Skip to content
BOL Conferences
Learn More - Click Here!

New Reply Thread Options
#2175989 - 05/01/18 12:52 PM TRID - Construction/Perm & Escrow
Anonymous
Unregistered

I was about to send off my response to a question but got cold feet; it seems too easy and wanted to check to see I'm not missing something. Disclaimer: I wasn’t at this institution when TRID rolled out, and the bank I worked for previously did not offer construction/permanent loans. A lot of early TRID decisions were made by a compliance officer that is no longer here and I have been in disagreement with most of these decisions, though, I am not very familiar with the CP product.

Our CPs use one set of disclosures and one loan closing.

Question:
We reflect 2mo of HOI and 2m of taxes in section G (initial escrow deposit) of the LE. This is again something we do not collect at closing because we do not escrow during the interest only phase of the loan. Prior reasoning for doing this was to show upfront because if the loan rolls into the permanent phase there’s no new documentation to provide the borrower to indicate what their initial escrow deposit needs to be. It is a feature and cost of the loan, but not initially. We still show that the loan is escrowed on the LE and what that estimated escrow amount is. It also reflects that the escrow payment doesn’t start until year 2. Can we remove the initial escrow deposit costs calculating cash to close from initial disclosures?

My thoughts:
Based on 1026.37(g)(3) and its commentary (below), I feel like these fields should be blank.

1. INITIAL ESCROW PAYMENT AT CLOSING.Under the subheading “Initial Escrow Payment at Closing,” an itemization of the amounts that the consumer will be expected to place into a reserve or escrow account at consummation to be applied to recurring periodic charges, and the subtotal of all such amounts, as follows:

i. (i) On the first line, the amount escrowed per month, the number of months covered by an escrowed amount collected at consummation, and the total amount to be paid into the escrow account by the consumer at consummation for homeowner’s insurance premiums, labeled “Homeowner’s Insurance __ per month for __ mo.”
ii. (ii) On the second line, the amount escrowed per month, the number of months covered by an escrowed amount collected at consummation, and the total amount to be paid into the escrow account by the consumer at consummation for mortgage insurance premiums, labeled “Mortgage Insurance __ per month for __ mo.”
iii. (iii) On the third line, the amount escrowed per month, the number of months covered by an escrowed amount collected at consummation, and the total amount to be paid into the escrow account by the consumer at consummation for property taxes, labeled “Property Taxes __ per month for __ mo.”


Commentary
1. OFFICIAL INTERPRETATION TO 37(G)(3)
HIDE
37(G)(3) INITIAL ESCROW PAYMENT AT CLOSING.
1. LISTED ITEM NOT CHARGED.Pursuant to § 1026.37(g)(3), each periodic charge to be included in the escrow or reserve account must be itemized under the “Initial Escrow Payment at Closing” subheading, with a relevant label, monthly payment amount, and number of months expected to be collected at consummation. If an item described in § 1026.37(g)(3)(i) through (iii) is not charged to the consumer, the monthly payment amount and time period used in the labels are left blank.

Being able to reach out to BOL's gurus and other members has been extremely helpful for me in the past, I really appreciate any guidance or thoughts.

Return to Top Reply Quote Quick Reply Quick Quote
#2176002 - 05/01/18 01:45 PM Re: TRID - Construction/Perm & Escrow Anonymous
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
We reflect 2mo of HOI and 2m of taxes in section G (initial escrow deposit) of the LE. This is again something we do not collect at closing because we do not escrow during the interest only phase of the loan.

So what you are telling us is that your cash to close from the borrower says $5,000, but $1,000 of that is escrows that you aren't collecting at closing so the customer only writes you a check for $4,000.

How does that reflect their legal obligation? It does not and it is not correct. You do not have to go into any in-depth analysis. If you are going to require escrows after the construction phase is completed, then you should have a future escrow agreement signed at closing that sets forth the requirement for the customer to fund the escrow account at that time.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
#2177640 - 05/10/18 05:15 PM Re: TRID - Construction/Perm & Escrow Anonymous
Anonymous
Unregistered

Thank you very much!

Return to Top Reply Quote Quick Reply Quick Quote
#2191994 - 09/07/18 09:24 PM Re: TRID - Construction/Perm & Escrow Anonymous
Glutes Offline
Platinum Poster
Glutes
Joined: Dec 2005
Posts: 591
Texas
I'd like to bump this thread as it is related to a recent transaction we are doing. I found some other similar threads, but figured, this is the most recent.

We will be financing a construction to permanent loan (6 mo. interest only, 5 year balloon) that will require escrow.

Escrow payments by the borrower will not begin until month 7 when amortizing payments begin and the initial escrow deposit disclosure will disclose this timing.

That said, are we prohibited from collecting an initial escrow deposit at closing so that we do not have to track and follow up with escrow collection at at later date closer to when amortizing payments begin.

If so, what is the regulatory citation that spells out this prohibition and what would be the concern?

Thanks in advance for any responses.

Return to Top Reply Quote Quick Reply Quick Quote
#2222667 - 09/30/19 08:47 PM Re: TRID - Construction/Perm & Escrow Glutes
WMK368 Offline
New Poster
Joined: Jul 2017
Posts: 9
Glutes - were you able to determine whether collecting an escrow deposit was prohibited in this instance? Our institution does a one-time close for construction-perm loans and we are considering collecting the escrow deposit at closing rather than waiting until the loan converts to the permanent phase. I haven't come across any evidence that this practice would be prohibited, but was curious if you found otherwise. Thanks for any help you can provide.

Return to Top Reply Quote Quick Reply Quick Quote
#2222674 - 09/30/19 09:26 PM Re: TRID - Construction/Perm & Escrow Anonymous
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
are considering collecting the escrow deposit at closing rather than waiting until the loan converts to the permanent phase

So you are going to just hold these funds until the construction loan completes without paying any escrow items? You are going to collect X months worth of taxes and then if taxes become due during the construction loan, the borrower has to come up with the entire payment.

I believe that violates the pre-accrual rules under RESPA. You have an escrow account or you do not. You cannot collect an escrow deposit and just hang on to it.

Just have then sign an escrow account agreement that states at the termination of the construction loan, they agree to establish an escrow account, provide you with the needed documentation such as homeowners policy, etc. and agree to pay you the required initial deposit.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
#2222703 - 10/01/19 02:00 PM Re: TRID - Construction/Perm & Escrow Anonymous
WMK368 Offline
New Poster
Joined: Jul 2017
Posts: 9
We do currently have them sign an agreement stating that an escrow account will be established at modification and what the requirements will be; however, we continuously run into borrowers who do not have the funds needed for the initial escrow deposit. We were wondering if we could establish an escrow reserve account at closing to try to avoid this issue.

Return to Top Reply Quote Quick Reply Quick Quote
#2222725 - 10/01/19 04:00 PM Re: TRID - Construction/Perm & Escrow Anonymous
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Then I think you need to review your underwriting if customer's don't have adequate cash reserves. If property taxes are due in two months - where are they going to get the money??
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
Quick Reply:
HTML is disabled
UBBCode is enabled




Moderator:  MagicCity, P*Q, Truffle Royale