Topic: Escrow Accounts
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What is the correct way to pay out an escrow account when a borrower terminates a mortgage loan? Is it taken off of the loan principal or is it refunded directly to the borrower?
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We believe that, until January 2014, at the termination of a mortgage loan, the remaining escrow account must be refunded directly to the borrower (unless the total amount of surplus is less than $50, in which case the amount may be applied to the loan principal). 12 CFR 1024.17. The Department of Housing and Urban…
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For a mortgage loan, do we need to have CIP information & a tax ID number for an insurance company before we pay the company from an escrow account?
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We do not believe that your CIP would apply to an insurance company that simply receives checks from the bank. The CIP rules apply only to “customers,” defined as an individual or person that “opens a new account.” 31 CFR 1020.100(c)(1)(i). However, you may be required to obtain a tax identification number for purposes of…
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Are there rules in place regarding the types of accounts that cannot be charged a dormant account fee? For example, what about accounts held by minors or escrow accounts?
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We are not aware of any law that would prevent your organization from charging a dormant account fee on accounts held by minors or on escrow accounts. Generally, Illinois law permits a bank to determine an appropriate dormancy fee in accordance with the bank’s prudent business judgment and safe and sound operating standards. 205 ILCS…
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Under the Illinois Mortgage Escrow Account Act, we have to allow customers to terminate their escrow accounts once a loan is paid down to 65% of the original loan amount. Does this conflict with federal escrow requirements, and if so, which law applies?
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Based on our discussion of this issue with an attorney at the CFPB, to the extent that a federal requirement conflicts with the Illinois law, federal law preempts the state law. (Also, we are aware of at least one case holding that federal escrow regulations that conflict with Illinois law preempt the Illinois law’s requirements.…
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Under the new HPML requirements, we must keep escrow accounts for HPMLs open for five years. However, what if Illinois law permits a borrower to cancel the escrow before the five years is up?
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In the context of mortgage escrow accounts, to the extent that a federal requirement conflicts with the Illinois law, federal law will preempt the state law. Olsen v. Financial Fed. Sav. & Loan Ass’n, 105 Ill.App.3d 364, 371 (1st Dist. 1982). (This is not always the case, as some federal laws expressly allow state law…
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Currently we provide a disclosure entitled “Notice to Borrower of Requirements of Illinois Mortgage Escrow Account Act.” Is this disclosure still required in the State of Illinois?
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We believe that this disclosure is still required under the Illinois Mortgage Escrow Account Act. That law requires you to provide notice of the Act’s requirements at every mortgage loan closing. 765 ILCS 910/11.
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We are considering using escrow accounts for commercial real estate loans. Do you have forms, procedures, or advice for us on this topic?
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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 Regulation Z defines the term (in 12 CFR 1026.3(a)(1) and the accompanying official staff commentary). 12 CFR 1024.5(b)(2). There are at least three…
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We do not have a homeownership preservation program in place; does the Mortgage Escrow Account Act require this?
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We do not believe that anything in those provisions requires the bank to set up a “homeownership preservation program.” Instead, Section 6.5 creates exemptions from some of the Act’s requirements for loans made by a “Subprime Mortgage Lender.” 765 ILCS 910/6.5. The term is defined as “a mortgage lender that has, for at least 2…
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If there is an abundance of funds in a commercial escrow account, can the overage be applied to the balance of the loan or must it be reimbursed to the borrower?
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This might also depend on your contract with the customer, but we believe that the standard practice is to simply reimburse any overages. There are no laws that specifically govern how overages should be handled or that would prohibit the bank from applying overages to the balance of the loan. The Illinois Mortgage Tax Escrow…
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What disclosures are we required to provide to the borrower when setting up a commercial escrow account?
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We are not aware of any disclosure requirements that would apply to a commercial escrow account.