Topic: Escrow Accounts
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Under the Illinois Mortgage Escrow Account Act, does a “residence” include only the borrower’s principal residence, or would a non-owner occupied, 1–4 family investment property also be included? Also, it appears that the property tax notice required in Section 15 of the Act requires inclusion of only one of the four items listed (PIN, mortgage acct number, address of subject property, OR other property description). Is that correct?
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The Illinois Mortgage Escrow Account Act (MEAA) applies only to mortgage loans secured by owner-occupied, single-family residential real estate, when made “for the purpose of enabling another to purchase a residence.” Consequently, it would not apply to a purchase loan for non-owner occupied investment property, although it could apply to a borrower’s second residence. We…
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If we establish an escrow account for a mortgage loan after the loan closing has occurred, do we need to provide an Illinois Mortgage Escrow Account Act notice, an escrow account disclosure agreement, and an election form establishing the customer’s decision to open either an escrow account or interest bearing time deposit? We ordinarily provide these documents when establishing escrow accounts at the loan closing.
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Yes, we recommend providing all three documents when establishing an escrow account for the first time, even if the loan closing already has occurred. The Illinois Mortgage Escrow Account Act notice is required at the closing of any mortgage loan made for the purpose of purchasing a single-family owner occupied residential property. Your bank should…
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Does the Illinois Mortgage Escrow Account act apply to escrow accounts set up to pay private mortgage insurance (PMI), or does it apply only to real estate tax escrow accounts?
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We believe that the Mortgage Escrow Account Act applies only to escrow accounts that hold funds for purposes of paying property taxes. If an escrow account holds funds only for purposes of paying PMI premiums, we do not believe that the Act would apply. But if an escrow account holds funds for purposes of paying…
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Are there specific record retention requirements that apply to original homeowner insurance policies, annual escrow analyses, and mortgage releases for residential mortgage loans? We currently retain electronic copies of these documents for seven years and shred the paper copies after one year. We keep original copies of notes. Is that an acceptable practice?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. No, we are not aware of specific record retention requirements for original homeowner insurance…
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We are a national bank, and we offer escrow accounts to mortgage loan customers who request them. Are we required to provide the Mortgage Escrow Account Act disclosure at closing for refinance transactions on owner-occupied residential real estate, or is it required only for purchase money transactions?
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The Illinois Mortgage Escrow Account Act applies only to mortgage loans secured by owner-occupied, single-family residential real estate, when made “for the purpose of enabling another to purchase a residence.” Consequently, we do not believe that the law would apply to a refinance transaction, since it would not be made for the purpose of purchasing…
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Does the National Bank Act preempt the Illinois law that requires banks to allow customers to terminate their escrow accounts once a loan is paid down to 65% of the original loan amount? We are a national bank.
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In our view, the National Bank Act preempts state laws relating to escrow accounts for both residential and nonresidential loans for national banks. At the same time, we believe that some national banks in Illinois do comply with the Illinois law relating to the termination of escrow accounts when a loan is paid down to…
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In the next few years we may have some escrow accounts for loans in which the mortgage amount will be reduced to 65% of its original amount. Are we required to provide a notice? Are there model disclosures or verbiage available?
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Yes, the Illinois Mortgage Escrow Account Act (MEAA) requires two notices to be delivered to customers at two different times — one notice at the loan’s closing, and a second notice when the mortgage actually is reduced to 65% of its original amount by timely payments of the borrower (provided the borrower is otherwise not…
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When we make payments for taxes or insurance from a borrower’s escrow account, we are charged a fee for making the payments electronically. Can we pass the electronic payment fees on to the borrower? Or should our bank absorb that cost because we choose to make the payments electronically instead of mailing a check?
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Yes, we believe your bank may pass on the costs of these electronic payment fees to your borrowers, although to receive maximal protection under Illinois law, you should ensure that your customer agreements contain language that encompasses such passed on charges. Neither federal nor Illinois law prohibits charging borrowers any fees imposed on the bank…
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We have a higher-priced mortgage loan that is in foreclosure. There are not enough funds in the escrow account to pay the hazard insurance policy premiums. Do we have to keep paying the premiums? The borrower has not responded to our notices about the escrow account shortage or a request to discuss the possibility of finding a cheaper insurance policy. We qualify as a small servicer, but we typically do not force place hazard insurance because we have a blanket insurance policy to protect our collateral interest whenever a borrower’s hazard insurance policy lapses.
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No, neither federal nor state law requires your bank to continue paying the premiums or to force-place the insurance. However, you should review the terms of both your loan documents and your blanket policy to ensure that you haven’t committed to force-place insurance before making a claim against the blanket policy. Regulation X requires your…
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A customer obtained a higher-priced residential mortgage loan in 2011. The borrower has never requested to cancel the escrow account. Two years ago, the borrower entered into a contract for deed with a buyer for the home securing the loan. The customer provided proof that he canceled his homeowner’s insurance policy and that the buyer had obtained a new policy and was paying the premiums. But we never updated our system, and we continued to deduct insurance payments from the borrower’s loan payments and place them in escrow, without paying out any insurance premiums. Now there is an excess of funds in the escrow account, and we are facing two issues. First, can we terminate the escrow account? The borrower is in a nursing home, appears to be incapacitated and has executed a power of attorney, but the agent under the power of attorney has refused to terminate the escrow fund. Second, can we use the excess funds in the escrow account for the borrower’s loan payment, which is now overdue?
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While we address your specific questions below, we strongly recommend consulting with an attorney, as your bank could face liability under the Real Estate Settlement Procedures Act (RESPA), and possibly other laws, for the failure to discontinue collecting amounts for the cancelled homeowner’s insurance. Additionally, if the property securing the loan is subject to a…