|
In 1997, the Department of Housing and Urban Development (HUD) established
guidelines to determine exactly how much money an attorney or mortgage
lender is allowed to collect at closing to establish an escrow account. They
are allowed to collect enough money so the account balance is never below
zero, plus two additional months worth of payments.
The following example shows each step in the aggregate accounting process.
- Determine the first payment date.
The first payment date is usually 2-months after the closing date.
Write the first payment date down on paper. For our purposes, let's
assume the first payment date is in June.
-
List all the payment amounts for items that will be paid out of your
escrow account, and when paid, for the next 12 months. Consider the
example where city taxes of $1,500.00 is due in September and $1,500.00 is
due in March; and $900 in hazard insurance is
paid in March. [If
you have a payment like flood insurance, which is paid every 3 years, you
must project a trial balance over that 3-year period.]
-
Divide this total amount by 12 monthly payments ($3,900 / 12 = 325.00).
-
Create a trial running balance for the next 12 months listing all payments
to the escrow account and all payments out of the account, when these
items are paid.
-
Increase all the monthly balances to bring the lowest point in the account
(March -$653.66) up to 0.
|
In |
Out |
Balance
|
Balance |
| June
|
325.00 |
0 |
325.00 |
650.00 |
| July
|
325.00 |
0 |
650.00
|
1300.00 |
| August |
325.00 |
0 |
975.00 |
1625.00 |
| September |
325.00 |
1500.00 |
-200.00 |
450.00 |
| October |
325.00 |
0 |
125.00
|
775.00 |
| November |
325.00 |
0 |
450.00 |
1100.00 |
| December |
325.00 |
0 |
775.00 |
1425.00 |
| January |
325.00 |
0 |
1100.00 |
1750.00 |
| February |
325.00 |
0 |
1425.00 |
2075.00 |
| March |
325.00 |
2400.00 |
*-650.00 |
*0 |
| April |
325.00 |
0 |
-325.00 |
325.00
|
| May |
325.00 |
0 |
0 |
650.00 |
-
Add any cushion your lender requires to the monthly balances. The
cushion may be a maximum of 1/6 of the total escrow charges (or 2 * 320
= $650) and is oftentimes just one-month payment ($325). In this
example, let's consider the cushion to be $325. The account should fall to the cushion at least once
during the year. In our example it is in March.
|
In |
Out |
Balance
|
Balance |
Balance |
| June
|
325.00 |
0 |
325.00 |
650.00 |
975 |
| July
|
325.00 |
0 |
650.00
|
1300.00 |
1625 |
| August
|
325.00 |
0 |
975.00 |
1625.00 |
1950 |
| September
|
325.00 |
1500.00 |
-200.00 |
450.00 |
775 |
| October
|
325.00 |
0 |
125.00
|
775.00 |
1100 |
| November
|
325.00 |
0 |
450.00 |
1100.00 |
1425 |
| December
|
325.00 |
0 |
775.00 |
1425.00 |
1750 |
| January
|
325.00 |
0 |
1100.00 |
1750.00 |
2075 |
| February
|
325.00 |
0 |
1425.00 |
2075.00 |
2400 |
| March
|
325.00 |
2400.00 |
*-650.00 |
*0 |
*325 |
| April
|
325.00 |
0 |
-325.00 |
325.00
|
650 |
| May
|
325.00
|
0 |
0 |
650.00 |
975 |
-
The initial payment is the amount the lender is allowed to collect at
closing to established the escrow account. It is the sum of the low
point ($650) plus the cushion amount (in this example, $325). For our example, $975 is the
initial payment.
- The aggregate escrow adjustment is the
difference between the deposit required under aggregate accounting and the
sum of the deposits required under single-item accounting. We just
calculated the deposit of $975 which is required under aggregate
accounting. Looking at our HUD-1 Settlement Statement, we see the
following reserves deposited with the lender at closing:
Hazard Insurance 4 x $200
= 800.00
City Tax
1 x $100 = 100.00
For a total of $900 under single
item analysis.
Aggregate Escrow Adjustment is -75 or $975 - 900.
By
law, the lender is not allowed to collect more than the initial payment.
The aggregate adjustment (line 1008 of the settlement statement) is the
amount the lender must 'credit' the borrower at closing, so that they
don't collect more than the initial payment amount.
Please do not hesitate to send us an e-mail (info@ruthtechnology.com) if you have questions, comments or if
you come across something that would contribute to this section. |
