We have a customer who has escrow for their property taxes. Our taxes are due just once per year. We were getting ready to pay them, and noticed that they already paid the County directly. Can we just cut a check to them directly, letting them know we have funds set aside for the taxes and will pay them directly next year, or do we just skip the distribution and refund the customer when we do their next analysis?

I would not refund without doing an escrow analysis - whether short year or annual..

You can do it either way.
Since the taxes are already paid, you could hang on to the money and you'll obviously have a surplus when you do the next analysis. Thus, you would handle the surplus according to RESPA requirements. OR
You could contact the customer and say "I noticed you paid your taxes. Do you remember we have an escrow account account set up to pay these for you (and your insurance . . . )? If you'd like, I can cut you a check (OR when your analysis comes due next in _____, we'll be cutting you a check) for X amount. What would you like to do.

To be clear: You don't have to contact the customer and you don't have to cut them a check at this time

[quote][/quote] But good customer service would be to contact them while it's still fresh in their minds. Besides, who couldn't use having their own money back at this time of year? This is the kind of thing that gets your bank good word of mouth and recommendations vs a big bank that wouldn't make the effort to benefit their customer.

I don't disagree Truffle and I like your customer service attitude on this. I just wanted the OP to know this isn't a regulatory requirement.