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Continue Escrow Tax/Insurance if Stopped Payments

Does a bank have to continue to make escrow taxes and insurance on behalf of borrower when they have stopped making their monthly payments? In other words, they are about to be in default?

by David Dickinson:

Consult your contractual (loan) agreement. Also, think about whether it's prudent to let your collateral go uninsured or allow someone else to pay their taxes and move you into a subordinate lien position.


by Veneshia Ferdinand:

Yes, if the borrower is more than 30 days past due, the bank must continue to pay taxes and insurance and seek repayment from the borrower for the deficiency in accordance with Section 1024.17(f)(4).

You also need to determine whether the borrower's hazard insurance has been cancelled (which is fairly common if they are past due). The reasons for cancelling hazard insurance could be due to nonpayment of premium charges or that the property is vacant. However, if there are insufficient funds in the escrow account the Bank must make the hazard insurance premiums and then seek repayment from the borrowers subsequently.

A qualifying small servicer may purchase force-placed insurance and charge the cost of that insurance to the borrower if the cost to the borrower is less that the amount the small servicer would need to disburse from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges were paid in a timely manner.

1024.17 (k) Escrow Accounts

First published on 03/11/2018

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