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#2115193 - 01/23/17 04:06 PM Escrows and Disbursement Timing
COKelly Offline
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Registered: 05/10/11
Posts: 3
This time of year, we run into an issue with our initial escrow analysis in Colorado. First half taxes are paid in February, and second half are due in May. If we close in Jan - March, (payment dates in Feb - April) the initial disclosure projects 12 months of disbursements, but doesn't capture the second half tax payment.

We do an annual analysis every June - the annual analysis does capture both tax payments but also can cause a big payment shock for the customer compared to the initial statement.

I am trying to make a case to where we can use the full tax payment in the initial estimate, even though it is outside of the 12 month disbursement window.

Has anyone else run into this issue? Any help or experience is most appreciated.

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#2115242 - 01/23/17 09:52 PM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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Many states have taxes that are not 6 months apart. Depending on the closing date, you can run into cases where the 2nd half of taxes do not show up in the escrow account computation year. You can only inflow for what will outflow in the next escrow account computation year. RESPA does not allow exceptions. Instead, RESPA encourages the lender to advise the borrower of the upcoming "payment shock".

If you push your case, you are requiring too much money at closing - not a "minor" violation. Instead, issue a short year statement in June, like you describe.
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#2115321 - 01/24/17 12:43 PM Re: Escrows and Disbursement Timing [Re: David Dickinson]
COKelly Offline
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Registered: 05/10/11
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David,

Thank you so much for the response. That is historically how we have handled it, but we have recently seen other banks doing this differently.

Have you (or anyone) ever seen someone use these sections of RESPA to justify a different calculation at closing? It seems to allow the servicer to take total disbursements (say $1800 total annual taxes and $600 insurance for $2400 total annual disb) and divide by 12, so $200 plus your cushion. Our software allows us to do that (which doesn't drive compliance, but just interesting) so I was wondering if there were any out there that may do this at their institution?


ASSESSMENTS FOR PERIODS LONGER THAN ONE YEAR. Some escrow account items may be billed for periods longer than one year. For example, servicers may need to collect flood insurance or water purification escrow funds for payment every three years. In such cases, the servicer shall estimate the borrower's payments for a full cycle of disbursements.

Charges during the life of the escrow account. Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth (1/12) of the total annual escrow payments which the servicer reasonably anticipates paying from the account

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#2115431 - 01/24/17 08:02 PM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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I can tell you from experience that this is an area that has been abused and cited frequently by examiners. That other banks are doing it differently, doesn't surprise me. I know of no way to get around this. HUD even addresses this in their "payment shock" memo's and technical corrections that they issued in 1998.
http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_19687.pdf
Geez - I feel like an old man, pulling out a FR from 1998!) smile

ANNUAL taxes are not "periods longer than one year". Flood insurance used to be available for 3 years (prior to 1999). That's what RESPA is referring to. When that went away, so did the option to go beyond 1 year with your escrow calculations.

You have to read and understand all of RESPA - which is poorly written. There's quite a bit of info in .17(k) about never going beyond the escrow account computation year. IOW, you can't take the last thing you posted and let it override other things stated in the reg.
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#2117803 - 02/09/17 06:50 PM Re: Escrows and Disbursement Timing [Re: David Dickinson]
COKelly Offline
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Registered: 05/10/11
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Thank you so much - I appreciate the feedback and especially the link to the 1998 FR. And I felt old, because I had to look up IOW. :-)

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#2145694 - 09/12/17 02:26 PM Re: Escrows and Disbursement Timing [Re: COKelly]
BA13 Offline
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Registered: 07/22/16
Posts: 46
David,
Would there be any issue with adjusting one of the tax due dates to one month earlier? If tax delinquent dates are Nov & May, they want to use Oct & May (not April) so that 2 tax disbursements are due in the computation year? Escrow computation year is Nov-Oct in this scenario and this practice would only take place a couple times a year (when taxes are due). I feel this practice is incorrect and definitely unfair! Would you agree?

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#2145699 - 09/12/17 02:38 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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You can put whatever months in that you like - you just need to actually make the payments in those months, or you are pre-accruing which is a violation. You can't put in Oct and actually make the payment in Nov.
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#2145711 - 09/12/17 03:07 PM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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Randy said: "you can put whatever months in that you like". I can't agree with that statement. 3500.17(k) says (in my layman's terms) you must consider discounts but also pay things as late as possible but avoid penalties. For example, in my state, taxes are due December 31st. They aren't delinquent (and there's no penalty) until April and September. You should not be paying my taxes in December, January, February. If you did, that would require me to have more money in the escrow sooner than it is needed.

If taxes are delinquent April 1st & Sept 1st (which they are in my state), then you need to make the payments in March and August. If you made them in April or Sept, they would already be delinquent. But you can't make the payments earlier than April or Sept.

BA13: I hope this also answers your question too.
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#2145737 - 09/12/17 04:48 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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Sorry David, I don't read it that way:

(k) Timely payments. (1) If the terms of any federally related mortgage loan require the borrower to make payments to an escrow account, the servicer must pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower's payment is not more than 30 days overdue.

As long as it is on or before the deadline, you can pay it as soon as the billing comes out if you wish.
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#2145741 - 09/12/17 04:59 PM Re: Escrows and Disbursement Timing [Re: COKelly]
BA13 Offline
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Registered: 07/22/16
Posts: 46
It does, thank you. Our delinquent dates are Nov 10 & May 10 so we have time to pay in those months. I'm guessing our secondary market investors are paying electronically so there shouldn't be an issue there as well.

This sparks another question. If the insurance premium is due say February 3rd, we would show our disbursement date on the Escrow Analysis / Escrow Disclosure as January as we'll actually pay if from the account then, correct? Showing February on the disclosures and actually paying it from the escrow account in January would be incorrect.

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#2145743 - 09/12/17 05:04 PM Re: Escrows and Disbursement Timing [Re: COKelly]
BA13 Offline
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Registered: 07/22/16
Posts: 46
Randy, I didn't see your last post until now. Your explanation is what our lender is stating but they only want to change the dates those couple times a year when there will only be 1 tax payment due. After that passes, they'll use the Nov 10 & May 10 dates. Switching the dates is wrong and unfair in my opinion.

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#2145753 - 09/12/17 06:04 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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So you are going to have a payment for tax shown in October of the first escrow calculation year and another one shown in November in the second year. You are asking for trouble doing that. You are double dipping for the same payment.
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#2145754 - 09/12/17 06:26 PM Re: Escrows and Disbursement Timing [Re: COKelly]
BA13 Offline
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Registered: 07/22/16
Posts: 46
Oh I agree and we're not going to allow it!

Thanks for all the feedback!

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#2145843 - 09/13/17 11:28 AM Re: Escrows and Disbursement Timing [Re: rlcarey]
David Dickinson Offline
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Randy: you're disregarding this:

3500.17(d)(2) Aggregate analysis. (i) In conducting the escrow account analysis using aggregate analysis, the target balances may not exceed the balances computed according to the following arithmetic operations:

(A) The servicer first projects a trial balance for the account as a whole over the next computation year (a trial running balance). In doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty. The servicer does not use pre-accrual on these disbursement dates. The servicer also assumes that the borrower will make monthly payments equal to one-twelfth of the estimated total annual escrow account disbursements.

The context of this is you need to wait as long as possible (same month or month before, as applicable) to avoid penalties. If there's a discount for paying early, you can pay early.

From .17(k)(3)
For the payment of property taxes from the escrow account, if a taxing jurisdiction offers a servicer a choice between annual and installment disbursements, the servicer must also comply with this paragraph (k)(3). If the taxing jurisdiction neither offers a discount for disbursements on a lump sum annual basis nor imposes any additional charge or fee for installment disbursements, the servicer must make disbursements on an installment basis. If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer's discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with paragraphs (k)(1) and (k)(2) of this section. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer.

The context of this is you can't pay early (annual basis) unless there's a discount. You must pay in an installment basis. With this in mind, how can you justify paying 2, 3 or more months earlier than the deadline?

Also, the examples in Appendix E demonstrate what I'm saying and not paying any earlier than you have to.


Edited by David Dickinson (09/13/17 02:44 PM)
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#2145850 - 09/13/17 12:02 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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Sorry - I don't see anything in there that says you have to wait to the last minute to pay anything. It only says "on or before" the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty. It does not define that "before" means any specific period of time. The escrow analysis provided to the consumer is based on projected disbursement dates. Disbursement date means the date on which the servicer actually pays an escrow item from the escrow account. It doesn't matter to the consumer when you pay the taxes in the long run, as long as you pay them in the month that you project the payments. Most banks do pay in the same month on which any deadline that requires payment may be established. But that doesn't mean they have to. As long as the actual disbursement dates are those shown in the escrow analysis, there is no pre-accrual happening. Basically, if you have the bill in your hand, you can pay it.

I just went through this analysis and read all of the Federal Registers from 1996 forward and if I missed something that defines what "before" means in the regulation, I would surely be interested in seeing it.
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#2145892 - 09/13/17 02:42 PM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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Yes it says "on or before" but it also says "to take advantage of discounts, if available". You are ignoring that part of the sentence. If there's no discount available, what justification do you have to pay earlier than the deadline? No, they don't define "before" but they give examples in Appendix E.

You say "It doesn't matter to the consumer when you pay the taxes in the long run". It should! If you are paying disbursements months before they are due, then the consumer has to fund the escrow account with money that isn't necessary. You are also not considering present value of money issues.
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#2145898 - 09/13/17 03:00 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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Loc: Galveston, TX
I don't see any mention of due dates in Appendix E - it says disbursed on. Unless you are looking at a different Appendix E than I am.

Appendix E

Assumptions

Disbursements:

$360 for school taxes disbursed on September 20

$1,200 for county property taxes:

$500 disbursed on July 25

$700 disbursed on December 10
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#2145921 - 09/13/17 03:55 PM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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You're right about Appendix E. How do you respond to the statements about "to take advantage of discounts" and having money before it is due is a unnecessary burden to the consumer?
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#2145928 - 09/13/17 04:15 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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I think this discussion has gotten off the beaten track, but I think it is a good discussion none-the-less. And in the grand scheme of things - I don't disagree with you on how you should set up an escrow payment methodology from a practical standpoint.

However, I guess I don't see it as an unnecessary burden to the consumer. They owe the money and once the bill is issued, I think the bank is free to pay it in any time period that they choose to meet the penalty/discount deadline.

This whole discussion started by the OP when someone wanted to alter their initial escrow statement to show a disbursement earlier than they normally made such disbursements in order to avoid a payment shock for the customer. Well, the way to avoid a payment shock can be handled as you well know in another manner.

If tax bills come out by the end of October and the payments have to be made by December 31st, the bank is more than free to make those payments in November or December. If they make them in November, sure the borrower will be required to place an extra month's escrow tax payment as the prepaid amount at closing, but over the course of the loan, it will not alter their required monthly escrow payment amounts as amortizing the tax payment over all the following twelve month periods will be the same no matter how you slice it.

What I was really only trying to point out is that you cannot say that you are going to pay the taxes in November on the initial statement when you in reality have no intention to pay them until December, which I think 99.9% of banks probably do anyway.
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#2146072 - 09/14/17 12:02 PM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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Good discussion Randy and I agree we've taken this off track. I understand your point and I think you understand mine.

I don't agree that a bank can pay disbursements earlier than what is necessary, but I'm okay with agreeing to disagree on this. smile
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#2146101 - 09/14/17 01:09 PM Re: Escrows and Disbursement Timing [Re: COKelly]
MScarn6942 Offline
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...did I just read a debate, on the internet, that didn't dissolve into arguing and name calling? smile
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#2146106 - 09/14/17 01:31 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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David and I refrain from calling each other names unless we are standing right in front of one another smile
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#2146185 - 09/15/17 06:21 AM Re: Escrows and Disbursement Timing [Re: COKelly]
David Dickinson Offline
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Registered: 11/28/00
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What do you mean by that? You no good, bug eating ..... smile
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#2147310 - 09/22/17 02:36 PM Re: Escrows and Disbursement Timing [Re: COKelly]
BA13 Offline
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Registered: 07/22/16
Posts: 46
Oh, it's me again! I feel confident that I know the answer to this question but it's just a situation that makes you think it's not right.

The loan closed in September, first payment November. Tax delinquent dates are Nov & May. The seller paid all of 2017 taxes at or prior to closing therefore there is no tax disbursement due in the escrow computation year. We would not set up a tax payment because there's no tax outflow, correct?

We would discuss this situation with the borrower as they will be extremely short at time of analysis in 2018. I'm guessing the purchasing department for the new investor will freak out because we didn't set up a tax escrow!

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#2147317 - 09/22/17 02:56 PM Re: Escrows and Disbursement Timing [Re: COKelly]
rlcarey Offline
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Since you have an investor involved, you need to be talking to them as to how they want you to handle it.
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