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Old 10-29-2008, 07:50 PM
 
193 posts, read 340,145 times
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I pass on the escrow accounts and find it no problem to deal with, I just set the equivalent aside monthly.
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Old 10-04-2015, 08:51 AM
 
1 posts, read 399 times
Reputation: 10
Default Request an interest-bearing account

from eHomeAmerica.org first time home buyer class.

"Escrow Account

As you learned before, your monthly house payment includes several things. There is the principal--the amount you are paying to reduce what you owe. There is the interest--which is what your lender charges to loan you money. Your house payment will probably also include an "escrow" for property taxes and homeowner's insurance. If you are required to have mortgage insurance, your monthly payment will include this cost as well. The entire house payment is known as PITI. This stands for principal, interest, taxes and insurance. Not all lenders require escrow accounts. Some let you pay only the principal and interest, and save money on your own to pay the property taxes and insurance. Be sure to ask your lender whether your property taxes and insurance are included in your payment. Also, ask if they charge you additional points if you are not paying these each month.

If you have an escrow account, here's how it works: at the beginning of the loan and again at the beginning of every year, the lender estimates how much the taxes and insurance will cost for the year and divides the cost by 12. The lender collects the money each month as part of your payment and saves it in a special account called an escrow account. When the bills are due, the lender pays them. This is a convenience for you, but it also protects the lender in case you do not have the money or just forget to pay these expenses. In a few states, the lender is required to pay you interest on the money in the escrow account."

STATE INTEREST ON ESCROW LAWS FOR RESIDENTIAL MORTGAGE LOANS1
Prepared for the
MORTGAGE BANKERS ASSOCIATION
by Buckley Kolar LLP

This memorandum summarizes state requirements to pay interest on escrow accounts that are established by the lender to pay insurance, taxes and similar charges in connection with real estate loans on behalf of the borrower. The states that are included in this memorandum are Alaska, California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin.

CALIFORNIA

Relevant Law and Rules:
Cal. Civ. Code § 2954.8 (being part of California Civil Code Division 3 “Obligations,” Title 14 “Lien,” Chapter 2 “Mortgage,” Article 2 “Mortgage of Real Property”).
Residential Mortgage Lending Act, Cal. Fin. Code §50000 et seq. (being part of California Financial Code Division 20 “Residential Mortgage Lending Act”).
Real Estate Law, Cal. Bus. & Prof. Code §10000 et seq. (being part of California Business and Professions Code Division 4 “Real Estate Law”).
1 This survey is limited to the obligation under state law for a mortgage lender to pay interest on escrows held for the payment of taxes, insurance and other recurring charges on a residential mortgage loan. It does not cover related issues in connection with escrow administration, including, but not limited to the mortgagee’s obligation to provide escrow statements to the borrower.

STATE INTEREST ON ESCROW LAWS FOR RESIDENTIAL MORTGAGE LOANS (February 20, 2007)
1165536_1.DOC
-1-

Institutions Required to Pay Interest on Escrows/Exceptions: These institutions must pay interest on escrows:
1. Financial institutions2 or any other person or organization making loans upon the security of 1-4 family California real property;
2. Purchasers of obligations secured by 1-4 family California real property if they receive money in advance for payment of taxes and assessments on the property, for insurance, or for other purposes relating to the property.
[Cal. Civ. Code §2954.8.]
Loans Covered by Interest on Escrow Law:
Loans for which the security (mortgaged property) consists of only 1-4 family residential real property located in California. [Cal. Civ. Code §2954.8.]
Requirement to pay interest is not applicable to loans made prior to 1/1/1980. [Cal. Civ. Code §2954.8(d)(1).]
The requirement to pay interest under the California Civil Code section does not apply if escrows are required by federal or state law to be placed in a non-interest-bearing account. (Escrows are required by state law to be placed in non-interest bearing accounts by California licensed real estate brokers and residential mortgage lenders, unless the borrower or another entitled person requests the funds be deposited in interest-bearing accounts; see below.)
How Must the Interest be Paid or Credited?
Interest on escrow must be credited to the borrower’s account annually or upon termination of the account, whichever is earlier.
Interest Rate (and period to which applicable): 2%. See http://www.leginfo.ca.gov/cgi-
bin/waisgate?WAISdocID=09180726348+8+0+0&WAISaction=re trieve. Notes and Comments:
Escrow account maintenance fees may not be charged if, as a result of such fees, interest paid is less than 2%. [Cal. Civ. Code § 2954.8(b).]
2 “Financial institution” is defined as “financial institution” means a bank, savings and loan association or credit union chartered under the laws of this state or the United States, or any other person or organization making loans upon the security of real property containing only a 1-4 family residence. [Cal. Civ. Code §2954.8(c.)]

STATE INTEREST ON ESCROW LAWS FOR RESIDENTIAL MORTGAGE LOANS (February 20, 2007)
1165536_1.DOC
-2-

Lenders other than banks are not required to pay interest on escrowed funds if such funds are required by state or federal law to be placed in a non-interest-bearing demand trust fund account of a bank. California law requires escrows to be placed in a non-interest bearing account by licensed California residential mortgage lenders and licensed California real estate brokers, unless the borrower in the loan transaction (or the principals to a transaction in which the escrowed funds are received by the real estate broker) requests the funds be placed in an interest- bearing account and certain other conditions are met. Therefore, in situations where the borrower does not request his escrows be placed in an interest-bearing account and his 1-4 family loan is being serviced by a licensed California real estate broker, for example, the requirement for 2% interest on escrows is not applicable.
(1) Special rules for licensed California real estate brokers:
A real estate broker collecting payments or performing services for investors or note owners in connection with first-lien loans may deposit trust funds in an out-of-state FDIC-insured depository institution if the investor or note owner is among a specific category of investor identified by statute. [Cal. Bus. & Prof. Code §10145(a)(2).] The real estate broker may, at the request of the owner of the trust funds or of the principals to a transaction from whom he has received trust funds, deposit the funds into an interest-bearing account in a bank, savings and loan association, credit union, or industrial loan company, whose accounts are FDIC-insured if all the following requirements are met:
1. The account is in the name of the broker as trustee for the designated beneficiary or principal of a transaction or series of transactions;
2. All of the funds in the account are covered by insurance provided by an agency of the United States;
3. The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust;
4. The broker discloses to the person from whom the trust funds are received, and to a beneficiary whose identity is known to him at the time of establishing the account, the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
The broker has no obligation to place trust funds into an interest-bearing account unless requested to do so and all of the above conditions are met, nor, in any event, if he or she advises the party making the request that the funds will not be placed in an interest-bearing account. [Cal. Bus. & Prof. Code §10145(e).]
The broker must maintain a separate record of the receipt and disposition of all trust funds, including any interest earned on the funds. [Cal. Bus. & Prof. Code §10145(g).]
Interest earned on funds in the account may not inure directly or indirectly to the benefit of the broker or a person licensed to the broker. [Cal. Bus. & Prof. Code §10145(d)(5).]

STATE INTEREST ON ESCROW LAWS FOR RESIDENTIAL MORTGAGE LOANS (February 20, 2007)
1165536_1.DOC
-3-

See http://www.leginfo.ca.gov/cgi- bin/waisgate?WAISdocID=09240829268+0+0+0&WAISaction=re trieve.
(2) Special rules for California licensed residential mortgage lenders:
Residential mortgage lenders licensed under the California Residential Mortgage Lending Act, Cal. Fin. Code §50000 et seq., must place escrow funds in non-interest bearing account unless the borrower requests the lender to transfer the funds into an interest-bearing account. [Cal. Fin. Code §§ 50202 (b), 50202(f).] If the escrows (referred to as “trust funds” in the statute) are transferred into an interest-bearing account at the borrower’s request, the account must be:
1. in a federally insured depository institution;
2. in the name of the licensee in trust for the specified beneficiary;
3. federally insured;
4. kept separate and distinct from the funds of the licensee or funds of any other person for
whom the licensee holds funds in trust.
Moreover, the licensee must discloses to the person from whom the funds are received and to the beneficiary of the account (1) how interest will be calculated and paid, (2) whether service charges will be paid to the depository and by whom, and (3) possible notice requirements or penalties for withdrawal of funds from the account. All interest earned on the account must be paid to the owner of the trust funds or the beneficiary. See http://www.leginfo.ca.gov/cgi- bin/waisgate?WAISdocID=09219628230+2+0+0&WAISaction=re trieve.
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