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Curing Escrow Payment Shock

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We analyze our escrow accounts in December of each year with the payment change effective February. Our taxes are billed based on the owner as of December 31 of the previous year. Taxes are due in October. So this year the estimated taxes due in October would be $260, based on the seller who owned the property as of last year end. The estimated taxes per the county for our borrower are based on the sales price will now be $5,600 based in part on this being our borrower's second home and having no tax exemptions available. We collect a tax escrows at closing and based accrual payments on the $260 we estimated would be owed. My question is, to prevent payment shock to our borrower in the next year, do regulations allow us to change the estimated tax amount to $5,600 AFTER we pay the taxes this year, but BEFORE we perform the escrow analysis in December, or should we only collect taxes based on the $260 for the entire year of 2023 and depend on the borrower to voluntarily deposit extra escrow monies into his escrow account to make up the difference?

If you have reasonable documentation that their taxes are going to be $5,600, why would you not use that figure?

1024.17(c)(7) Servicer estimates of disbursement amounts. To conduct an escrow account analysis, the servicer shall estimate the amount of escrow account items to be disbursed. If the servicer knows the charge for an escrow item in the next computation year, then the servicer shall use that amount in estimating disbursement amounts. If the charge is unknown to the servicer, the servicer may base the estimate on the preceding year's charge, or the preceding year's charge as modified by an amount not exceeding the most recent year's change in the national Consumer Price Index for all urban consumers (CPI, all items). In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area.

First published on 12/11/2022

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