Bankers League Provides Information on Escrow Payments During COVID-19
As you know, President Nancy Nix created the COVID19 Response Committee that meets via teleconference weekly to discuss issues that may impact county treasurers as each of you navigate your office operations during the current health crisis. One of the issues that came up recently is whether there are any federal or state regulations that provide guidance to banks on how banks distribute escrow payments, particularly if there is a shortfall in escrow accounts. The question is whether banks can disburse available funds or do they have to wait until the escrow account is fully funded to pay a property owners entire property tax payment amount.
We reached out to our friend at the Ohio Bankers League to seek his guidance, and his reply is below. Please note that the OBL is encouraging each county treasurer to work with their local banks as we approach 2nd half tax collections, especially if you would like partial payments to be made based on escrow balances so that some tax payment is collected to avoid potential penalties and future interest.
Please remain safe & stay healthy!!
Kevin & Julia
"I am following up on our previous conversations with some additional information regarding the questions posed by many of your county treasurers about the payment or property taxes from escrow in light of the COVID-19 Pandemic. From my understanding, the main regulations governing escrow accounts any payments are contained in 12 CFR 1024, the Retail Estate Settlement Procedures Act (RESPA). Specifically, 12 CFR 1024.17 covers escrow accounts. This covers how banks handle escrow money, payment out of the escrow account, and how banks can handle shortages. First and foremost, I would recommend that county treasurers contact the local banks that they deal with to discuss any questions or concerns they may have because, as you will see below, there are numerous scenarios that could come up and open lines of communication will allow for ongoing dialogue as situations arise.
From a fundamental standpoint, I am not aware of any statute or regulation that would require a bank to advance money they have not received to pay property taxes if a bank is not receiving payment from the borrower, including the amounts put into escrow. However, for a number of reasons, an individual bank may choose to advance the money to protect the mortgage’s first position rather than risk losing it to a tax lien. Further, based on the regulations mentioned above, banks are able to have some level of cushion, up to two months, in the escrow account. If the borrower was current through April, that amount along with the cushion could be enough to cover the first half payment. However, I will stress that this will vary bank to bank and borrower to borrower how much, if any, cushion has been paid and is available.
Banks are also continuing to work with borrowers to determine what may be the best solution for their individual situation. This can include borrowers paying interest only or interest plus escrow for a period of time. In these cases, the borrower may be continuing to pay escrow amounts even while in forbearance. Once again, this will vary bank to bank and borrower to borrower but may allow for those property tax payments to continue to be made.
For background purposes, banks are seeing a lot of forbearance requests and requests for accommodations come in from both residential and business borrowers. On the residential side, Government Sponsored Enterprises (GSEs), such as Fannie Mae and Freddie Mac, have required that forbearance be available for loans in their portfolio that are serviced by many banks. Many times, banks will provide a residential mortgage and then sell it downstream to one of the GSEs and then continue to service the mortgage on their behalf. In these cases, banks that are on certain payment schedules are still required to forward payment to those GSEs whether the bank has actually received payment or not. This along with some of the other programs that banks are participating in to help individuals and businesses affected by the COVID-19 Pandemic can have an impact on liquidity. While not currently an issue, there is worry that, depending on how long this continues, this could eventually affect the ability of banks to provide additional assistance to customers and businesses as we move forward. Fronting property tax payments would be an additional drain on this so each bank will have to individually weigh all of these factors.
As I have mentioned, banks have been asked by the federal government, state government, and all of our state and federal regulators to work with customers, both individuals and businesses, affected by the COVID-19 Pandemic. As we are, I hope that individual counties and county treasurers will also work with affected taxpayers to address unpaid taxes in methods short of filing tax liens or foreclosing on properties.
Once again, I would like to stress the need for communication between county treasurers and the banks they work with during this time. It is best to open those lines of communication now so that there can be ongoing discussions on the front end rather than trying to sort things out on the back end. If you need any additional information or would like us to help facilitate any conversations, please let me know.
Thanks and stay safe!
State Government Relations Director & Legislative Counsel
Ohio Bankers League"