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#1758132 - 11/15/12 02:03 PM Loan Servicing (Escrow) Quiz
WHEDA Offline
100 Club
WHEDA
Joined: Apr 2009
Posts: 189
Wisconsin
Ok, I lied. This isn't really a quiz. I can't score your response and give a grade because I don't know the correct answer. That's what I'm looking for.

Scenario:
- For 30 months Borrower pays PITI, which includes a payment for a monthly MI premium.
- In month 31 borrower looses job & can no longer cover monthly payment.
- Loan servicer advances their own funds to pay the monthly MI premium.
- Servicer acquires title to property through foreclosure.
- Shortly after filing a claim for loss with the MI company, the MI company requests a copy of all origination, collection & foreclosure documentation so they can audit the file.
- The MI company finds an indisputable reason to rescind coverage, denies the claim, and refunds ALL premiums that have been paid since the loan closing in a check to the servicer.

Q: Is the servicer entitled to retain the full premium refund, or must the portion paid by the borrower prior to default be returned to the borrower? (Please cite regulatory references used as the basis for your response.)

Thank you.

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#1758195 - 11/15/12 03:27 PM Re: Loan Servicing (Escrow) Quiz WHEDA
Tesla Offline
Power Poster
Joined: Nov 2003
Posts: 3,726
You are probably going to have to speak with legal counsel on this. My first thought, off the record, is that the bank would be entitled to keep the money, assuming there is a deficiency that needs to be paid - but I haven't seen the foreclosure documents, note or mortgage insurance and I AM NOT A LAWYER. So, take that information with a grain of salt. smile
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#1758632 - 11/16/12 03:39 PM Re: Loan Servicing (Escrow) Quiz WHEDA
WHEDA Offline
100 Club
WHEDA
Joined: Apr 2009
Posts: 189
Wisconsin
Thank you Tesla. Anyone else?

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#1758643 - 11/16/12 03:53 PM Re: Loan Servicing (Escrow) Quiz WHEDA
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,650
Florida
Like Tesla said, it would be a matter of the documents and in addition your specific state laws. It would be best to find an attorney competent in RE liquidation laws. If not, the bank could end up getting sued.
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#1759364 - 11/20/12 02:04 AM Re: Loan Servicing (Escrow) Quiz WHEDA
jlroberts Offline
Diamond Poster
jlroberts
Joined: Sep 2009
Posts: 1,601
Ohio
I agree - check with councel but this is my opinion.
Assuming that the loan is not in REO yet and still on the books then the refund would be deposited back into the escrow account just like any other refund of taxes or insurance for overpayment. The refund may or may not cover the shortgage in the account since the account is most likely in the negative from paying the taxes and insurance. If there is a surplus you are not required to refund the funds until the account is current.... Again, my opinion, I've not seen a foreclosure with a positive escrow balance when we take it off the books....

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