We recommend setting up an escrow account for the borrower, even though the escrow account will not be used to collect funds for property tax payments.

Before consummating a higher-priced mortgage loan, the creditor must establish an escrow account “for payment of property taxes and premiums for mortgage-related insurance required by the creditor.” We believe that your bank is fulfilling its requirement to establish an escrow account, as an escrow account will be opened for the borrower.

While Regulation Z requires an escrow account to be established “for payment of property taxes . . . ,” we do not recommend requiring escrow payments to cover potential property tax payments. Regulation X limits the amounts that may be held in escrow accounts, permitting servicers to hold in escrow accounts only estimated annual payments, plus a cushion of one-sixth of that amount.

Here, the borrower will not be billed and is not responsible for property tax payments. We confirmed with a local county assessor that when a mobile home is taxed as real property and sits on leased land, the mobile home is treated as part of the land, as if it was a building placed on the land. Consequently, the amount of property taxes attributable to the mobile home will be billed to the landowner, not your borrower. Additionally, the landowner apparently has agreed to pay the property taxes for the land, including any increases attributable to the mobile home. Because the landowner will be billed for the property taxes and also has agreed to pay them, we believe that Regulation X would prohibit your bank from requiring the borrower to place funds in the escrow account for property tax payments.

We do recommend confirming and obtaining documentation (for example, the lease agreement) that the landowner has agreed to paying all property taxes — for both safety and soundness reasons and to document that your bank has correctly decided not to include estimated property taxes in the escrow account.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.35(b)(1) (“Requirement to escrow for property taxes and insurance. Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer’s default or other credit loss. . . .”)

• Regulation Z, 12 CFR 1026.2(a)(19) (“Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”)

• Regulation X, 12 CFR 1024.17(c)(1)(i) (“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. . . . 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.”)

• Illinois Property Tax Code, 35 ILCS 200/1-130(a) (Defining “real property” as “[t]he land itself, with all things contained therein, and also all buildings, structures and improvements, and other permanent fixtures thereon . . . .”)

• Illinois Property Tax Code, 35 ILCS 200/1-130(b) (“. . . Mobile homes and manufactured homes that are located outside of mobile home parks and assessed and taxed as real property on the effective date of this amendatory Act of the 96th General Assembly shall continue to be assessed and taxed as real property whether or not those mobile homes or manufactured homes are affixed to a permanent foundation as defined in the Conveyance and Encumbrance of Manufactured Homes as Real Property and Severance Act or installed on permanent foundations and whether or not those mobile homes or manufactured homes are real property as defined in the Conveyance and Encumbrance of Manufactured Homes as Real Property and Severance Act. . . .”)

• Illinois Property Tax Code, 35 ILCS 200/9-175 (“The owner of property on January 1 in any year shall be liable for the taxes of that year . . . .”)

• Illinois Property Tax Code, 35 ILCS 200/21-75 (“The taxes upon property, together with all penalties, interests and costs that may accrue thereon, shall be a prior and first lien on the property, superior to all other liens and encumbrances, from and including the first day of January in the year in which the taxes are levied until the taxes are paid or until the property is sold under this Code. . . .”)