Distributing Escrow Interest

In some states, if you earn any interest on an escrow account, you are required to distribute the interest to the homeowners. Therefore, it may be worthwhile to keep escrow in a non-interest bearing account. Other states require affiliates to pay escrow interest to homeowners regardless of where you keep the money. You should check with a local attorney to determine your state's escrow interest requirements and act accordingly.

If you are required to distribute escrow interest to homeowners, you can use the Escrow Interest Distribution screen to help you perform this task. Please note the following before proceeding:

In most cases, the bank will provide you a report of the interest earned on the account. This report should contain the dollar amount of the interest, the percentage rate of the interest earned, and the period for which the interest was earned. Use this information when entering the interest values on this screen.
Interest is not compounded within the period of a posting. However, previously posted interest amounts will affect the balance on which future postings depend. If you are entering information from more than one bank statement at a time, enter them in chronological order of the date on which each bank statement was issued.
Closing Fees are considered to be escrow and are included in the Beginning Balance and Daily Balance fields. Therefore, when a homeowner’s closing fee obligation has been met, it is important to zero out this account. For more information, refer to the Post To Escrow Payments button discussion.

To distribute interest earned on a homeowner's escrow account

Open the Finances tab in the Keystone ribbon and click Interest Distribution.
The Escrow Interest Distribution screen appears.
Enter the Beginning Date and Ending Date of the period for which you wish to compute the interest.
If either of these dates is left blank or filled in with a date that is in the future, an error message is displayed. Keystone then inserts the current date into the field.
Enter the Annual Interest Rate or the Daily Interest Rate from the bank statement.
Once you have entered one of these from the bank statement, the other field is computed and filled in automatically. You must enter one of these rates in order to calculate the interest. If these are blank when you click the Compute Interest button, an error message will be displayed.
Click the Compute Interest button.
Keystone computes and displays the Beginning Balance, the Average Daily Balance, and the Total Interest (the sum of the positive daily balances multiplied by the daily interest rate) for each homeowner.

Homeowners with a total Interest of $0.00 are not marked to be posted. The Inc check box next to them will appear unchecked.
If for whatever reason any other homeowner should not be posted, you should uncheck their Inc check box.
Enter the date on which you want the interest credited to the homeowner in the Posting Date field.
Once you have entered the Posting Date, you can click the Post button.
Keystone asks you to confirm that you do want to post the interest disbursements. If you go ahead with the posting process, Keystone will post this information to the homeowners’ disbursement accounts and display the number of entries that it has made.

The generic term Bank is used as the Payee and the period for which the interest is being paid is included in the Notes field.

If you distribute interest on escrow to homeowners, you must send an IRS 1099INT form to each homeowner. You also must send an additional set of these forms with an IRS 1096 form cover sheet to the IRS. For more information, refer to the Sending 1099/1096 Forms section.

You can use the Escrow Disbursements Detail/Summary report to create various reports on the interest that has been paid. The Homeowners Annual Mortgage Summary report will include interest as a positive disbursement in the list of escrow paid out.