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.
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The opinions expressed are mine and they are not to be taken as legal advice.