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Can we force borrowers to escrow their real estate taxes if they become delinquent on their real estate taxes? If so, do we need to send them an initial escrow account disclosure after we set up the escrow account? – IBA Compliance Connection

IBA Compliance Connection

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Can we force borrowers to escrow their real estate taxes if they become delinquent on their real estate taxes? If so, do we need to send them an initial escrow account disclosure after we set up the escrow account?

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Whether your bank can require a delinquent borrower to escrow real estate tax payments depends on the terms of your loan documents. The Illinois Single Family Fannie Mae/Freddie Mac Uniform Mortgage provides that if a lender has previously waived escrowed payments, it can later revoke that waiver at any time by giving notice to the borrower in the manner described in the mortgage documents. 

Both the Illinois Mortgage Escrow Account Act and the federal Real Estate Settlement Procedures Act (RESPA) govern your bank’s practices with respect to escrow accounts established in connection with residential mortgage loans.  RESPA requires you to provide an initial escrow account statement within 45 calendar days of establishing an escrow account that is opened after settlement when it is not a condition of the loan.