I have a question regarding an escrow account shortage under the Real Estate Settlement Procedures Act (Regulation X). We have a customer escrow account that is significantly short of funds due to large increases in both the property taxes and hazard insurance premiums.
Q I know that the bank must give consumer borrowers at least 12 months to repay the shortfall, but is the bank allowed to go beyond the 12-month repayment period, for example, to 24 months?
A The bank may allow the customer more than 12 months to repay the shortage. Regulation X states that the “servicer may require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period.” There is no prohibition against the repayment period being longer than 12 months. Indeed, due to the increases in property taxes and insurance premiums throughout many parts of the country that may create affordability issues for some borrowers, banks may need to consider giving them more than 12 months to repay shortages.
See §1024.17(f)(3)(ii)(B).
For more information, contact ABA’s Rhonda Castaneda.
Please note that this section is not a substitute for professional legal advice.
