We believe you should list property taxes that will be due within sixty days after the closing in the “Prepaids” section of the CD, and we recommend obtaining publicly available tax information directly from the county, when possible, rather than relying on the prior year’s property tax bill, which may be out-of-date. In addition, you may add a cushion to your escrow account (no greater than one sixth of the estimated total annual payments from the escrow account) to cover a potential increase in property taxes.

Under Regulation Z, the “Prepaids” section of the CD should include an itemization of the prepaid amounts also required to be disclosed in the Loan Estimate (LE), which are designated to be paid by the borrower at or before closing. This includes property taxes due within sixty days after consummation of the transaction. Property taxes also should be disclosed in the “Initial Escrow Payment at Closing Section” of the CD.

The disclosures on the CD must be made in good faith and “if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer.” In a TRID webinar, the CFPB has noted that: “Often, property tax information is publicly available . . . [and] while it may not be possible for a creditor to ascertain the consumer-specific property tax obligation that will be due on a future date, an estimate that takes the publicly available information into account is likely required to meet the best information reasonably available standard.”

You may be able to obtain updated tax information from the County Assessor or County Treasurer, and you may be able to calculate what the next tax bill will be based on the assessed value of the property and the formula used by the County Assessor. For example, in Cook County, the assessor’s website indicates that the year’s first installment tax bill is always 55% of the prior year’s tax bill; it also provides a more-complex formula for calculating the second installment (included in the resources below).

As to your escrow questions, under Regulation X, a lender may require a mortgage borrower to pay “an amount sufficient to pay the charges respecting the mortgaged property, such as taxes . . . which are attributable to the period from the date such payment(s) were last paid until the initial payment date.” The lender also 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.”

You also have the option of issuing a short year escrow statement and recomputing the escrow amount; however, this will change the escrow account computation year. Alternatively, you may wait until the end of the escrow account computation year to conduct an escrow account analysis. If you discover a shortfall, you may allow the shortage to exist or you may require the borrower to repay the shortage in equal monthly payments over at least a twelve-month period. If the escrow shortage is less than one month’s escrow payment, you also may require the borrower to repay the shortage within thirty days.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.38(g)(2) (“Prepaids. Under the subheading ‘Prepaids’ and in the applicable column as described in paragraph (g) of this section, an itemization of each amount for charges described in § 1026.37(g)(2), the name of the person ultimately receiving the payment or government entity assessing the property tax, provided that the person ultimately receiving the payment need not be disclosed for the disclosure required by § 1026.37(g)(2)(iii) when disclosed pursuant to this paragraph, and the total of all such itemized amounts that are designated borrower-paid at or before closing.”)

• Regulation Z, 12 CFR 1026.37(g)(2) (“Prepaids. Under the subheading ‘Prepaids,’ an itemization of the amounts to be paid by the consumer in advance of the first scheduled payment, and the subtotal of all such amounts, as follows: . . . (iv) On the fourth line, the number of months for which property taxes are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such taxes, labeled ‘Property Taxes ( __ months).’”)

• Regulation Z, Official Interpretations, Paragraph 37(g)(2), Comment 1 (“Prepaid items required to be disclosed pursuant to § 1026.37(g)(2) include . . . certain periodic charges that are required by the creditor to be paid at consummation. . . . Examples of periodic charges that are disclosed pursuant to § 1026.37(g)(2) include: i. Real estate property taxes due within 60 days after consummation of the transaction . . .”)

• Regulation Z, Official Interpretations, Paragraph 19(e)(1)(i), Comment 1 (“Section 1026.19(e)(1)(i) requires early disclosure of credit terms in closed-end credit transactions that are secured by real property or a cooperative unit, other than reverse mortgages. These disclosures must be provided in good faith. Except as otherwise provided in § 1026.19(e), a disclosure is in good faith if it is consistent with § 1026.17(c)(2)(i). Section 1026.17(c)(2)(i) provides that if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. The ‘reasonably available’ standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information.”)

• Regulation Z, 12 CFR 1026.19(e)(3)(iii)(E) (“An estimate of any of the charges specified in this paragraph (e)(3)(iii) is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section. For purposes of paragraph (e)(1)(i) of this section, good faith is determined under this paragraph (e)(3)(iii) even if such charges are paid to the creditor or affiliates of the creditor, so long as the charges are bona fide: . . . (E) Property taxes and other charges paid for third-party services not required by the creditor.”)

• Regulation Z, Official Interpretations, Paragraph 19(e)(3)(iii), Comment 3 (“Differences between the amounts of estimated charges for property taxes or services not required by the creditor disclosed under § 1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on the consumer do not constitute a lack of good faith, so long as the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor at the time the disclosure was provided. . . .”)

• Buckley Sandler Transcript, CFPB TRID Webinar (April 12, 2016), page 36 (“Whether the amount of property taxes disclosed on the Loan Estimate reflects the best information reasonably available at the time the disclosure is provided to the consumer is a factual question. However, it would be unlikely that an estimate of zero or a rough guess would ever meet that standard. Often, property tax information is publicly available. While it may not be possible for a creditor to ascertain the consumer-specific property tax obligation that will be due on a future date, an estimate that takes the publicly available information into account is likely required to meet the best information reasonably available standard.”)

• Cook County Assessor’s Office, Your Assessment Notice and Tax Bill (“After the assessor determines the Fair Market Value of your home, the Assessed Value of your home is calculated. For residential property owners, the assessed value equals 10% of the fair market value of the home. For most commercial property owners, the assessed value is 25% of the fair market value. This level of assessed value is the taxable amount of the property, as determined by Cook County ordinance. Then the State Equalization Factor/Multiplier (‘State Equalizer’) is applied to the assessed value and this creates the Equalized Assessed Value (EAV) for the property. Any Exemptions earned by the home are then subtracted from the EAV. Then the Tax Rate is applied to the tax levies for your community. Once those levies are added up, the total is the amount of property taxes you owe. After any qualified property tax exemptions are deducted from the EAV, your local tax rate and levies are applied to compute the dollar amount of your property taxes. Please remember: each Tax Year's property taxes are billed and due the following year. For instance, 2019 taxes are billed and due in 2020. Property tax bills are mailed twice a year by the Cook County Treasurer. Your first installment is due at the beginning of March. By law, the first installment property tax bill is exactly 55% percent of the previous year's total tax amount. The second installment property tax bill is mailed and due in late summer; it reflects new tax rates, levies, changes in assessments and any dollars saved by exemptions for which you have qualified and applied.”)

• Regulation X, 12 CFR 1024.17(g)(1)(i) (“The initial escrow account statement . . . shall itemize the estimated taxes, insurance premiums, and other charges that the servicer reasonably anticipates to be paid from the escrow account during the escrow account computation year and the anticipated disbursement dates of those charges. . . .”)

• 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.”)

• Regulation X, 12 CFR 1024.17(f)(1) (“Escrow account analysis. For each escrow account, the servicer shall conduct an escrow account analysis to determine whether a surplus, shortage or deficiency exists.

(i) As noted in § 1024.17(c)(2) and (3), the servicer shall conduct an escrow account analysis upon establishing an escrow account and at completion of the escrow account computation year.

(ii) The servicer may conduct an escrow account analysis at other times during the escrow computation year. If a servicer advances funds in paying a disbursement, which is not the result of a borrower's payment default under the underlying mortgage document, then the servicer shall conduct an escrow account analysis to determine the extent of the deficiency before seeking repayment of the funds from the borrower under this paragraph (f).”)

• Regulation X, 12 CFR 1024.17(b) (“Escrow account computation year is a 12-month period that a servicer establishes for the escrow account beginning with the borrower’s initial payment date. The term includes each 12-month period thereafter, unless a servicer chooses to issue a short year statement under the conditions stated in § 1024.17(i)(4).”)

• Regulation X, 12 CFR 1024.17(i)(4) (“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. (i) Effect of short year statement. The short year statement shall end the ‘escrow account computation year’ for the escrow account and establish the beginning date of the new escrow account computation year. The servicer shall deliver the short year statement to the borrower within 60 days from the end of the short year.”)

• Regulation X, 12 CFR 1024.17(f)(3)(i) (“If an escrow account analysis discloses a shortage of less than one month's escrow account payment, then the servicer has three possible courses of action:

(A) The servicer may allow a shortage to exist and do nothing to change it;

(B) The servicer may require the borrower to repay the shortage amount within 30 days; or

(C) The servicer may require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period.”)

• Regulation X, 12 CFR 1024.17(f)(3)(i) (“If an escrow account analysis discloses a shortage that is greater than or equal to one month's escrow account payment, then the servicer has two possible courses of action:

(A) The servicer may allow a shortage to exist and do nothing to change it; or

(B) The servicer may require the borrower to repay the shortage in equal monthly payments over at least a 12-month period.”)