Not really 'cause I still can't find anything in the mortgage document that says applying escrow funds to reduce principal on a past due loan is ok. Would have to search through state laws of a dozen different states now to see if anything was said there. I haven't time to listen to the CFPB YouTubes at work so I doubt I'll have time for pouring over real estate laws. Hopefully if somebody finds something in their state laws they'll share it. Till then, I'm going to keep this out of sight from my servicing area so they don't go getting any ideas.

MB, I'm going to look at my offset language (again) and see what I think about it...

Okay, MB...bear in mind this is the State of Georgia~! But just for reference. Also, bear in mind that my bank does not escrow, however, I have a test account set up FOR escrow. I just played with the options I have for the escrow portion of the DSD. (We have the option of a custom agreement, or WK language inserted in the DSD). The default WK language clearly gives us the right to apply escrow funds to the outstanding defaulted balance.

My only remaining question is it looks like it would only apply under demand, not just past-due. [It's really not a question, it looks clear to me].

"If, by reason of default under this security instrument, lender declares all secured debts due and payable, Lender may then apply Funds (escrow) against the secured debts."

There is then some language whereby if the debtor pays the balance under default, we will prompty refund any Funds (escrow) being held by us.

ETA: I see no specific language addressing surplus. IN reviewing the note, it says the bank can take ANY funds, other than IRA-type or funds where the borrower has a representative interest only. Now...my only question regarding that would be...does the borrower have a 'representative' interest only in an escrow account?

Reviving an old thread but a timely topic for me...

I could see how the legal department came up with that conclusion simply by interpreting the phrase in a different manner than was done in this thread.

"...then the servicer may retain the surplus in the escrow account pursuant to the terms of the mortgage loan documents."

One interpretation is that "in the escrow account" is included to describe where the surplus must be retained.

The other interpretation is that "in the escrow account" is simply an adjective phrase to describe where the surplus was derived from. Put another way, "... the servicer may retain the surplus (that is) in the escrow account pursuant to the terms of the mortgage...". Then your use of the surplus would strictly depend on what your mortgage documents say, which is consistent with the Q&A mentioned earlier.

Interesting...