We had a loan officer miscalculate the escrow on a mortgage loan. They estimated
monthly taxes at $250 when in actuality they should have been around $600 a month. The shortage is coming out to $6,000.00. Because of the shortage and revised escrow payments their payment is 150% more than the previous year on a new construction. On top of that the letter gave them 4 days to pay the shortage if they wanted to have their payments reduced to the principal and interest plus revised escrow. What sort of issues are we looking at from a compliance stand point? Any ideas on how to handle this?

There is no cure unless the bank wants to cough up the difference, which is not really required. I would give the borrower the widest range of payment options available to make up the shortfall. You are dealing with a customer relationship issue at this point.

When closing construction perm loans, most banks give a payment shock letter to the borrower at closing. It tells them that their escrows are being set up based on the current land only taxes and that they should expect a significant jump when the property is reassessed. If you did that, then there are no issues with the increase. Even if you didn't give the letter, the borrower had to have some inkling that their taxes would go up because they built on the land. imo, there's no obligation to give any monetary concessions.

I'm at a loss as to why your escrow analysis letter gives such a short time frame to pay the shortage. I suggest you dig into that issue internally while you do what Randy suggested and offer the borrower a more reasonable repayment schedule.