Keystone and Escrow Management Guidelines

These guidelines are not intended to cover everything required of an affiliate in managing homeowners' escrow, nor do they constitute any legal advice. Always consult with a local attorney to determine what laws and guidelines are applicable to your affiliate.

Habitat’s Responsibilities With Respect To Escrow Accounts

Congress enacted the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §2601 et seq., in 1974. With regard to escrow accounts, RESPA:

Prohibits a lender from charging excessive amounts for the escrow account used to ensure payment of taxes, insurance, and other charges related to the property.
Each month the lender may require a homeowner to pay into the escrow account no more than 1/12 of the total of all disbursements that must be paid during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a "cushion," not to exceed an amount equal to 1/6 of the total disbursements for the year. The lender must provide the borrowers with an escrow account analysis once each year.

Any excess of $50 or more must be returned to the homeowner. Of course, the homeowner can elect to apply this excess to the outstanding mortgage. If the balance is less than $50, Habitat may choose to apply any surplus to future payments, which would reduce the homeowner’s monthly escrow payment. Alternatively, the surplus may be returned to the homeowner.
If there is a shortage in the account that is less than one monthly escrow payment, Habitat can ask the homeowner to repay it within 30 days or may spread it out over a year. If the shortage is equal to or greater than one monthly escrow payment, Habitat may spread it out over a year.

Enforcement of RESPA is done by HUD’s Office of Consumer and Regulatory Affairs—Interstate Land Sales/RESPA Division, private lawsuit, or injunctive action by the State Attorney General or State insurance commissioner.
RESPA does not require lenders to pay interest on escrow accounts, but this is a requirement in some states.
RESPA requires Habitat to give the homebuyer an initial escrow disclosure statement at the time of closing (or up to 45 days after closing) and an annual statement every year thereafter.
RESPA requires Habitat to make payments from the escrow account on time—that is on or before the deadline to avoid a penalty—as long as the homeowner’s payment is not more than 30 days overdue. If the homeowner’s payment is not more than 30 days overdue and Habitat does make a late payment, no penalties incurred can be charged to the homeowner’s account. If Habitat makes a late payment for insurance and the insurance is cancelled, the homeowner can bring a private lawsuit for any injuries suffered on account of Habitat’s negligence.
RESPA gives homeowners the right to contact Habitat in writing when they have questions or concerns about the handling of their escrow loan account. If this occurs, Habitat must acknowledge the letter or "complaint" within 20 business days. Habitat must resolve the situation with 60 business days by correcting any errors in the escrow account, or giving the homeowner a statement explaining why no corrections are needed. The homeowner must continue to make mortgage payments during this time.

Many small lenders, including many Habitat affiliates, and not legally required to comply with escrow. However, there is an ethical obligation to homeowners to manage their funds in their best interest and to pay their escrow payments in a timely fashion. To ensure that affiliates have funds available to do this, it is important to analyze escrow and manage it according to some defined process. RESPA lays out a logical, consistent process for managing escrow. As a result, Keystone’s Escrow Analysis tools assume the use of RESPA processes and guidelines.