Escrow collection when the tax payment is due before the first payment date

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Question:

Our county’s property taxes are due in May and November. This makes escrow setup a challenge every spring and fall. What is the correct method of collecting escrow when the tax payment is due before the first payment date? We can never seem to get our initial escrow analysis right!

Answer:

This is a huge challenge! There are many landmines here, including potential RESPA violations for collecting too many disbursements in the escrow account computation year. The escrow account computation year begins with the borrower’s initial payment date and runs for strictly 12 months thereafter. Therefore, a tax payment due before the initial payment date cannot be part of the escrow account or analysis. Further, Reg Z TRID requirements state that any amount paid before the first payment date is to be collected as a Prepaid item (Section F of the CD), not an Initial Escrow Payment (Section G of the CD).

Want to learn more? Tune into the upcoming webinar “Escrow Compliance – Be the One Who Understands It All!” on July 13, 2023.

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