The escrow analysis disclosure states shortages to be paid by xxx date. If we receive the payment after that date do we have to accept the payment and reanalyze? Currently we are still receiving escrow shortage payments when the due date was June 14th and now July payments are currently due

I would love to hear how others are handling this or if you system updates they payments automatically or if this is a manual update.

Thanks!

I am not sure I understand. Are you suggesting that you would refuse payment?

I personally would never recommend refusing to accept an escrow shortage payment, but it was asked by the business line so I guess I'm more curious how other servicing software handles receiving an escrow shortage payment late. Is it a manual process to update the payments?

Also, I have another question. Our monitoring team cited us for not including how the escrow funds will be handled when a short year statement is done after payoff. I'm looking at the 1995 appendix K-1 and I don't see any statement on that example that would tell the borrower what is happening to the escrow balance. Am I missing something? I believe they are following all the requirements found within the annual escrow account analysis. Thanks!

First issue: I wouldn't refuse the deposit either, but you don't have to reanalyze the account until the next annual analysis. I assume your system kicked up their monthly payment to make up for the shortage. With the additional (late) deposit, you'll have a surplus next year.

Second issue: 1024.17(i)(4)(iii) states:
If a borrower pays off a mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the pay-off fund.

A loan payoff statement is simply an annual escrow statement without a new projection. The annual escrow statement must include the following: [§1024.17(i)(1)]

a. An account history, reflecting the activity in the escrow account during the account computation year;
b. A projection of the activity in the account for the next year; this would not be included in the payoff statement
c. The amount of the borrower’s current monthly mortgage payment and the portion of the monthly payment going into the escrow account;
d. The amount of the past year’s monthly mortgage payment and the portion of the monthly payment that went into the escrow account;
e. The total amount paid into the escrow account during the past computation year;
f. The total amount paid out of the escrow account during the same period for taxes, insurance, and other charges (as separately identified);
g. The balance in the escrow account at the end of the period;
h. An explanation of how any surplus is being handled by the servicer; this is what your monitoring team is referencing
i. An explanation of how any shortage or deficiency is to be paid by the borrower; and,this would not be applicable
j. If applicable, the reason(s) why the estimated low monthly balance was not reached, as indicated by noting differences between the most recent account history and last year’s projection.


The models HUD provided contain many errors. For instance, I bet your K-1 example also doesn't separately identify the total paid out for taxes (see f above). HUD pulled the appendixes in 1997 (I believe, but it's been over 20 years). The rules about loan payoffs also changed in 2014. My point is you can't look at a rescinded model from 1995 for guidance on this. Sorry.

The last sentence of paragraph 1024.17(i)(viii) says this.

"Public Guidance Documents entitled “Annual Escrow Account Disclosure Statement—Format” and “Annual Escrow Account Disclosure Statement—Example” set forth an acceptable format and methodology for conveying this information."

What Public Guidance Documents are they referring to?

Find the Federal Register from February 15th 1995 and look on page 8812.

Here's one:

https://www.hud.gov/sites/documents/DOC_19694.PDF

Thanks everyone for you response and thanks David for the little history lesson!

Our vendor is missing this language from their statements and then indicated that we cannot add any additional language to the statement either but suggested that we add language regarding a refund on the payoff quote or create our own customized statement. (If this is their answer to everything, sometimes I wonder what good are they?) I will continue the discussion with the vendor. I think my next approach will be to ask them to provide me information that indicates it shouldn't be included. We would like to think that the vendors would like to have compliant documents.

Hopping in here based on David's response:

First issue: I wouldn't refuse the deposit either, but you don't have to reanalyze the account until the next annual analysis. I assume your system kicked up their monthly payment to make up for the shortage. With the additional (late) deposit, you'll have a surplus next year.

What is the rule on providing a new escrow analysis when a borrower pays the shortage? I can't find anything definitive.

Thanks!

There are only 2 rules:
1. You must perform an analysis at least once each year. It must be conducted 60 days prior or 30 days after the expiration of the escrow account computation year. [1024.17(i)]

2. If there's a deficiency, you must conduct an analysis before seeking repayment from the borrower. [1024.17(b)]