We have a mortgage loan that has an escrow account established for the payment of insurance & taxes. The borrowers on the account are the daughter and son-in-law of the guarantors. The daughter quit making payments some time ago, but the guarantors have been making payments for her. Long story short, the servicing loan officer wants the Escrow Surplus to be made payable to the guarantors only. I think that would be a violation of RESPA. Am I right or wrong?

The surplus must be refunded to the borrower.

(2) Surpluses.

(i) If an escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year's escrow payments.

I would insist the check be payable to all borrowers.

Thanks Dan. But let's say that the borrower's are divorced. The wife was awarded the property in the divorce, but she has never refinanced the note in her name only. Would the escrow surplus still be payable to both parties since they are both still the borrowers?

IMO, until she refinances he's still a borrower so the check should be payable to both.

There are always rules and there are always exceptions to those rules.

On the surface I would agree with Cowboys Fan, but, if you have a copy of the divorce decree than I think that would be your supporting documentation to refund the surplus to the wife. However, absent a copy of that decree I would say you have to refund according to your legal contract, which is both parties.