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Handling ACH Origination Exception Issues
Shelly Simpson

April 17
Fair Lending - Internal Monitoring
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April 22
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April 24
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HSA Basics
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April 29
Required Training for Loan Originators
Mary Beth Guard and Jack Holzknecht



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#1185394 - 05/18/09 11:59 AM Escrows and Pay Offs
IMSHY Offline
Gold Star

Registered: 01/04/05
Posts: 375
Loc: NM
I just tried doing a search and couldn't find a question that fits mine. Our system is set up to quote payoffs by taking the principal balance plus accured interest and minus the esrow balance. However, during a training seminar we were told that we can't do that; but we weren't given the citation in the regulation that backs up the statement. Where can I find this information in the regulation or is it just a best practice to refund the entire escrow back to the customer?

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Lending Compliance
#1185650 - 05/18/09 03:10 PM Re: Escrows and Pay Offs [Re: IMSHY]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 39999
Loc: Bloomington, IN
There has been a lot of debate on this issue. And for the most part I have in the past agreed with the contention that you could not deduct the escrow balance from the payoff figure.

However I want to throw this out for discussion.

3500.17(f)(2) states the following:

(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.

and 3500.17(i)(4)

(iii) Short year statement upon loan payoff. If a borrower pays off a mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the payoff funds.


If I look at the escrow account and it shows a positive balance of $X I subtract it from the payoff quote, on the other hand if it shows a negative balance of $X I add it to the payoff quote.

In either case I have not performed an escrow account analysis, therefore I do not fall under the direction of .17(f)(2).

Once the payoff is received and processed I perform the shot year analysis required by .17(i)(4). This analysis will result in a neither a shortage or surplus balance, or at least it shouldn't. However, if it does, for whatever reason, result in a surplus then I follow the requirements of .17(f)(2). If it results in a shortage, then I attempt to collect as allowed by .17(f)(3).


Opinions please.



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

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#1186253 - 05/19/09 11:49 AM Re: Escrows and Pay Offs [Re: Dan Persfull]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 39999
Loc: Bloomington, IN
bump
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1248231 - 09/10/09 02:25 PM Re: Escrows and Pay Offs [Re: Dan Persfull]
DD Regs Offline
Power Poster

Registered: 11/10/08
Posts: 4066
Loc: Somewhere in the middle
Bump again,

Is there no clear answer (I know what am I thinking and clear answer from HUD) as to whether the Escrow Balance can be applied to a payoff quote?
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#1248458 - 09/10/09 06:04 PM Re: Escrows and Pay Offs [Re: DD Regs]
David Dickinson Offline
10K Club

Registered: 11/28/00
Posts: 13799
Loc: Central City, NE
This is a gray area - obviously from the lack of response. My personal opinion is that escrow money can never be applied to the loan balance. This opinion comes from the HUD Q&A that addresses loans that are past due and applying a surplus to the loan. HUD states this not the lender's money and it can't be applied.

Therefore, I believe any escrow balance should not be netted in a loan payoff - whether short or long. As Dan quoted:
3500.17(i)(4)

(iii) Short year statement upon loan payoff. If a borrower pays off a mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the payoff funds.

You MUST complete an escrow analysis when receiving a loan payoff so you can calculate the short year statement.

Dan said "In either case I have not performed an escrow account analysis, therefore I do not fall under the direction of .17(f)(2)." I believe you have per the direction of 3500.17(i)(4)(iii) to conduct a loan payoff (short year) statement.

Let's see what discussion this creates. smile
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David Dickinson
http://www.bankerscompliance.com

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#1264440 - 10/09/09 10:07 AM Re: Escrows and Pay Offs [Re: David Dickinson]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 39999
Loc: Bloomington, IN
David, I scanned the new FAQ and found nothing related to payoffs and the escrow balance. I did see the question where "transferred" escrow balances are to be shown in the 200 serious. However, I read that to apply to an in-house refinancing and not when a payoff is received from an outside source.

3) Q: Where should the transferred escrow balance in a refinance transaction be listed on the HUD-1?

A: The transferred escrow balance should be listed as a credit in lines 204-209 of the HUD-1.


I'm not going to be transferring any escrow balance to a new lender.


Quote:
)." I believe you have per the direction of 3500.17(i)(4)(iii) to conduct a loan payoff (short year) statement.


That section requires you to perform the short year statement within 60 days of receiving a payoff, not quoting a payoff. Quoting a payoff does not automatically equate to receiving one. Therefore would you expect a bank to do a short year statement each time a payoff quote request was received?

Again, as you and I both said this is a gray area and I'm not sure there is a clear cut opinion from HUD. Like you David, I'm just offering an alternative opinion for discussion.



Quote:
(I know what am I thinking and clear answer from HUD)


Do you have a clear answer from HUD?

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

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#1265221 - 10/09/09 09:53 PM Re: Escrows and Pay Offs [Re: Dan Persfull]
David Dickinson Offline
10K Club

Registered: 11/28/00
Posts: 13799
Loc: Central City, NE
As I stated in my post, this is a gray area. Here is a Q&A from HUD concerning escrows. http://www.hud.gov/offices/hsg/ramh/res/resindus.cfm

Refer to #39:
If the borrower's escrow account includes a surplus greater than $50 which HUD's rules require be refunded, may the servicer credit the surplus directly to the principal, rather than refund the surplus to the borrower?

No. However, the servicer may inform the borrower in the information accompanying the return of the surplus that the borrower may elect to use the refund to reduce principal or have it credited against the next year's escrow payments.


I agree the new rules are referring to an in-house refinance. This Q&A makes it clear to me the lender does not have the right to make a decision with what to do with the borrower's escrow money.

You can hang on to the money up to 60 days after a loan payoff, but I don't believe you can apply it to the principal amount.
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David Dickinson
http://www.bankerscompliance.com

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#1265238 - 10/10/09 10:36 AM Re: Escrows and Pay Offs [Re: David Dickinson]
WHEDA Offline
100 Club

Registered: 04/07/09
Posts: 165
Loc: Wisconsin
#39 in the HUD Q&A states, "If the borrower's escrow account includes a surplus . . .". IMO this infers that some form of analysis was run, otherwise you wouldn't know if there was a surplus. However, quoting a payoff would not, in and of itself, trigger an analysis.
The response to #39 states, ". . . the servicer may inform the borrower in the information accompanying the return of the surplus . . ." which infers that the short year analysis that is run post-payoff revealed a surplus. If the escrow balance (+ or -) was included in the payoff calc, there should be neither be a shortage nor an surplus to collect/refund. After payoff there is no loan to which any surplus can be applied.

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#1265243 - 10/10/09 11:32 AM Re: Escrows and Pay Offs [Re: WHEDA]
David Dickinson Offline
10K Club

Registered: 11/28/00
Posts: 13799
Loc: Central City, NE
I'm the first to say this is not clear. I believe escrow money NEVER belongs to the lender. The lender is similar to a trustee of this money. HUD makes it clear in this Q&A the lender does not have the right to apply surplus funds to the loan, unless that's the directive of the borrower.

HUD also tells us when a loan is paid off, the lender has 60 days to return the money TO THE BORROWER. It doesn't say anything about "optionally, the lender can apply the escrow balance to the principal balance" even though that would be easier and more convenient for the borrower. This tells me the lender has no right to do so.

Whenever there's a payoff, everything in the escrow account is a surplus. Therefore, I don't agree with the analysis provided by WHEDA.
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David Dickinson
http://www.bankerscompliance.com

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#1462243 - 11/01/10 07:09 PM Re: Escrows and Pay Offs [Re: David Dickinson]
Glutes Offline
Gold Star

Registered: 12/21/05
Posts: 468
Loc: Texas
Got a loan scenario regarding escrow and payoffs and I've searched the forum for any information on this.

I found a handful of threads but didn't really find any clear cut answer on this topic. Nevertheless, this thread appears to be the closest in providing a real answer which would be that "it's a grey area" (unless I've missed one that provides a clear answer).

My scenario is this. We received an early payoff request by customer with the following loan details.

Loan balance: $2,000
Escrow balance:$1,700
Loan Payment: $400

Borrower is asking if they can apply their escrow balance to the loan this month while paying the remaining balance of $300 which is less than their monthly payment. This would pay the loan off. Borrower communicated that they would be responsible for paying their insurance and taxes after the loan is paid off since the escrowed funds collected would have been exhausted to help payoff the loans. Our core processing system allows for the netting of escrow balances.

In searching the forums for answers or citations on payoffs and escrow balances, it appears that the only citations provided does not specifically address the handling of escrow balances at payoff but rather addresses whether a "surplus" (identified after analysis) can be applied to principal.

Bottom line, what would you do in this scenario and what would your response be to the customer requesting/asking if they could payoff the loan with part of the proceeds coming from their escrow account?

Sorry if this question is a redundant question in here. I believe it's clear that this is a grey area, so I'm looking more at responses on how you would handle this scenario which is driven by the customer requesting/wanting to apply his escrow funds to the loan to help pay if off rather than the Bank wanting to apply an escrow "surplus" to the principal of an ongoing loan instead of refunding to the borrower.

Thanks for any responses!

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#1462670 - 11/02/10 03:08 PM Re: Escrows and Pay Offs [Re: Glutes]
Glutes Offline
Gold Star

Registered: 12/21/05
Posts: 468
Loc: Texas
bump

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#1462671 - 11/02/10 03:11 PM Re: Escrows and Pay Offs [Re: Glutes]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 39999
Loc: Bloomington, IN
It all depends on which side of the fence you want to lean on.


http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1461653#Post1461653
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1462695 - 11/02/10 03:23 PM Re: Escrows and Pay Offs [Re: Dan Persfull]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 15750
Loc: The Swamp
But, I know at least 3 of us (included Dan) have submitted a request for clarification to HUD, so maybe we'll get an answer sooner than later!
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My opinion only.

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#1462700 - 11/02/10 03:26 PM Re: Escrows and Pay Offs [Re: Dan Persfull]
Glutes Offline
Gold Star

Registered: 12/21/05
Posts: 468
Loc: Texas
Thanks for the response Dan, and the link to the more recent thread. I forget there is a forum dedicated to RESPA. I just searched in the Lending forum. My mistake. I'll follow up on the linked thread.

Again, thanks!

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#1462710 - 11/02/10 03:32 PM Re: Escrows and Pay Offs [Re: Glutes]
Glutes Offline
Gold Star

Registered: 12/21/05
Posts: 468
Loc: Texas
Well, I guess I'll follow up here:

In reading through the linked thread, I still see the citation on the "surplus" as the regulatory guidance for not being able to apply escrow funds to the loan at payoff. While RESPA doesn't expressly grant you the authority to apply escrow funds to the loan balance at payoff, it certainly does not expressly prohibit it either IMO from what I can see.

As Dan stated, I guess it depends on which side of the fence you want to lean on. I'm of the position that the prohibition to apply "surplus" funds to any principal balance first implies that analysis has been done identifying a "surplus" and second isn't specifically addressing a payoff scenario; therefore, this language isn't prohibiting you from applying any remaining escrow "balance" (not an identified surplus) to the loan at payoff.

I'm with you folks, it sure would be nice to have this specific issue clarified.

Again, thanks for your response Dan and RR and sorry for the duplicate thread.

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