When we force-place an escrow account to pay property taxes, are there any rules governing when we may change the payment amount to include the additional amount covering property taxes? For example, should we send notice no less than thirty days prior to the next payment date?

No, we are not aware of any rules governing how long a lender must wait before imposing a change in a loan payment amount after establishing an escrow account for property taxes without the borrower’s consent. Consequently, we recommend establishing a reasonable period for providing notice of the payment amount change, after reviewing the terms of the note and mortgage for any contractual notice requirements for imposing such a change, if any. If your loan documents are silent as to the notice period required for changing the payment amount and/or forcing an escrow account for property taxes, we believe your suggestion of providing at least thirty days’ notice before changing the payment amount would be prudent to avoid any UDAAP concerns.

For residential mortgage loans subject to the Real Estate Settlement Procedures Act (RESPA), Regulation X requires your bank to conduct an escrow account analysis before establishing the escrow account and to provide the borrower with an initial escrow account statement within 45 calendar days of establishing the escrow account.

Also, we recommend reviewing the Illinois Mortgage Escrow Account Act, which imposes a number of escrow-related notice, disclosure and other requirements for purchase mortgage loans secured by single-family, owner-occupied residential properties.

For resources related to our guidance, please see:

Regulation X, 12 CFR 1024.17(b) (“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. . . .”)

Regulation X, 12 CFR 1024.17(c)(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.”)

Regulation X, 12 CFR 1024.17(g)(2) (“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.”)

Consumer Financial Protection Act of 2010, 12 USC 5536(a) (“It shall be unlawful for (1) any covered person or service provider . . . (B) to engage in any unfair, deceptive, or abusive act or practice.”)

Mortgage Escrow Account Act, 765 ILCS 910/4 (“On or after the effective date of this Act, each mortgage lender in conjunction with the granting or servicing of a mortgage on a single-family owner occupied residential property, shall comply with the provisions of this Act.”)

Mortgage Escrow Account Act, 765 ILCS 910/2(a) (“‘Escrow account’ means any account established by the mortgage lender in conjunction with a mortgage loan on a residence, into which the borrower is required to make regular periodic payments and out of which the lender pays the taxes on the property covered by the mortgage.”)

Mortgage Escrow Account Act, 765 ILCS 910/11 (“Notice of the requirements of the Act shall be furnished in writing to the borrower at the date of closing.”)

Illinois Mortgage Escrow Account Act, 765 ILCS 910/5 (“When the mortgage is reduced to 65% of its original amount by payments of the borrower, timely made according to the provisions of the loan agreement secured by the mortgage, and the borrower is otherwise not in default on the loan agreement, the mortgage lender must notify the borrower that he may terminate such escrow account or that he may elect to continue it until he requests a termination thereof, or until the mortgage is paid in full, whichever occurs first.”)

Mortgage Escrow Account Act, 765 ILCS 910/15(a) (“When any mortgage lender pays the property tax from an escrow account, the mortgage lender must give the borrower written notice of the following, within 45 business days after the tax payment: (1) the date the taxes were paid; (2) the amount of taxes paid; and (3) the permanent index number, mortgage account number, address of the property, or other property description that is used for assessment and taxation purposes under the Property Tax Code.”)

Mortgage Escrow Account Act, 765 ILCS 910/15(c) (“[A] mortgage lender that provides notice at least annually to a borrower in the manner provided in subsection (b) of a means of communication for the borrower to access the information set forth in subsection (a) [notice of tax payments] by telephone, facsimile, e-mail, Internet access, or other means of communication, is deemed to be in compliance with subsection (a).”)