How must Mortgagees process payments from Escrow Accounts?

When making payments from escrow accounts, Mortgagees must:
  • send payment directly to the billing agency or the taxing authority, or as otherwise directed by state or local law;
  • request a bill from the billing agency if a bill has not been received within a reasonable amount of time before the payment due date;
  • contact the Borrower, if necessary, to obtain the bill or the information needed to pay such bills if a bill is not received within a reasonable amount of time before the known payment due date; and
  • make Disbursements as bills become payable, even if making the payment requires advancing corporate funds when the escrow deposits are inadequate to meet these obligations.
The Mortgagee may contract with a tax service organization to manage the payment of taxes.
 
The Mortgagee must ensure that all Disbursements are made as bills become payable. If the Mortgagee fails to timely disburse escrow proceeds, the Mortgagee is prohibited from passing on to the Borrower any penalties resulting from the late payments unless:
  • the late payment was the result of the Borrower’s error or omission; and
  • the Mortgagee attempted to obtain the billing information from the Borrower, billing agency, or the taxing authority in sufficient time to enable it to timely make the Disbursement.
The Mortgagee must document in its servicing file its efforts to obtain the billing information from the Borrower, billing agency, or the taxing authority.

Additional questions may be directed to the HUD National Servicing Center at (877) 622-8525.
 
For policy information see Handbook 4000.1 III.A.1.g.iv. & III.A.1.g.iv.(A) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
 

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-05227