Escrow Surplus


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    A question we received from a webinar attendee:
    “We have a borrower that had a surplus check mailed to them a couple of years ago and he check is still outstanding. Can this check be cancelled and applied to their loan since it has not been cashed, or does it have to be re-issued to the borrower again?”



    According to 1024.17(f) you would need to refund the surplus to the customer. As a result, I recommend that you reissue the check. If the customer decides to apply to the surplus to the loan balance he/she can do so. I would keep documentation of the actions taken to correct the surplus (record of initial refund, cancellation, and reissuance of refund) so it is clear the bank took appropriate action.

    (2) Surpluses. (i) If an escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year’s escrow payments.

    (ii) These provisions regarding surpluses apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower’s payments within 30 days of the payment due date. If the servicer does not receive the borrower’s payment within 30 days of the payment due date, then the servicer may retain the surplus in the escrow account pursuant to the terms of the federally related mortgage loan documents.

    (iii) After an initial or annual escrow analysis has been performed, the servicer and the borrower may enter into a voluntary agreement for the forthcoming escrow accounting year for the borrower to deposit funds into the escrow account for that year greater than the limits established under paragraph (c) of this section. Such an agreement shall cover only one escrow accounting year, but a new voluntary agreement may be entered into after the next escrow analysis is performed. The voluntary agreement may not alter how surpluses are to be treated when the next escrow analysis is performed at the end of the escrow accounting year covered by the voluntary agreement.

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