Forgot Escrow, adding post-closing

Posted By: RebekahL CRCM

Forgot Escrow, adding post-closing - 10/22/21 09:55 PM

I'm talking myself in circles on a Friday afternoon and need some clarity!

We had a loan that should have had escrow (VA loans do not allow escrow waivers) but the error was not caught until post-closing. 1024.17(g) kicks in, and we'll do an Initial Escrow statement now. But I'm getting stuck on whether or not a 1026.19(f)(2)(iii) post-closing CD is needed.

Does it depend on how we collect the initial deposit? For example, if we choose to eat the escrow deposit, the borrower isn't paying it. If we spread out the deficiency (from the initial analysis) over 12 months, it was not an amount at closing. Besides, nothing WAS done at closing, so I'm struggling with the entire concept of revising the closing disclosure. It makes my brain hurt. cry

The investor is not offering any guidance whatsoever. They've merely said we should do a post-close CD "if this is a curable defect". crazy

Please help my mushy brain! Thank you!
Posted By: RebekahL CRCM

Re: Forgot Escrow, adding post-closing - 10/25/21 05:02 PM

For better or worse, I made a decision. Here's my thought process on the two regulatory issues at play: RESPA and Reg Z (TRID).

RESPA does not require an escrow be established at closing. It may occur later. If established post-closing, 1024.17(g) kicks in, which requires an initial escrow account analysis and statement. This statement may be submitted to the borrower at settlement or within 45 calendar days after. If the statement is not incorporated with TRID docs, then the servicer shall submit it as a separate document.

Next,1024.18(f)(ii) kicks in when there is a deficiency. Since this deficiency will be greater than 1 month’s escrow payment, we have only 2 ways to deal with it: Allow it to exist and do nothing to change it; or Repay it in 2 or more equal monthly payments.

TRID re-disclosure is not applicable here. 1026.19(f)(2)(iii) states: “Changes due to events occurring after consummation. If during the 30-day period following consummation, an event in connection with the settlement of the transaction occurs that causes the disclosures required under paragraph (f)(1)(i) of this section to become inaccurate, and such inaccuracy results in a change to an amount actually paid by the consumer from that amount disclosed under paragraph (f)(1)(i) of this section, the creditor shall deliver or place in the mail corrected disclosures not later than 30 days after receiving information sufficient to establish that such event has occurred.”

This means the CD must have been inaccurate for an amount actually paid by the consumer at closing. Since we are establishing escrow post-closing, the CD was accurate for the amount actually paid by the consumer at closing. Cross reference this with the RESPA requirement for a post-closing initial escrow analysis. A lump sum may not be collected!

In short, there is nothing to re-disclose. The CD accurately stated what occurred at closing, and the post-closing event does not change what the borrower actually paid at closing. They’ll be paying for it later, according to the initial escrow analysis and statement.

Bottom line, do not issue a post-closing CD. Only issue the RESPA escrow documents needed to comply with 1024.17(g).

That's what I'm going with, anyway. crazy If anyone thinks I've totally lost it, please tell me! cry
Posted By: rlcarey

Re: Forgot Escrow, adding post-closing - 10/25/21 05:41 PM

Hey Rebekah - I thought you totally lost it years ago - but that really is not related to your question smile

To other posters - Rebekah and I are good friends...............

I am a little confused by your first post actually, because you are not specifically required to escrow on a VA loan unless you are dealing with an investor that has additional overlays.

VA Pamphlet 26-7, Revised - Chapter 9, Page 25:

VA does not require the lender to establish escrow accounts for the collection and payment of property taxes, hazard insurance premiums, and similar items. It is the lender’s responsibility to ensure that property taxes and hazard insurance premiums are paid timely.

A lender who chooses to escrow for taxes and insurance must comply with applicable laws, including the Real Estate Settlement Procedures Act (RESPA).
Posted By: RebekahL CRCM

Re: Forgot Escrow, adding post-closing - 10/25/21 10:25 PM

Ha! You know me! I did indeed lose it long ago... I'm just still figuring out exactly what I lost. lol cry grin

The original question got passed along to me, so I took them at face value on the VA escrow requirement and went from there. That'll show me. I'll pass that Pamphlet info along. Thank you!