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Charge Off Loans and Escrows

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  • #6740
    compdud
    Member

    1. If there are funds in the escrow account, at the time of charge off, do those have to be refunded to the borrower or can they be applied to the charged off loan?
    2. If there are no funds in the escrow account, does a short year analysis showing negative amount need to be done and sent to the borrower?
    3. Since the borrower doesn’t know the loan is charged off, what would need to be done if they bring in funds to cover all past due payments (which includes escrow)?

    #6743
    rcooper
    Member

    1. If there are funds in the escrow account, at the time of charge off, do those have to be refunded to the borrower or can they be applied to the charged off loan?

    The funds in the escrow account would need to be refunded to the borrower.

    2. If there are no funds in the escrow account, does a short year analysis showing negative amount need to be done and sent to the borrower?

    If we’re still talking about the charged-off loan, the annual notice requirements do not apply in the case of default, foreclosure or bankruptcy. You would still need to provide notice of a shortage to comply with the requirement in 1024.17(f)(5).

    3. Since the borrower doesn’t know the loan is charged off, what would need to be done if they bring in funds to cover all past due payments (which includes escrow)?

    From 1024.17(i)(2): If the servicer does not issue an annual statement pursuant to this exemption and the loan subsequently is reinstated or otherwise becomes current, the servicer shall provide a history of the account since the last annual statement (which may be longer than 1 year) within 90 days of the date the account became current.

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