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12 USC Section 2609
Limitation on Requirement of
Advance Deposits in Escrow
Accounts

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 Information by State
 Print version
 
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 27, 1998]
[Document not affected by Public Laws enacted between
January 27, 1998 and November 30, 1998]
[CITE: 12USC2609]


TITLE 12--BANKS AND BANKING

CHAPTER 27--REAL ESTATE SETTLEMENT PROCEDURES


Sec. 2609. Limitation on requirement of advance deposits in
escrow accounts

(a) In general

A lender, in connection with a federally related mortgage loan, may
not require the borrower or prospective borrower--
(1) to deposit in any escrow account which may be established in
connection with such loan for the purpose of assuring payment of
taxes, insurance premiums, or other charges with respect to the
property, in connection with the settlement, an aggregate sum (for
such purpose) in excess of a sum that will be sufficient to pay such
taxes, insurance premiums and other charges attributable to the
period beginning on the last date on which each such charge would
have been paid under the normal lending practice of the lender and
local custom, provided that the selection of each such date
constitutes prudent lending practice, and ending on the due date of
its first full installment payment under the mortgage, plus one-
sixth of the estimated total amount of such taxes, insurance
premiums and other charges to be paid on dates, as provided above,
during the ensuing twelve-month period; or
(2) to deposit in any such escrow account in any month beginning
with the first full installment payment under the mortgage a sum
(for the purpose of assuring payment of taxes, insurance premiums
and other charges with respect to the property) in excess of the sum
of (A) one-twelfth of the total amount of the estimated taxes,
insurance premiums and other charges which are reasonably
anticipated to be paid on dates during the ensuing twelve months
which dates are in accordance with the normal lending practice of
the lender and local custom, provided that the selection of each
such date constitutes prudent lending practice, plus (B) such amount
as is necessary to maintain an additional balance in such escrow
account not to exceed one-sixth of the estimated total amount of
such taxes, insurance premiums and other charges to be paid on
dates, as provided above, during the ensuing twelve-month period:
Provided, however, That in the event the lender determines there
will be or is a deficiency he shall not be prohibited from requiring
additional monthly deposits in such escrow account to avoid or
eliminate such deficiency.

(b) Notification of shortage in escrow account

If the terms of any federally related mortgage loan require the
borrower to make payments to the servicer (as the term is defined in
section 2605(i) of this title) of the loan for deposit into an escrow
account for the purpose of assuring payment of taxes, insurance
premiums, and other charges with respect to the property, the servicer
shall notify the borrower not less than annually of any shortage of
funds in the escrow account.

(c) Escrow account statements

(1) Initial statement

(A) In general

Any servicer that has established an escrow account in
connection with a federally related mortgage loan shall submit
to the borrower for which the escrow account has been
established a statement clearly itemizing the estimated taxes,
insurance premiums, and other charges that are reasonably
anticipated to be paid from the escrow account during the first
12 months after the establishment of the account and the
anticipated dates of such payments.

(B) Time of submission

The statement required under subparagraph (A) shall be
submitted to the borrower at closing with respect to the
property for which the mortgage loan is made or not later than
the expiration of the 45-day period beginning on the date of the
establishment of the escrow account.

(C) Initial statement at closing

Any servicer may submit the statement required under
subparagraph (A) to the borrower at closing and may incorporate
such statement in the uniform settlement statement required
under section 2603 of this title. The Secretary shall issue
regulations prescribing any changes necessary to the uniform
settlement statement under section 2603 of this title that
specify how the statement required under subparagraph (A) of
this section shall be incorporated in the uniform settlement
statement.

(2) Annual statement

(A) In general

Any servicer that has established or continued an escrow
account in connection with a federally related mortgage loan
shall submit to the borrower for which the escrow account has
been established or continued a statement clearly itemizing, for
each period described in subparagraph (B) (during which the
servicer services the escrow account), the amount of the
borrower's current monthly payment, the portion of the monthly
payment being placed in the escrow account, the total amount
paid into the escrow account during the period, the total amount
paid out of the escrow account during the period for taxes,
insurance premiums, and other charges (as separately
identified), and the balance in the escrow account at the
conclusion of the period.

(B) Time of submission

The statement required under subparagraph (A) shall be
submitted to the borrower not less than once for each 12-month
period, the first such period beginning on the first January 1st
that occurs after November 28, 1990, and shall be submitted not
more than 30 days after the conclusion of each such 1-year
period.

(d) Penalties

(1) In general

In the case of each failure to submit a statement to a borrower
as required under subsection (c) of this section, the Secretary
shall assess to the lender or escrow servicer failing to submit the
statement a civil penalty of $50 for each such failure, but the
total amount imposed on such lender or escrow servicer for all such
failures during any 12-month period referred to in subsection (b)
\1\ of this section may not exceed $100,000.

---------------------------------------------------------------------------
\1\ So in original. Probably should be subsection ``(c)''.
---------------------------------------------------------------------------

(2) Intentional violations

If any failure to which paragraph (1) applies is due to
intentional disregard of the requirement to submit the statement,
then, with respect to such failure--
(A) the penalty imposed under paragraph (1) shall be $100;
and
(B) in the case of any penalty determined under subparagraph
(A), the $100,000 limitation under paragraph (1) shall not
apply.

(Pub. L. 93-533, Sec. 10, Dec. 22, 1974, 88 Stat. 1728; Pub. L. 94-205,
Sec. 8, Jan. 2, 1976, 89 Stat. 1158; Pub. L. 101-625, title IX,
Sec. 942(a), Nov. 28, 1990, 104 Stat. 4411; Pub. L. 104-208, div. A,
title II, Sec. 2103(g)(2), Sept. 30, 1996, 110 Stat. 3009-401.)

Amendments

1996--Subsec. (c)(1)(C). Pub. L. 104-208 substituted ``The
Secretary'' for ``Not later than the expiration of the 90-day period
beginning on November 28, 1990, the Secretary'' in second sentence.
1990--Pub. L. 101-625 designated existing provisions as subsec. (a),
inserted heading, and added subsecs. (b) to (d).
1976--Pub. L. 94-205 provided that in addition to amounts required
for the payment of taxes, insurance premiums, and other charges due at settlement, the buyer could not be required at settlement to place into
an escrow account more than one-sixth of the estimated total amount of
such taxes, insurance premiums, and other charges payable within a
twelve month period beginning on the date of settlement, but the buyer
could be required to make monthly payments into an escrow account
sufficient to maintain a surplus of one-sixth of the estimated total
amount payable in the coming twelve month period.

Effective Date of 1976 Amendment

Amendment by Pub. L. 94-205 effective Jan. 2, 1976, see section 12
of Pub. L. 94-205, set out as a note under section 2602 of this title.

Section Referred to in Other Sections

This section is referred to in sections 2605, 2610 of this title;
title 42 section 4012a.

 

 
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