settlement may include provisions for interest,
attorney's fees, and costs related to the proceeding. Such settlement
will terminate the appearance before the Administrative Law Judge.
(o) 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
Sec. 3500.2, 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.
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