This may be a crazy question. Customer has property tax escrow but NOT homeowners insurance. We are force-placing homeowners insurance because (obviously) customer won’t get insurance on their own. The year-end escrow analysis was run and we are showing a surplus of $1,000+. In this case, how is this surplus handled? I think I might know the answer but I’m trying to find something in RESPA that will help me out. Any help is appreciated!

The escrow for the taxes can be used to pay the customers taxes - nothing else. It's not your money. Surplus money must be refunded to the customer unless they are past due on the loan. It makes no sense, but that's the RESPA requirements. However, if the customer won't pay their insurance, they are in default on the loan. I would consult legal advise about the loan contract violation. IF you continue this loan relationship, I would require an escrow on the insurance as well.

What if a borrower is deceased and no known heirs or successors in interest? Could the surplus be used towards the principal on the mortgage or placed back into the borrowers escrow account? if placed back into their escrow account we will just have the same situation next year when analysis runs.

Side note: We did attempt to mail the check to the address on our loan however it came back for returned mail.

The principal can't be applied to the loan without the borrower's consent. I'd put it back in the escrow account or deposit it in a DDA/Savings account, if one exists until you receive legal advise.

If the borrower is deceased, I suggest you contact your attorney for this and various other reasons. How is the loan being repaid if the borrower is deceased? Why would the loan still be existence? I'm confused.

Thank you. We are going to place it back into the borrowers escrow account. The daughter has been making the payments via ATS on the mortgage. We are in current discussion with our legal team.

It is being repaid through ATS by the daughter. Normally the loan is refinanced correct?

HI David,

Re-opening this post. I know if there is an escrow surplus the bank has to provide it to the borrower. I also know if the loan is in default, the bank doesn't have to provide an analysis statement.

What if the bank did provide an analysis statement, there is a surplus and the loan is past due. You made reference in your comment that "...surplus has to go to the customer unless the loan is past due..." I'm looking for a reference in RESPA where it states this. Or rather a place where it states an escrow surplus can only go to X, Y and Z. Maybe that place doesn't exist in black and white but implied.

Any help is appreciated.

(2) Surpluses. (i) If an escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year's escrow payments.

(ii) These provisions regarding surpluses apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower's payments within 30 days of the payment due date. If the servicer does not receive the borrower's payment within 30 days of the payment due date, then the servicer may retain the surplus in the escrow account pursuant to the terms of the federally related mortgage loan documents.