I'm currently reviewing our annual escrow statements. I know if the shortage is less than one month's escrow payment we have three courses of action,
1. Allow shortage to exist and do nothing.
2. Require the borrower to pay within 30 days
3. Require the borrower to repay in 12mo equal payments.

How about a shortage equal to or greater than. RESPA is stating I only have two courses of action.

1. Allow shortage to exist and do nothing or
2. Require the borrower to repay in 12mo equal payments.

Here is my question. Can we include a optional coupon at the bottom or our annual statement if the borrower wants to pay it in full if the shortage is equal to or greater? I think I'm getting caught up in three courses of action versus two courses of action.

Thanks

The following is from our http://www.bankersonline.com/bankerstore/index.php?main_page=product_info&products_id=423

Shortages: [24 CFR 3500.17(f)(3) - page 7014]
If the annual analysis discloses a shortage (an amount by which the balance contains less than the target balance) the servicer’s options depend upon whether the shortage is less than or greater than one month’s escrow payment.

Less than 1 month’s payment - If the shortage is < one month’s escrow payment, the servicer may require the borrower to pay into the account the amount of the shortage within 30 days or require the borrower to repay the shortage in equal payments over a 12 month period.

Equal to or Greater than 1 month’s payment - If the shortage is equal to or > one month’s escrow payment, the servicer has no choice but to collect the shortage in equal monthly payments over a 12 month period.

On the Equal to or Greater than 1 month's payment can we give them the option to pay in full and include a coupon for the full amount if they elect to?

Yes. But it has to be an option and cannot in any way indicate it's a requirement to pay the lump sum.

Our statement read as follows:

Your escrow balance reflects a shortage of $XXX.XX. The shortage will be collected over a period of 12 months. If you prefer you can pay the shortage by XX/XX/XXXX.

Following that statement is the payment change information.

It doesn't state that it is a requirement. At the bottom of the statement it states "use this coupon only if you elect to make the shortage payment in full".

Thanks Dan

David stated above that the equal payments over a 12 month period. RESPA says over at least a 12 month period. Is this a mistake or can the payment truly be spread out over, say, a 15 month period to accommodate the borrower?

You could collect the shortage over a longer period but your next escrow analysis will reflect an increased shortage and the payment will have to be adjusted once again to collect the additional shortage. Collecting the shortage for longer than 12 months will just create a continuous loop of shortages and the borrower will more than likely never catch up the escrow.

Thanks Dan. Good point about the loop.