QUESTION
We are a mortgage servicer with a question about disbursing property
tax payments. What if an escrow item can be paid in installments? Is there a
methodology for annual or installment disbursements?
ANSWER
With property taxes, if the taxing jurisdiction offers a choice between
annual and installment disbursements for taxes, the servicer must use the
following methodology:
- The servicer must make disbursements for the taxes on an installment basis, if the taxing jurisdiction does not offer a discount for disbursements on a lump-sum annual basis and does not impose an additional charge or fee for installment disbursements; or
- The servicer in its discretion may, but is not required to, make disbursements for the taxes on a lump-sum annual basis, if the taxing jurisdiction offers a discount for disbursements on a lump-sum annual basis or imposes an additional charge or fee for installment disbursements (and the servicer complies with the requirements to make disbursements in a timely manner).
It is important to note that HUD encourages, but does not require, a
servicer to follow the preference of the borrower if the servicer knows the
preference. [24 CFR § 3500.17(k)(1)]
Also, a servicer and borrower may mutually agree
to a different disbursement basis or disbursement date for property taxes, as
long as the agreement meets the requirements that disbursement be made in a
timely manner. Such an agreement must be voluntary for the borrower, that is,
the approval of the loan and loan terms may not be conditioned on such an
agreement of the borrower. [24 CFR §
3500.17(k)(4)]
Jonathan Foxx
Managing Director
Lenders Compliance Group
