I live in Boston, MA and the City of Boston offers a Residential Exemption to a property that serves as a property owner’s principal residence which essentially decreases the owner’s tax burden.

Scenario:
Borrower A applies for the City of Boston’s residential exemption which will significantly reduce Borrower’s A taxes. The annual escrow analysis has been calculated for the year and the statement has been sent out to the Borrower. Three months later, Borrower A has been approved for the exemption and taxes have gone down. The borrower has requested the bank to recalculate escrows to reflect the residential exemption.

Question:
1) Can the bank recalculate the borrower’s escrows?

Yes, it can do so under 1024.17(i)(4), which allows the use of a short-year statement, once you are able to estimate what the tax bill payments for the next 12 months will be. For example, you can use the most current available tax rate for the property, and calculate the tax bill payments using that rate and the adjusted property valuation (net of the residential exemption). Use the short-year statement to determine whether you have an overage in the escrow account at the time of the analysis and what the new escrow payment should be.

Then, assuming you want to get the borrower back on the normal schedule for annual escrow statements, do another short-year statement when that time comes to get the consumer back on schedule.