Hi BOL,

We have had a recent influx of borrowers that have checks written to our bank and the homeowner for various damage that needs to be repaired on a mortgaged home. We are looking to revamp our procedures and would like to put these checks into an interest bearing account that acts similar to escrow. We would work with the homeowner and any contractors and cut checks accordingly.

From a Reg CC perspective, I don't think there is any issue with this as the check is also payable to the bank. While there is no conditional endorsement, the funds don't belong to the borrower on the home, either. They are for the repair of the home and it is important that we ensure this work is done.

Does anyone else use this process? Anything we need to be aware of?

Thanks!

What does your state law say?

Not unusual for a bank to do just as you suggest.

Would interest need to be paid on these funds being held as you would in certain states for escrow accounts?

Like escrows, it would all depend on State law.

If state law allows it, you will want some sort of agreement with the borrower that the account funds will be under bank control until repairs are completed. As escrow-type accounts subject to that sort of agreement, Reg CC is not an issue.

Discuss the issue with bank counsel.