When a borrower pays off a “federally related mortgage loan” (essentially any non-construction residential loan made by your bank), the servicer is required to provide the borrower with a “short year” annual escrow account statement (a “short year statement”) within sixty days after receiving the payoff funds.

A short year statement must contain each of the elements required to be included in an annual account statement under Regulation X (listed in the resources below). Regulation X also requires the servicer to return any unused escrow funds to the borrower within twenty days of a payoff.

For resources related to our guidance, please see:

• Regulation X, 12 CFR 1024.2(b) (Federally related mortgage loan means: (1) Any loan (other than temporary financing, such as a construction loan): (i) That is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property . . . and (ii) . . . (A) Is made in whole or in part by any lender that is either regulated by or whose deposits or accounts are insured by any agency of the Federal Government . . . .”)

• Regulation X, 12 CFR 1024.17(i)(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.

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(iii) Short year statement upon loan payoff. If a borrower pays off a federally related 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 payoff funds.”)

• Regulation X, 12 CFR 1024.17(i)(1) (“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. In preparing the statement, the servicer may assume scheduled payments and disbursements will be made for the final 2 months of the escrow account computation year. The annual escrow account statement must include, at a minimum, the following (the items in paragraphs (i)(1)(i) through (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. 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.”)

• Regulation X, 12 CFR 1024.34(b)(1) (“Except as provided in paragraph (b)(2) of this section, within 20 days (excluding legal public holidays, Saturdays, and Sundays) of a borrower's payment of a mortgage loan in full, a servicer shall return to the borrower any amounts remaining in an escrow account that is within the servicer's control.”)