We have an application for an in-house refinance in process. The existing loan has an escrow account with a shortage. Where would we show this on the LE? Would it be a line item in F or G or simply included in the payoff amount of the existing loan?

It's not a part of the payoff for the current loan unless you do a "net payoff" of that loan (applying the escrow balance to the principal balance to reduce the payoff) and start fresh with an escrow for the loan being applied for. That is probably the cleanest way to handle it. So, you give the borrower credit for the existing escrow balance and set up escrow estimates in section G of the loan estimate as if you're working a brand new loan where the borrower will be required to provide the initial escrow balance.

Thanks, John. That's how we treat all of our refinances (start over with new escrow instead of trying to roll a balance forward), but our Ops people were wanting to know if there was a way to break out the escrow shortage on the new loan to make her balancing easier. Apparently while I was out on maternity leave somebody OK'd them putting it in Section H and she was getting mad because I won't let her do that this time.

The point is there is no escrow shortage once the old loan is paid off (the bank effectively gives the entire escrow balance back to the borrower when it is netted against the principal balance and accrued interest to arrive at the payoff balance). So there is no escrow shortage to carry to the new loan.

For the refinancing, you treat the new loan as a blank slate and estimate what the initial escrow deposit should be based on the estimated closing date and the estimated tax and insurance payment, plus the two-payment cushion, so you will start with a "current" escrow at closing of the new loan.

The other way to do it is to show a payoff without netting escrow in the payoffs and other payments schedule, a credit (negative amount) in the payoffs and payments schedule for the escrow balance from the old loan, and the same calculated initial escrow amounts in section G that you would do under the first method (same dollar amounts because it's the same numbers used to arrive at it).

Either way, an entry in section H doesn't make any sense.

Let's assume that you calculate she needs initial escrow payment (to start up her escrow for the new loan) equal to 3 months plus two cushion months @ 250.00/month (total for insurance and taxes). That would be a total of 5 times $250, or $1,250. She has $1,000 in her current escrow account because she's short one $250 payment. At closing you give her credit for the $1,000 being transferred using either the net payoff method or the separate payoff and credit for the escrow balance, in the payoffs and other payments schedule. That means, to close, she will have to come up with $250 more for escrow than the old loan's escrow balance.

Of course, the payoffs and other payments detail (the schedule) doesn't appear on the loan estimate. The net total appears in the CCC table, with no detail. The detail appears in the optional Payoffs and Other Payments schedule in the Closing Disclosure (format for no seller).

Thank you!

What's happening is that the current escrow account is showing in the negative because we've paid more in bills than the customer has provided in payments. The Ops person who handles escrow wanted to put a line item 'payment of negative escrow balance' on the LE and CD somewhere. There isn't anything to net out against the payoff, but I'm thinking we could adjust the initial cushion on the new loan up to cover the shortage. Does that seem reasonable?

OK. That is still going to get taken care of using the process above. Is the escrow balance actually negative? If so, include it as part of the payoff balance:

Principal balance: $53,459.23
Est'd interest to payoff date: 123.48
Negative escrow blnc: 1,457.23
Total payoff amount: $55,039.94

(Good through xx/xx/20xx). Per diem $xx.xx
It still will not show as a discrete amount on the loan estimate. It could be broken apart from the rest of the payoff figure in the payoffs and other payments schedule on the closing disclosure.

That makes perfect sense. Thank you!