I'm sure this has been addressed previously but not of the search criteria I entered have narrowed it down to fewer than 200 threads to review.

In what reg would I find guidance regarding the handling of T&I escrow funds when a mortgage loan is paid off?

Thanks in advance

Reg X discusses Escrow.

narrowed it down to fewer than 200 threads to review

As many times as this topic has come up I'm surprised you were able to narrow it down to just 200.

In a nutshell -

You cannot net the positive balance from the loan's payoff without the express (written) consent of the borrower.

You can add a negative balance to the payoff because that is money the borrower owes.

If this is an in-house refinancing then any escrow credit should be shown in the 200 series of the HUD.

At 1024.17(i)(4)(iii) in it states that a short year statement must be sent to the borrower within 60 days after receiving the pay-off funds, but I haven't read anything that prohibits crediting the escrow balance to the principal balance to quote a net pay-off amount. What am I missing?

How did they "receive" the funds in that scenerio???

They owe us $100,000, we are holding $5,000 in escrow, so they send us only $95,000.

If they are selling, they get the $5,000 in proceeds at closing rather than waiting up to 30 days. If a refi, hopefully they factored in the principal balance of their existing loan without netting out the escrow.

Here's a couple of threads using +escrow +net +payoff as the search term.

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1248458&Searchpage=1&Main=133157&Words=%2Bescrow+%2Bnet+%2Bpayoff&Search=true#Post1248458

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1468204&page=1

What it really comes down to is that there is no exceptionally clear guidance and only circumstantial evidence. Some of it includes the FHA earlier this year clarifying that escrows cannot be netted at pay-off. In Texas, we have a new required pay-off statement that must be used. It has no netting provisions and contains the following statement: ANY AMOUNT HELD IN ESCROW AT CLOSING WILL BE SETTLED IN ACCORDANCE WITH APPLICABLE FEDERAL LAW.

So, the circumstantial evidence is mounting. You might want to review your State law for something on point.

Ultimately, the funds do not belong to the bank, they are the customers. The Bank cannot just unilaterally decide what to do with the money. Also, read your escrow agreement very carefully.

Thank you Dan and Randy.

As Dan said above


See Jerod's answer in this thread for the RESPA citation.