Topic: Escrow Accounts
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Are we required to pay interest on commercial escrow accounts when the balances exceed a certain dollar amount?
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You would not be required to pay interest on commercial escrow accounts, unless your agreement with the customer requires the payment of interest.
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Are there any Illinois laws that apply to commercial escrow accounts?
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Application of Escrow Laws to Commercial Mortgage Loans We are not aware of any federal regulations that apply to escrow accounts for commercial loans. RESPA excludes from coverage any loan made “primarily for a business, commercial, or agricultural purpose,” as defined by Regulation Z (12 CFR 1026.3(a)(1) and the accompanying official staff commentary). 12 CFR…
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Can we charge an escrow waiver fee or charge a higher interest rate to customers who choose not establish escrow accounts?
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There is a prohibition on escrow fees charged for use of a pledge time deposit in lieu of an escrow account. Stern v. Norwest Mortgage, Inc., 179 Ill.2d 160, 165 (1997). As to escrow waiver fees, another Illinois Supreme Court case authorizes lenders to charge fees when borrowers choose to forgo both an escrow account…
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Can we allow customers to open their escrow accounts at other banks?
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While the Mortgage Escrow Account Act does require that an account pledged in lieu of an escrow account must be “with the mortgage lender,” there is no similar requirement that applies to ordinary escrow accounts. 765 ILCS 910/6. If your loan documents allow escrow accounts to be maintained at outside banks, and if you follow…
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If a customer chooses to open an “interest bearing time deposit” account in lieu of an escrow account, does that have to be a certificate of deposit or could it be a regular savings account (without any premature withdrawal penalties)?
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The Act does not define the term “interest bearing time deposit.” Therefore, we must interpret the term by its plain language, keeping in mind that the purpose of that section is to allow borrowers to benefit from the interest earned on the money held for payment of taxes. Stern v. Norwest Mortgage, Inc., 179 Ill.2d…
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Is there a ceiling on the amount that can be placed into an escrow account? Would that ceiling apply to a savings account opened in lieu of an escrow account?
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The Mortgage Tax Escrow Account Act provides the ceiling for how much can be placed in escrow accounts. No agreement for the mortgage of a single-family residence shall contain any requirement that the mortgagor of the residence shall maintain in any escrow account for the payment of real property taxes or in any escrow-like arrangement…
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As to Section 7 of the Mortgage Escrow Account Act, does federal law preempt the mortgage escrow requirement for higher priced mortgage loans or where Fannie Mae requires an escrow account? Is the 65% notification still required, even though we would not be able to release the escrow account under federal law?
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Section 7 exempts mortgages guaranteed by the federal government from Section 5 (allowing cancellation at 65%). 765 ILCS 910/7 (“The borrower shall not have the right to terminate any such arrangement under Section 5 in conjunction with mortgages insured, guaranteed, supplemented, or assisted by the State of Illinois or the federal government that require an…
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Under the Mortgage Escrow Account Act, if a customer opts to establish a certificate-in-lieu account instead of an escrow account, would we have to notify the customer of their option to terminate the account once the loan is reduced to 65%? Would we have to release the pledge if requested after reducing the loan amount to 65%?
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We believe that Section 5 (requiring lenders to notify borrowers of the option to terminate an escrow account) would apply when a borrower holds a time deposit account in lieu of an escrow account. While Section 5 mentions only “escrow accounts,” we believe that it was intended to also cover pledged accounts established under Section…
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Does the Mortgage Escrow Account Act requirement that we notify borrowers when the loan principal is down to 65% apply just to the property tax escrow, or does that apply to everything in the escrow account?
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We believe that the notice requirement in Section 5 of the Act applies only to an escrow account set up to pay property taxes. 765 ILCS 910/5. This is because “escrow account” is defined in the Act as an account “out of which the lender pays the taxes on the property covered by the mortgage,”…
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Does the Illinois Escrow Account Act apply to all of the loans that we make, even if they are out of state?
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In general, there are several considerations that go into determining which state’s laws may apply to a loan. Your loan documents might include “choice of law” provisions that state which state’s law will apply. Emigrant Mortg. v. Chicago Financial, 386 Ill.App.3d 21 (1st Dist. 2007). In the absence of such provisions, Illinois courts look at…