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6500 - FDIC Consumer Protection
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PART 3500—REAL ESTATE SETTLEMENT
PROCEDURES
ACT *
Sec.
3500.1
Designation.
3500.2
Definitions.
3500.3
Questions or suggestions from public and copies of public guidance
documents.
3500.4
Reliance upon rule, regulation or interpretation by HUD.
3500.5
Coverage of RESPA.
3500.6
Special information booklet at time of loan application.
3500.7
Good faith estimate.
3500.8
Use of HUD–1 or HUD–1A settlement statements.
3500.9
Reproduction of settlement statements.
3500.10
One-day advance inspection of HUD–1 or HUD–1A settlement statement;
delivery; recordkeeping.
3500.11
Mailing.
3500.12
No fee.
3500.13
Relation to state laws.
3500.14
Prohibition against kickbacks and unearned fees.
3500.15
Affiliated business arrangements.
3500.16
Title companies.
3500.17
Escrow accounts.
3500.18
Validity of contracts and liens.
3500.19
Enforcement.
3500.20
[Reserved]
3500.21
Mortgage servicing transfers.
Appendix A to Part
3500—Instructions for Completing HUD–1 and HUD–1A Settlement
Statements; Sample HUD-1 and HUD-1A Statements.
Appendix B to Part
3500—Illustration of Requirements of RESPA.
Appendix C to Part
3500—Sample Form of Good Faith Estimate.
Appendix D to Part
3500—Affiliated Business Arrangement Disclosure Statement Format.
Appendix E to Part
3500—Arithmetic Steps.
Appendix MS-1 to Part
3500—Servicing Disclosure Statement.
Appendix MS-2 to Part
3500—Notice of Assignment, Sale, or Transfer of Servicing Rights.
AUTHORITY: 12 U.S.C. 2601 et seq.; 42 U.S.C. 3535(d).
SOURCE: The provisions of this Part 3500 appear at 57 Fed. Reg.
49607, November 2, 1992, unless otherwise
noted.
§ 3500.1 Designation.
This part may be referred to as Regulation X.
[Codified to 24 C.F.R. § 3500.1]
[Section 3500.1 amended at 61 Fed. Reg. 13233, March 26,
1996]
§ 3500.2 Definitions.
(a) Statutory terms. All terms defined in RESPA
(12 U.S.C. 2602) are used in
accordance with their statutory meaning unless otherwise defined in
paragraph (b) of this section or elsewhere in this part.
(b) Other terms. As used in this part:
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Application means the submission of a borrower's
financial information in anticipation of a credit decision, whether
written or computer-generated, relating to a federally related mortgage
loan. If the submission does not state or identify a specific property,
the submission is an application for a prequalification and not an
application for a federally related mortgage loan under this part. The
subsequent addition of an identified property to the submission
converts the submission to an application for a federally related
mortgage loan.
Business day means a day on which the offices of the
business entity are open to the public for carrying on substantially
all of the entity's business functions.
Dealer means, in the case of property improvement loans,
a seller, contractor, or supplier of goods or services. In the case of
manufactured home loans, "dealer" means one who engages in the
business of manufactured home retail sales.
Dealer loan or dealer consumer credit contract means,
generally, any arrangement in which a dealer assists the borrower in
obtaining a federally related mortgage loan from the funding lender and
then assigns the dealer's legal interests to the funding lender and
receives the net proceeds of the loan. The funding lender is the lender
for the purposes of the disclosure requirements of this part. If a
dealer is a "creditor" as defined under the definition of
"federally related mortgage loan" in this part, the dealer is the
lender for purposes of this part.
Effective date of transfer is defined in section 6(i)(1)
of RESPA (12 U.S.C. 2605(i)(1)).
In the case of a home equity conversion mortgage or reverse mortgage as
referenced in this section, the effective date of transfer is the
transfer date agreed upon by the transferee servicer and the transferor
servicer.
Federally related mortgage loan or mortgage loan
means as follows:
(1) Any loan (other than temporary financing, such as a
construction loan):
(i) That is secured by a first or subordinate lien on residential
real property, including a refinancing of any secured loan on
residential real property upon which there is either:
(A) Located or, following settlement, will be constructed using
proceeds of the loan, a structure or structures designed principally
for occupancy of from one to four families (including individual units
of condominiums and cooperatives and including any related interests,
such as a share in the cooperative or right to occupancy of the unit);
or
(B) Located or, following settlement, will be placed using
proceeds of the loan, a manufactured home; and
(ii) For which one of the following paragraphs applies. The loan:
(A) Is made in whole or in part by any lender that is either
regulated by or whose deposits or accounts are insured by any agency of
the Federal Government;
(B) Is made in whole or in part, or is insured, guaranteed,
supplemented, or assisted in any way:
(1) By the Secretary or any other officer or agency of
the Federal Government; or
(2) Under or in connection with a housing or urban
development program administered by the Secretary or a housing or
related program administered by any other officer or agency of the
Federal Government;
(C) Is intended to be sold by the originating lender to the
Federal National Mortgage Association, the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation (or its
successors);
(D) Is made in whole or in part by a "creditor", as defined
in section 103(f) of the Consumer Credit Protection Act
(15 U.S.C. 1602(f)), that makes or
invests in residential real estate loans aggregating more than
$1,000,000 per year. For purposes of this definition, the term
"creditor" does not include any agency or instrumentality of any
State, and the term "residential real estate loan" means any loan
secured by residential real property, including single-family and
multifamily residential property;
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(E) Is originated either by a dealer or, if the obligation is to
be assigned to any maker of mortgage loans specified in paragraphs
(1)(ii)(A) through (D) of this definition, by a mortgage broker; or
(F) Is the subject of a home equity conversion mortgage, also
frequently called a "reverse mortgage," issued by any maker of
mortgage loans specified in paragraphs (1)(ii)(A) through (D) of this
definition.
(2) Any installment sales contract, land contract, or contract
for deed on otherwise qualifying residential property is a federally
related mortgage loan if the contract is funded in whole or in part by
proceeds of a loan made by any maker of mortgage loans specified in
paragraphs (1)(ii)(A) through (D) of this definition.
(3) If the residential real property securing a mortgage loan is
not located in a State, the loan is not a federally related mortgage
loan.
Good faith estimate means an estimate, prepared in
accordance with section 5 of RESPA (12
U.S.C. 2604), of charges that a borrower is likely to incur in
connection with a settlement.
HUD--1 or HUD--1A settlement statement (also HUD--1 or
HUD--1A) means the statement that is prescribed by the Secretary
in this part for setting forth settlement charges in connection with
either the purchase or the refinancing (or other subordinate lien
transaction) of 1- to 4-family residential property.
Lender means, generally, the secured creditor or
creditors named in the debt obligation and document creating the lien.
For loans originated by a mortgage broker that closes a federally
related mortgage loan in its own name in a table funding transaction,
the lender is the person to whom the obligation is initially assigned
at or after settlement. A lender, in connection with dealer loans, is
the lender to whom the loan is assigned, unless the dealer meets the
definition of creditor as defined under "federally related mortgage
loan" in this section. See also § 3500.5(b)(7), secondary market
transactions.
Managerial employee means an employee of a settlement
service provider who does not routinely deal directly with consumers,
and who either hires, directs, assigns, promotes, or rewards other
employees or independent contractors, or is in a position to formulate,
determine, or influence the policies of the employer. Neither the term
"managerial employee" nor the term "employee" includes
independent contractors, but a managerial employee may hold a real
estate brokerage or agency license.
Manufactured home is defined in § 3280.2 of this title.
Mortgage broker means a person (not an employee or
exclusive agent of a lender) who brings a borrower and lender together
to obtain a federally related mortgage loan, and who renders services
as described in the definition of "settlement services" in this
section. A loan correspondent approved under § 202.8 of this title
for Federal Housing Administration programs is a mortgage broker for
purposes of this part.
Mortgaged property means the real property that is
security for the federally related mortgage loan.
Person is defined in section 3(5) of RESPA
(12 U.S.C. 2602(5)).
Public Guidance Documents means documents that HUD has
published in the Federal Register, and that it may amend
from time-to-time by publication in the Federal Register.
These documents are also available from HUD at the address indicated in
24 CFR 3500.3.
Refinancing means a transaction in which an existing
obligation that was subject to a secured lien on residential real
property is satisfied and replaced by a new obligation undertaken by
the same borrower and with the same or a new lender. The following
shall not be treated as a refinancing, even when the existing
obligation is satisfied and replaced by a new obligation with the same
lender (this definition of "refinancing" as to transactions with
the same lender is similar to Regulation Z,
12 CFR 226.20(a)):
(1) A renewal of a single payment obligation with no change in
the original terms;
(2) A reduction in the annual percentage rate as computed under
the Truth in Lending Act with a corresponding change in the payment
schedule;
(3) An agreement involving a court proceeding;
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(4) A workout agreement, in which a change in the payment
schedule or change in collateral requirements is agreed to as a result
of the consumer's default or delinquency, unless the rate is increased
or the new amount financed exceeds the unpaid balance plus earned
finance charges and premiums for continuation of allowable insurance;
and
(5) The renewal of optional insurance purchased by the consumer
that is added to an existing transaction, if disclosures relating to
the initial purchase were provided.
Regulation Z means the regulations issued by the Board of
Governors of the Federal Reserve System (12 CFR part 226) to implement
the Federal Truth in Lending Act (15 U.S.C. 1601 et seq.),
and includes the Commentary on Regulation Z.
Required use means a situation in which a person must use
a particular provider of a settlement service in order to have access
to some distinct service or property, and the person will pay for the
settlement service of the particular provider or will pay a charge
attributable, in whole or in part, to the settlement service. However,
the offering of a package (or combination of settlement services) or
the offering of discounts or rebates to consumers for the purchase of
multiple settlement services does not constitute a required use. Any
package or discount must be optional to the purchaser. The discount
must be a true discount below the prices that are otherwise generally
available, and must not be made up by higher costs elsewhere in the
settlement process.
RESPA means the Real Estate Settlement Procedures Act of
1974, 12 U.S.C. 2601 et seq.
Servicer means the person responsible for the servicing
of a mortgage loan (including the person who makes or holds a mortgage
loan if such person also services the mortgage loan). The term does not
include:
(1) The Federal Deposit Insurance Corporation (FDIC) or the
Resolution Trust Corporation (RTC), in connection with assets acquired,
assigned, sold, or transferred pursuant to
section 13(c) of the Federal
Deposit Insurance Act or as receiver or conservator of an insured
depository institution; and
(2) The Federal National Mortgage Corporation (FNMA); the Federal
Home Loan Mortgage Corporation (Freddie Mac); the RTC; the FDIC; HUD,
including the Government National Mortgage Association (GNMA) and the
Federal Housing Administration (FHA) (including cases in which a
mortgage insured under the National Housing Act (12 U.S.C. 1701
et seq.) is assigned to HUD); the National Credit Union
Administration (NCUA); the Farmers Home Administration or its successor
agency under Public Law 103-354 (FmHA); and the Department of Veterans
Affairs (VA), in any case in which the assignment, sale, or transfer of
the servicing of the mortgage loan is preceded by termination of the
contract for servicing the loan for cause, commencement of proceedings
for bankruptcy of the servicer, or commencement of proceedings by the
FDIC or RTC for conservatorship or receivership of the servicer (or an
entity by which the servicer is owned or controlled).
Servicing means receiving any scheduled periodic payments
from a borrower pursuant to the terms of any mortgage loan, including
amounts for escrow accounts under section 10 of RESPA
(12 U.S.C. 2609), and making
the payments to the owner of the loan or other third parties of
principal and interest and such other payments with respect to the
amounts received from the borrower as may be required pursuant to the
terms of the mortgage servicing loan documents or servicing contract.
In the case of a home equity conversion mortgage or reverse mortgage as
referenced in this section, servicing includes making payments to the
borrower.
Settlement means the process of executing legally binding
documents regarding a lien on property that is subject to a federally
related mortgage loan. This process may also be called "closing"
or "escrow" in different jurisdictions.
Settlement service means any service provided in
connection with a prospective or actual settlement, including, but not
limited to, any one or more of the following:
(1) Origination of a federally related mortgage loan (including,
but not limited to, the taking of loan applications, loan processing,
and the underwriting and funding of such loans);
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(2) Rendering of services by a mortgage broker (including
counseling, taking of applications, obtaining verifications and
appraisals, and other loan processing and origination services, and
communicating with the borrower and lender);
(3) Provision of any services related to the origination,
processing or funding of a federally related mortgage loan;
(4) Provision of title services, including title searches, title
examinations, abstract preparation, insurability determinations, and
the issuance of title commitments and title insurance policies;
(5) Rendering of services by an attorney;
(6) Preparation of documents, including notarization, delivery,
and recordation;
(7) Rendering of credit reports and appraisals;
(8) Rendering of inspections, including inspections required by
applicable law or any inspections required by the sales contract or
mortgage documents prior to transfer of title;
(9) Conducting of settlement by a settlement agent and any
related services;
(10) Provision of services involving mortgage insurance;
(11) Provision of services involving hazard, flood, or other
casualty insurance or homeowner's warranties;
(12) Provision of services involving mortgage life, disability,
or similar insurance designed to pay a mortgage loan upon disability or
death of a borrower, but only if such insurance is required by the
lender as a condition of the loan;
(13) Provision of services involving real property taxes or any
other assessments or charges on the real property;
(14) Rendering of services by a real estate agent or real estate
broker; and
(15) Provision of any other services for which a settlement
service provider requires a borrower or seller to pay.
Special information booklet means the booklet prepared by
the Secretary pursuant to section 5 of RESPA
(12 U.S.C. 2604) to help persons
understand the nature and costs of settlement services. The Secretary
publishes the form of the special information booklet in the
Federal Register. The Secretary may issue or approve
additional booklets or alternative booklets by publication of a Notice
in the Federal Register.
State means any State of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, and any territory or
possession of the United States.
Table funding means a settlement at which a loan is
funded by a contemporaneous advance of loan funds and an assignment of
the loan to the person advancing the funds. A table-funded transaction
is not a secondary market transaction (see
§ 3500.5(b)(7)).
Title company means any institution, or its duly
authorized agent, that is qualified to issue title insurance.
[Codified to 24 C.F.R. § 3500.2]
[Section 3500.2 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996; 61 Fed. Reg. 29252, June 7, 1996,
effective October 7, 1996; 61 Fed. Reg. 58475, November 15, 1996,
effective January 14, 1997; 62 Fed. Reg. 20088, April 24, 1997,
effective May 27, 1997]
§ 3500.3 Questions or suggestions from public and copies of
public guidance documents.
Any questions or suggestions from the public regarding RESPA, or
requests for copies of HUD Public Guidance Documents, should be
directed to the Director, Office of Consumer and Regulatory Affairs,
Department of Housing and Urban Development, 451 7th Street S.W.,
Washington, D.C. 20410--8000, rather than to HUD field offices. Legal
questions may be directed to the Assistant General Counsel, GSE/RESPA
Division, at this address.
[Codified to 24 C.F.R. § 3500.3]
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[Section 3500.3 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996]
§ 3500.4 Reliance upon rule, regulation or interpretation by
HUD.
(a) Rule, regulation or interpretation.--(1) For
purposes of sections 19(a) and (b) of RESPA
(12 U.S.C. 2617(a) and (b))
only the following constitute a rule, regulation or interpretation of
the Secretary:
(i) All provisions, including appendices, of this part. Any other
document referred to in this part is not incorporated in this part
unless it is specifically set out in this part;
(ii) Any other document that is published in the Federal
Register by the Secretary and states that it is an
"interpretation," "interpretive rule," "commentary,"
or a "statement of policy" for purposes of section 19(a) of
RESPA. Such documents will be prepared by HUD staff and counsel. Such
documents may be revoked or amended by a subsequent document published
in the Federal Register by the Secretary.
(2) A "rule, regulation, or interpretation thereof by the
Secretary" for purposes of section 19(b) of RESPA (12 U.S.C.
2617(b)) shall not include the special information booklet prescribed
by the Secretary or any other statement or issuance, whether oral or
written, by an officer or representative of the Department of Housing
and Urban Development (HUD), letter or memorandum by the Secretary,
General Counsel, any Assistant Secretary or other officer or employee
of HUD, preamble to a regulation or other issuance of HUD, Public
Guidance Document, report to Congress, pleading, affidavit or other
document in litigation, pamphlet, handbook, guide, telegraphic
communication, explanation, instructions to forms, speech or other
material of any nature which is not specifically included in paragraph
(a)(1) of this section.
(b) Unofficial interpretations; staff discretion. In
response to requests for interpretation of matters not adequately
covered by this part or by an official interpretation issued under
paragraph (a)(1)(ii) of this section, unofficial staff interpretations
may be provided at the discretion of HUD staff or counsel. Written
requests for such interpretations should be directed to the address
indicated in § 3500.3. Such interpretations provide no protection
under section 19(b) of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or
counsel will not issue unofficial interpretations on matters adequately
covered by this part or by official interpretations or commentaries
issued under paragraph (a)(1)(ii) of this section.
(c) All informal counsel's opinions and staff interpretations
issued before November 2, 1992, were withdrawn as of that date. Courts
and administrative agencies, however, may use previous opinions to
determine the validity of conduct under the previous Regulation X.
[Codified to 24 C.F.R. § 3500.4]
[Section 3500.4 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996]
§ 3500.5 Coverage of RESPA.
(a) Applicability. RESPA and this part apply to all
federally related mortgage loans, except for the exemptions provided in
paragraph (b) of this section.
(b) Exemptions. (1) A loan on property of 25 acres or
more.
(2) Business purpose loans. An extension of credit
primarily for a business, commercial, or agricultural purpose, as
defined by Regulation Z, 12 CFR
226.3(a)(1). Persons may rely on Regulation Z in determining
whether the exemption applies.
(3) Temporary financing. Temporary financing, such as
a construction loan. The exemption for temporary financing does not
apply to a loan made to finance construction of 1- to 4-family
residential property if the loan is used as, or may be converted to,
permanent financing by the same lender or is used to finance transfer
of title to the first user. If a lender issues a commitment for
permanent financing, with or without conditions, the loan is covered by
this part. Any construction loan for new or rehabilitated 1- to
4-family residential property, other than a loan to a bona fide
builder (a person who regularly
{{6-30-05 p.6997}}constructs 1- to 4-family
residential structures for sale or lease), is subject to this part if
its term is for two years or more. A "bridge loan" or "swing
loan" in which a lender takes a security interest in otherwise
covered 1- to 4-family residential property is not covered by RESPA and
this part.
(4) Vacant land. Any loan secured by vacant or
unimproved property, unless within two years from the date of the
settlement of the loan, a structure or a manufactured home will be
constructed or placed on the real property using the loan proceeds. If
a loan for a structure or manufactured home to be placed on vacant or
unimproved property will be secured by a lien on that property, the
transaction is covered by this part.
(5) Assumption without lender approval. Any assumption
in which the lender does not have the right expressly to approve a
subsequent person as the borrower on an existing federally related
mortgage loan. Any assumption in which the lender's permission is both
required and obtained is covered by RESPA and this part, whether or not
the lender charges a fee for the assumption.
(6) Loan conversions. Any conversion of a federally
related mortgage loan to different terms that are consistent with
provisions of the original mortgage instrument, as long as a new note
is not required, even if the lender charges an additional fee for the
conversion.
(7) Secondary market transactions. A bona fide
transfer of a loan obligation in the secondary market is not
covered by RESPA and this part, except as set forth in section 6 of
RESPA (12 U.S.C. 2605) and
§ 3500.21. In
determining what constitutes a bona fide transfer, HUD will
consider the real source of funding and the real interest of the
funding lender. Mortgage broker transactions that are table-funded are
not secondary market transactions. Neither the creation of a dealer
loan or dealer consumer credit contract, nor the first assignment of
such loan or contract to a lender, is a secondary market transaction
(see § 3500.2.)
[Codified to 24 C.F.R. § 3500.5]
[Section 3500.5 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996; 61 Fed. Reg. 58475, November 15, 1996,
effective January 14, 1997]
§ 3500.6 Special information booklet at time of loan
application.
(a) Lender to provide special information booklet.
Subject to the exceptions set forth in this paragraph, the lender
shall provide a copy of the special information booklet to a person
from whom the lender receives, or for whom the lender prepares, a
written application for a federally related mortgage loan. When two or
more persons apply together for a loan, the lender is in compliance if
the lender provides a copy of the booklet to one of the persons
applying.
(1) The lender shall provide the special information booklet by
delivering it or placing it in the mail to the applicant not later than
three business days (as that term is defined in § 3500.2) after the
application is received or prepared. However, if the lender denies the
borrower's application for credit before the end of the
three-business-day period, then the lender need not provide the booklet
to the borrower. If a borrower uses a mortgage broker, the mortgage
broker shall distribute the special information booklet and the lender
need not do so. The intent of this provision is that the applicant
receive the special information booklet at the earliest possible date.
(2) In the case of a federally related mortgage loan involving an
open-ended credit plan, as defined in
§ 226.2(a)(20) of Regulation
Z (12 CFR), a lender or mortgage broker that provides the borrower with
a copy of the brochure entitled "When Your Home is On the Line: What
You Should Know About Home Equity Lines of Credit", or any
successor
{{6-30-05 p.6998}}brochure issued by the Board of
Governors of the Federal Reserve System, is deemed to be in compliance
with this section.
(3) In the categories of transactions set forth at the end of
this paragraph, the lender or mortgage broker does not have to provide
the booklet to the borrower. Under the authority of section 19(a) of
RESPA (12 U.S.C. 2617(a)), the
Secretary may issue a revised or separate special information booklet
that deals with these transactions, or the Secretary may chose to
endorse the forms or booklets of other Federal agencies. In such an
event, the requirements for delivery by lenders and the availability of
the booklet or alternate materials for these transactions will be set
forth in a Notice in the Federal Register. This paragraph
shall apply to the following transactions:
(i) Refinancing transactions;
(ii) Closed-end loans, as defined in
12 CFR 226.2(a)(10) of
Regulation Z, when the lender takes a subordinate lien;
(iii) Reverse mortgages; and
(iv) Any other federally related mortgage loan whose purpose is
not the purchase of a 1- to 4-family residential property.
(b) Revision. The Secretary may from time to time revise
the special information booklet by publishing a notice in the
Federal Register.
(c) Reproduction. The special information booklet may be
reproduced in any form, provided that no change is made other than as
provided under paragraph (d) of this section. The special information
booklet may not be made a part of a larger document for purposes of
distribution under RESPA and this section. Any color, size and quality
of paper, type of print, and method of reproduction may be used so long
as the booklet is clearly legible.
(d) Permissible changes. (1) No changes to, deletions
from, or additions to the special information booklet currently
prescribed by the Secretary shall be made other than those specified in
this paragraph (d) or any others approved in writing by the Secretary.
A request to the Secretary for approval of any changes shall be
submitted in writing to the address indicated in
§ 3500.3, stating the
reasons why the applicant believes such changes, deletions or additions
are necessary.
(2) The cover of the booklet may be in any form and may contain
any drawings, pictures or artwork, provided that the words
"settlement costs" are used in the title. Names, addresses and
telephone numbers of the lender or others and similar information may
appear on the cover, but no discussion of the matters covered in the
booklet shall appear on the cover.
(3) The special information booklet may be translated into
languages other than English.
[Codified to 24 C.F.R. § 3500.6]
[Section 3500.6 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996]
§ 3500.7 Good faith estimate.
(a) Lender to provide. Except as provided in this
paragraph (a) or paragraph (f) of this section, the lender shall
provide all applicants for a federally related mortgage loan with a
good faith estimate of the amount of or range of charges for the
specific settlement services the borrower is likely to incur in
connection with the settlement. The lender shall provide the good faith
estimate required under this section (a suggested format is set forth
in Appendix C of this
part) either by delivering the good faith estimate or by placing it in
the mail to the loan applicant, not later than three business days
after the application is received or prepared.
{{6-30-05 p.6999}}
(1) If the lender denies the application for a federally related
mortgage loan before the end of the three-business-day period, the
lender need not provide the denied borrower with a good faith estimate.
(2) For "no cost" or "no point" loans, the charges to
be shown on the good faith estimate include any payments to be made to
affiliated or independent settlement service providers. These payments
should be shown as P.O.C. (Paid Outside of Closing) on the Good Faith
Estimate and the HUD--1 or HUD--1A.
(3) In the case of dealer loans, the lender is responsible for
provision of the good faith estimate, either directly or by the dealer.
(4) If a mortgage broker is the exclusive agent of the lender,
either the lender or the mortgage broker shall provide the good faith
estimate within three business days after the mortgage broker receives
or prepares the application.
(b) Mortgage broker to provide. In the event an
application is received by a mortgage broker who is not an exclusive
agent of the lender, the mortgage broker must provide a good faith
estimate within three days of receiving a loan application based on his
or her knowledge of the range of costs (a suggested format is set forth
in Appendix C of this part). As long as the mortgage broker has
provided the good faith estimate, the funding lender is not required to
provide an additional good faith estimate, but the funding lender is
responsible for ascertaining that the good faith estimate has been
delivered. If the application for mortgage credit is denied before the
end of the three-business-day period, the mortgage broker need not
provide the denied borrower with a good faith estimate.
(c) Content of good faith estimate. A good faith
estimate consists of an estimate, as a dollar amount or range, of each
charge which:
(1) Will be listed in section L of the HUD--1 or HUD--1A in
accordance with the instructions set forth in Appendix A to this part;
and
(2) That the borrower will normally pay or incur at or before
settlement based upon common practice in the locality of the mortgaged
property. Each such estimate must be made in good faith and bear a
reasonable relationship to the charge a borrower is likely to be
required to pay at settlement, and must be based upon experience in the
locality of the mortgaged property. As to each charge with respect to
which the lender requires a particular settlement service provider to
be used, the lender shall make its estimate based upon the lender's
knowledge of the amounts charged by such provider.
(d) Form of good faith estimate. A suggested good faith
estimate form is set forth in Appendix C to this part and is in
compliance with the requirements of the Act except for any additional
requirements of paragraph (e) of this section. The good faith estimate
may be provided together with disclosures required by the Truth in
Lending Act, 15 U.S.C. 1601 et seq., so long as all required
material for the good faith estimate is grouped together. The lender
may include additional relevant information, such as the name/signature
of the applicant and loan officer, date, and information identifying
the loan application and property, as long as the form remains clear
and concise and the additional information is not more prominent than
the required material.
(e) Particular providers required by lender. (1) If the
lender requires the use (see
§ 3500.2, ""required
use'') of a particular provider of a settlement service, other than the
lender's own employees, and also requires the borrower to pay any
portion of the cost of such service, then the good faith estimate must:
(i) Clearly state that use of the particular provider is required
and that the estimate is based on the charges of the designated
provider;
(ii) Give the name, address, and telephone number of each
provider; and
(iii) Describe the nature of any relationship between each such
provider and the lender. Plain English references to the relationship
should be utilized, e.g., "X is a depositor of the lender," "X
is a borrower from the lender," "X has performed 60% of the
lender's settlements in the past year." (The lender is not required
to keep detailed records of the percentages of use. Similar language,
such as "X was used [regularly] [frequently] in our settlements
the past year" is also sufficient for the purposes of this
paragraph.) In the event that more than one relationship exists, each
should be disclosed.
{{6-30-05 p.7000}}
(2) For purposes of paragraph (e)(1) of this section, a
"relationship" exists if:
(i) The provider is an associate of the lender, as that term is
defined in 12 U.S.C. 2602(8);
(ii) Within the last 12 months, the provider has maintained an
account with the lender or had an outstanding loan or credit
arrangement with the lender; or
(iii) The lender has repeatedly used or required borrowers to use
the services of the provider within the last 12 months.
(3) Except for a provider that is the lender's chosen attorney,
credit reporting agency, or appraiser, if the lender is in an
affiliated business relationship (see
§ 3500.15) with a
provider, the lender may not require the use of that provider.
(4) If the lender maintains a controlled list of required
providers (five or more for each discrete service) or relies on a list
maintained by others, and at the time of application the lender has not
yet decided which provider will be selected from that list, then the
lender may satisfy the requirements of this section if the lender:
(i) Provides the borrower with a written statement that the
lender will require a particular provider from a lender-controlled or
approved list; and
(ii) Provides the borrower in the Good Faith Estimate the range
of costs for the required provider(s), and provides the name of the
specific provider and the actual cost on the HUD--1 or HUD--1A.
(f) Open-end lines of credit (home-equity plans) under Truth
in Lending Act. In the case of a federally related mortgage loan
involving an open-end line of credit (home-equity plan) covered under
the Truth in Lending Act and Regulation Z, a lender or mortgage broker
that provides the borrower with the disclosures required by
12 CFR 226.5b of Regulation Z
at the time the borrower applies for such loan shall be deemed to
satisfy the requirements of this section.
(Approved by the Office of Management and Budget under control
number 2502--0265)
[Codified to 24 C.F.R. § 3500.7]
[Section 3500.7 amended at 61 Fed. Reg. 13236, March 26, 1996,
effective April 25, 1996; 61 Fed. Reg. 58476, November 15, 1996,
effective January 14, 1997]
§ 3500.8 Use of HUD--1 or HUD--1A settlement statements.
(a) Use by settlement agent. The settlement agent shall
use the HUD--1 settlement statement in every settlement involving a
federally related mortgage loan in which there is a borrower and a
seller. For transactions in which there is a borrower and no seller,
such as refinancing loans or subordinate lien loans, the HUD--1 may be
utilized by using the borrower's side of the HUD--1 statement.
Alternatively, the form HUD--1A may be used for these transactions.
Either the HUD--1 or the HUD--1A, as appropriate, shall be used for
every RESPA-covered transaction, unless its use is specifically
exempted, but the HUD--1 or HUD--1A may be modified as permitted under
this part. The use of the HUD--1 or HUD--1A is exempted for open-end
lines of credit (home-equity plans) covered by the Truth in Lending Act
and Regulation Z.
(b) Charges to be stated. The settlement agent shall
complete the HUD--1 or HUD--1A in accordance with the instructions set
forth in Appendix A to this part.
(c) Aggregate accounting at settlement. (1) After
itemizing individual deposits in the 1000 series using single-item
accounting, the servicer shall make an adjustment based on aggregate
accounting. This adjustment equals the difference in the deposit
required under aggregate accounting and the sum of the deposits
required under single-item accounting. The computation steps for both
accounting methods are set out in
§ 3500.17(d). The
adjustment will always be a negative number or zero (--0--). The
settlement agent shall enter
{{6-30-05 p.7001}}the aggregate adjustment amount on a
final line in the 1000 series of the HUD--1 or HUD--1A statement.
(2) During the phase-in period, as defined in § 3500.17(b), an
alternative procedure is available. The settlement agent may initially
calculate the 1000 series deposits for the HUD--1 and HUD--1A
settlement statement using single-item analysis with only a one-month
cushion (unless the mortgage loan documents indicate a smaller amount).
In the escrow account analysis conducted within 45 days of settlement,
however, the servicer shall adjust the escrow account to reflect the
aggregate accounting balance. Appendix E to this part sets out examples
of aggregate analysis. Appendix A to this part contains instructions
for completing the HUD--1 or HUD--1A settlement statements using an
aggregate analysis adjustment and the alternative process during the
phase-in period.
(Approved by the Office of Management and Budget under control
numbers 2502--0265 and 2502--0491)
[Codified to 24 C.F.R. § 3500.8]
[Section 3500.8 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996, effective; 61 Fed. Reg. 29252, June 7,
1996, effective October 7, 1996; 61 Fed. Reg. 58476, November 15, 1996,
effective January 14, 1997]
§ 3500.9 Reproduction of settlement statements.
(a) Permissible changes--HUD--1. The following changes
and insertions are permitted when the HUD--1 settlement statement is
reproduced:
(1) The person reproducing the HUD--1 may insert its business
name and logotype in Section A and may rearrange, but not delete, the
other information that appears in Section A.
(2) The name, address, and other information regarding the lender
and settlement agent may be printed in Sections F and H, respectively.
(3) Reproduction of the HUD--1 must conform to the terminology,
sequence, and numbering of line items as presented in lines 100--1400.
However, blank lines or items listed in lines 100--1400 that are not
used locally or in connection with mortgages by the lender may be
deleted, except for the following: Lines 100, 120, 200, 220, 300, 301,
302, 303, 400, 420, 500, 520, 600, 601, 602, 603, 700, 800, 900, 1000,
1100, 1200, 1300, and 1400. The form may be shortened correspondingly.
The number of a deleted item shall not be used for a substitute or new
item, but the number of a blank space on the HUD--1 may be used for a
substitute or new item.
(4) Charges not listed on the HUD--1, but that are customary
locally or pursuant to the lender's practice, may be inserted in blank
spaces. Where existing blank spaces on the HUD--1 are insufficient,
additional lines and spaces may be added and numbered in sequence with
spaces on the HUD--1.
(5) The following variations in layout and format are within the
discretion of persons reproducing the HUD--1 and do not require prior
HUD approval: size of pages; tint or color of pages; size and style of
type or print; vertical spacing between lines or provision for
additional horizontal space on lines (for example, to provide
sufficient space for recording time periods used in prorations);
printing of the HUD--1 contents on separate pages, on the front and
back of a single page, or on one continuous page; use of multicopy
tear-out sets; printing on rolls for computer purposes; reorganization
of Sections B through I, when necessary to accommodate computer
printing; and manner of placement of the HUD number, but not the OMB
approval number, neither of which may be deleted. The designation of
the expiration date of the OMB number may be deleted. Any changes in
the HUD number or OMB approval number may be announced by notice in the
Federal Register, rather than by amendment of this
part.
{{6-30-05 p.7002}}
(6) The borrower's information and the seller's information may
be provided on separate pages.
(7) Signature lines may be added.
(8) The HUD--1 may be translated into languages other than
English.
(9) An additional page may be attached to the HUD--1 for the
purpose of including customary recitals and information used locally in
real estate settlements; for example, breakdown of payoff figures, a
breakdown of the borrower's total monthly mortgage payments, check
disbursements, a statement indicating receipt of funds, applicable
special stipulations between buyer and seller, and the date funds are
transferred. If space permits, such information may be added at the end
of the HUD--1.
(10) As required by HUD/FHA in FHA-insured loans.
(11) As allowed by
§ 3500.17, relating to
an initial escrow account statement.
(b) Permissible changes--HUD--1A. The changes and
insertions on the HUD--1 permitted under paragraph (a) of this section
are also permitted when the HUD--1A settlement statement is reproduced,
except the changes described in paragraphs (a)(3) and (6) of this
section.
(c) Written approval. Any other deviation in the HUD--1
or HUD--1A forms is permissible only upon receipt of written approval
of the Secretary. A request to the Secretary for approval shall be
submitted in writing to the address indicated in
§ 3500.3 and shall state
the reasons why the applicant believes such deviation is needed. The
prescribed form(s) must be used until approval is received.
(Approved by the Office of Management and Budget under control
numbers 2502--0265 and 2502--0491)
[Codified to 24 C.F.R. § 3500.9]
[Section 3500.9 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996]
§ 3500.10 One day advance inspection of HUD--1 or HUD--1A
settlement statement, delivery; recordkeeping.
(a) Inspection one day prior to settlement upon request by
the borrower. The settlement agent shall permit the borrower to
inspect the HUD--1 or HUD--1A settlement statement, completed to set
forth those items that are known to the settlement agent at the time of
inspection, during the business day immediately preceding settlement.
Items related only to the seller's transaction may be omitted from the
HUD--1.
(b) Delivery. The settlement agent shall provide a
completed HUD--1 or HUD--1A to the borrower, the seller (if there is
one), the lender (if the lender is not the settlement agent), and/or
their agents. When the borrower's and seller's copies of the HUD--1 or
HUD--1A differ as permitted by the instructions in Appendix A to this
part, both copies shall be provided to the lender (if the lender is not
the settlement agent). The settlement agent shall deliver the completed
HUD--1 or HUD--1A at or before the settlement, except as provided in
paragraphs (c) and (d) of this section.
(c) Waiver. The borrower may waive the right to delivery
of the completed HUD--1 or HUD--1A no later than at settlement by
executing a written waiver at or before settlement. In such case, the
completed HUD--1 or HUD--1A shall be mailed or delivered to the
borrower, seller, and lender (if the lender is not the settlement
agent) as soon as practicable after settlement.
(d) Exempt transactions. When the borrower or the
borrower's agent does not attend the settlement, or when the settlement
agent does not conduct a meeting of the parties for that purpose, the
transaction shall be exempt from the requirements of paragraphs (a) and
(b) of this section, except that the HUD--1 or HUD--1A shall be mailed
or delivered as soon as practicable after settlement.
{{6-30-05 p.7003}}
(e) Recordkeeping. The lender shall retain each
completed HUD--1 or HUD--1A and related documents for five years after
settlement, unless the lender disposes of its interest in the mortgage
and does not service the mortgage. In that case, the lender shall
provide its copy of the HUD--1 or HUD--1A to the owner or servicer of
the mortgage as a part of the transfer of the loan file. Such owner or
servicer shall retain the HUD--1 or HUD--1A for the remainder of the
five-year period. The Secretary shall have the right to inspect or
require copies of records covered by this paragraph (e).
(Approved by the Office of Management and Budget under control
number 2502--0265)
[Codified to 24 C.F.R. § 3500.10]
[Section 3500.10 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25,
1996]
§ 3500.11 Mailing.
The provisions of this part requiring or permitting mailing of
documents shall be deemed to be satisfied by placing the document in
the mail (whether or not received by the addressee) addressed to the
addresses stated in the loan application or in other information
submitted to or obtained by the lender at the time of loan application
or submitted or obtained by the lender or settlement agent, except that
a revised address shall be used where the lender or settlement agent
has been expressly informed in writing of a change in address.
[Codified to 24 C.F.R. § 3500.11]
[Section 3500.11 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25,
1996]
§ 3500.12 No fee.
No fee shall be imposed or charge made upon any other person, as a
part of settlement costs or otherwise, by a lender in connection with a
federally related mortgage loan made by it (or a loan for the purchase
of a manufactured home), or by a servicer (as that term is defined
under 12 U.S.C. 2605(i)(2)) for
or on account of the preparation and distribution of the HUD--1 or
HUD--1A settlement statement, escrow account statements required
pursuant to section 10 of RESPA (12 U.S.C. 2609), or statements
required by the Truth in Lending Act, 15 U.S.C. 1601 et seq.
[Codified to 24 C.F.R. § 3500.12]
[Section 3500.12 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25,
1996]
§ 3500.13 Relation to state laws.
(a) State laws that are inconsistent with RESPA or this part are
preempted to the extent of the inconsistency. However, RESPA and these
regulations do not annul, alter, affect, or exempt any person subject
to their provisions from complying with the laws of any State with
respect to settlement practices, except to the extent of the
inconsistency.
(b) Upon request by any person, the Secretary is authorized to
determine if inconsistencies with State law exist; in doing so, the
Secretary shall consult with appropriate Federal agencies.
(1) The Secretary may not determine that a State law or
regulation is inconsistent with any provision of RESPA or this part, if
the Secretary determines that such law or regulation gives greater
protection to the consumer.
(2) In determining whether provisions of State law or regulations
concerning affiliated business arrangements are inconsistent with
RESPA or this part, the Secretary may not construe those provisions
that impose more stringent limitations on affiliated
{{6-30-05 p.7004}}business arrangements as
inconsistent with RESPA so long as they give more protection to
consumers and/or competition.
(c) Any person may request the Secretary to determine whether an
inconsistency exists by submitting to the address indicated in
§ 3500.3, a copy of the
State law in question, any other law or judicial or administrative
opinion that implements, interprets or applies the relevant provision,
and an explanation of the possible inconsistency. A determination by
the Secretary that an inconsistency with State law exists will be made
by publication of a notice in the Federal Register.
"Law" as used in this section includes regulations and any
enactment which has the force and effect of law and is issued by a
State or any political subdivision of a State.
(d) A specific preemption of conflicting State laws regarding
notices and disclosures of mortgage servicing transfers is set forth in
§ 3500.21(h).
[Codified to 24 C.F.R. § 3500.13]
[Section 3500.13 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996; 61 Fed. Reg. 58476, November 15, 1996,
effective January 14, 1997]
§ 3500.14 Prohibition against kickbacks and unearned fees.
(a) Section 8 violation. Any violation of this section
is a violation of section 8 of RESPA (12
U.S.C. 2607) and is subject to enforcement as such under
§ 3500.19.
(b) No referral fees. No person shall give and no person
shall accept any fee, kickback or other thing of value pursuant to any
agreement or understanding, oral or otherwise, that business incident
to or part of a settlement service involving a federally related
mortgage loan shall be referred to any person. Any referral of a
settlement service is not a compensable service, except as set forth in
§ 3500.14(g)(1). A business entity (whether or not in an affiliate
relationship) may not pay any other business entity or the employees of
any other business entity for the referral of settlement service
business.
(c) No split of charges except for actual services performed.
No person shall give and no person shall accept any portion,
split, or percentage of any charge made or received for the rendering
of a settlement service in connection with a transaction involving a
federally related mortgage loan other than for services actually
performed. A charge by a person for which no or nominal services are
performed or for which duplicative fees are charged is an unearned fee
and violates this section. The source of the payment does not determine
whether or not a service is compensable. Nor may the prohibitions of
this part be avoided by creating an arrangement wherein the purchaser
of services splits the fee.
(d) Thing of value. This term is broadly defined in
section 3(2) of RESPA (12 U.S.C.
2602(2)). It includes, without limitation, monies, things,
discounts, salaries, commissions, fees, duplicate payments of a charge,
stock, dividends, distributions of partnership profits, franchise
royalties, credits representing monies that may be paid at a future
date, the opportunity to participate in a money-making program,
retained or increased earnings, increased equity in a parent or
subsidiary entity, special bank deposits or accounts, special or
unusual banking terms, services of all types at special or free rates,
sales or rentals at special prices or rates, lease or rental payments
based in whole or in part on the amount of business referred, trips and
payment of another person's expenses, or reduction in credit against an
existing obligation. The term "payment" is used throughout
§§ 3500.14 and 3500.15 as synonymous with the giving or receiving
any "thing of value'' and does not require transfer of money.
(e) Agreement or understanding. An agreement or
understanding for the referral of business incident to or part of a
settlement service need not be written or verbalized but may be
established by a practice, pattern or course of conduct. When a thing
of value is received repeatedly and is connected in any way with the
volume or value of the business referred, the receipt of the thing of
value is evidence that it is made pursuant to an agreement or
understanding for the referral of business.
{{6-30-05 p.7005}}
(f) Referral--(1) A referral includes any oral or
written action directed to a person which has the effect of
affirmatively influencing the selection by any person of a provider of
a settlement service or business incident to or part of a settlement
service when such person will pay for such settlement service or
business incident thereto or pay a charge attributable in whole or in
part to such settlement service or business.
(2) A referral also occurs whenever a person paying for a
settlement service or business incident thereto is required to use (see
§ 3500.2, "required
use") a particular provider of a settlement service or business
incident thereto.
(g) Fees, salaries, compensation, or other payments. (1)
Section 8 of RESPA permits:
(i) A payment to an attorney at law for services actually
rendered;
(ii) A payment by a title company to its duly appointed agent for
services actually performed in the issuance of a policy of title
insurance;
(iii) A payment by a lender to its duly appointed agent or
contractor for services actually performed in the origination,
processing, or funding of a loan;
(iv) A payment to any person of a bona fide salary or
compensation or other payment for goods or facilities actually
furnished or for services actually performed;
(v) A payment pursuant to cooperative brokerage and referral
arrangements or agreements between real estate agents and real estate
brokers. (The statutory exemption restated in this paragraph refers
only to fee divisions within real estate brokerage arrangements when
all parties are acting in a real estate brokerage capacity, and has no
applicability to any fee arrangements between real estate brokers and
mortgage brokers or between mortgage brokers.);
(vi) Normal promotional and educational activities that are not
conditioned on the referral of business and that do not involve the
defraying of expenses that otherwise would be incurred by persons in a
position to refer settlement services or business incident thereto; or
(vii) An employer's payment to its own employees for any
referral activities.
(2) The Department may investigate high prices to see if they are
the result of a referral fee or a split of a fee. If the payment of a
thing of value bears no reasonable relationship to the market value of
the goods or services provided, then the excess is not for services or
goods actually performed or provided. These facts may be used as
evidence of a violation of section 8 and may serve as a basis for a
RESPA investigation. High prices standing alone are not proof of a
RESPA violation. The value of a referral (i.e., the value of any
additional business obtained thereby) is not to be taken into account
in determining whether the payment exceeds the reasonable value of such
goods, facilities or services. The fact that the transfer of the thing
of value does not result in an increase in any charge made by the
person giving the thing of value is irrelevant in determining whether
the act is prohibited.
(3) Multiple services. When a person in a position to
refer settlement service business, such as an attorney, mortgage
lender, real estate broker or agent, or developer or builder, receives
a payment for providing additional settlement services as part of a
real estate transaction, such payment must be for services that are
actual, necessary and distinct from the primary services provided by
such person. For example, for an attorney of the buyer or seller to
receive compensation as a title agent, the attorney must perform core
title agent services (for which liability arises) separate from
attorney services, including the evaluation of the title search to
determine the insurability of the title, the clearance of underwriting
objections, the actual issuance of the policy or policies on behalf of
the title insurance company, and, where customary, issuance of the
title commitment, and the conducting of the title search and closing.
(h) Recordkeeping. Any documents provided pursuant to
this section shall be retained for five (5) years from the date of
execution.
(i) Appendix B of this part. Illustrations in
Appendix B of this part
demonstrate some of the requirements of this section.
[Codified to 24 C.F.R. § 3500.14]
{{6-30-05 p.7006}}
[Section 3500.14 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996; 61 Fed. Reg. 29252, June 7, 1996,
effective October 7, 1996; 61 Fed. Reg. 58476, November 15, 1996,
effective January 14, 1997]
§ 3500.15 Affiliated business arrangements.
(a) General. An affiliated business arrangement is
defined in section 3(7) of RESPA (12
U.S.C. 2602(7)).
(b) Violation and exemption. An affiliated business
arrangement is not a violation of section 8 of RESPA (12 U.S.C. 2607)
and of § 3500.14 if the conditions set forth in this section are
satisfied. Paragraph (b)(1) of this section shall not apply to the
extent it is inconsistent with section 8(c)(4)(A) of RESPA
(12 U.S.C. 2607(c)(4)(A)).
(1) Prior to the referral, the person making a referral has
provided to each person whose business is referred a written
disclosure, in the format of the Affiliated Business Arrangement
Disclosure Statement set forth in Appendix D of this part. This
disclosure shall specify the nature of the relationship (explaining the
ownership and financial interest) between the person performing
settlement services (or business incident thereto) and the person
making the referral, and shall describe the estimated charge or range
of charges (using the same terminology, as far as practical, as Section
L of the HUD--1 or HUD--1A settlement statement) generally made by the
provider of settlement services. The disclosure must be provided on a
separate piece of paper no later than the time of each referral or, if
the lender requires the use of a particular provider, the time of loan
application, except that:
(i) Where a lender makes the referral to a borrower, the
condition contained in paragraph (b)(1) of this section may be
satisified at the time that the good faith estimate or a statement
under § 3500.7(d) is
provided; and
(ii) Whenever an attorney or law firm requires a client to use a
particular title insurance agent, the attorney or law firm shall
provide the disclosures no later than the time the attorney or law firm
is engaged by the client. Failure to comply with the disclosure
requirements of this section may be overcome if the person making a
referral can prove by a preponderance of the evidence that procedures
reasonably adopted to result in compliance with these conditions have
been maintained and that any failure to comply with these conditions
was unintentional and the result of a bona fide error. An
error of legal judgment with respect to a person's obligations under
RESPA is not a bona fide error. Administrative and judicial
interpretations of section 130(c)
of the Truth in Lending Act shall not be binding interpretations of the
preceding sentence or section 8(d)(3) of RESPA
(12 U.S.C. 2607(d)(3)).
(2) No person making a referral has required (as defined in
§ 3500.2, "required
use") any person to use any particular provider of settlement
services or business incident thereto, except if such person is a
lender, for requiring a buyer, borrower or seller to pay for the
services of an attorney, credit reporting agency, or real estate
appraiser chosen by the
{{6-30-05 p.7007}}lender to represent the lender's
interest in a real estate transaction, or except if such person is an
attorney or law firm for arranging for issuance of a title insurance
policy for a client, directly as agent or through a separate corporate
title insurance agency that may be operated as an adjunct to the law
practice of the attorney or law firm, as part of representation of that
client in a real estate transaction.
(3) The only thing of value that is received from the arrangement
other than payments listed in § 3500.14(g) is a return on an
ownership interest or franchise relationship.
(i) In an affiliated business arrangement:
(A) Bona fide dividends, and capital or equity
distributions, related to ownership interest or franchise relationship,
between entities in an affiliate relationship, are permissible; and
(B) Bona fide business loans, advances, and capital or
equity contributions between entities in an affiliate relationship (in
any direction), are not prohibited--so long as they are for ordinary
business purposes and are not fees for the referral of settlement
service business or unearned fees.
(ii) A return on an ownership interest does not include:
(A) Any payment which has as a basis of calculation no apparent
business motive other than distinguishing among recipients of payments
on the basis of the amount of their actual, estimated or anticipated
referrals;
(B) Any payment which varies according to the relative amount of
referrals by the different recipients of similar payments; or
(C) A payment based on an ownership, partnership or joint venture
share which as been adjusted on the basis of previous relative
referrals by recipients of similar payments.
(iii) Neither the mere labelling of a thing of value, nor the
fact that it may be calculated pursuant to a corporate or partnership
organizational document or a franchise agreement, will determine
whether it is a bona fide return on an ownership interest or
franchise relationship. Whether a thing of value is such a return will
be determined by analyzing facts and circumstances on a case by case
basis.
(iv) A return on franchise relationship may be a payment to or
from a franchise but it does not include any payment which is not based
on the franchise agreement, nor any payment which varies according to
the number or amount of referrals by the franchisor or franchisee or
which is based on a franchise agreement which has been adjusted on the
basis of a previous number or amount of referrals by the franchiser or
franchisees. A franchise agreement may not be constructed to insulate
against kickbacks or referral fees.
(c) Definitions. As used in this section:
(1) Associate is defined in section 3(8) of RESPA
(12 U.S.C. 2602(8)).
(2) Affiliate relationship means the relationship
among business entities where one entity has effective control over the
other by virtue of a partnership or other agreement or is under common
control with the other by a third entity or where an entity is a
corporation related to another corporation as parent to subsidiary by
an identity of stock ownership.
(3) Beneficial ownership means the effective ownership
of an interest in a provider of settlement services or the right to use
and control the ownership interest involved even though legal ownership
or title may be held in another person's name.
(4) Control as used in the definitions of
"associate" and "affiliate relationship," means that a
person:
(i) Is a general partner, officer, director, or employer of
another person;
(ii) Directly or indirectly or acting in concert with others, or
through one or more subsidiaries, owns, holds with power to vote, or
holds proxies representing, more than 20 percent of the voting
interests of another person;
(iii) Affirmatively influences in any manner the election of a
majority of the directors of another person; or
(iv) Has contributed more than 20 percent of the capital of the
other person.
{{6-30-05 p.7008}}
(5) Direct ownership means the holding of legal title
to an interest in a provider of settlement service except where title
is being held for the beneficial owner.
(6) Franchise is defined in 16 CFR 436.2(a).
(7) Franchisor is defined in 16 CFR 436.2(c).
(8) Franchisee defined in 16 CFR 436.2(d).
(9) Person who is in a position to refer settlement service
business means any real estate broker or agent, lender, mortgage
broker, builder or developer, attorney, title company, title agent, or
other person deriving a significant portion of his or her gross income
from providing settlement services.
(d) Recordkeeping. Any documents provided pursuant to
this section shall be retained for 5 years after the date of execution.
(e) Appendix B of this part. Illustrations in
Appendix B of this part
demonstrate some of the requirements of this section.
[Codified to 24 C.F.R. § 3500.15]
[Section 3500.15 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25, 1996; 61 Fed. Reg. 29252, June 7, 1996,
effective October 7, 1996; 61 Fed. Reg. 58476, November 15, 1996,
effective January 14, 1997]
§ 3500.16 Title companies.
No seller of property that will be purchased with the assistance of
a federally related mortgage loan shall violate section 9 of RESPA
(12 U.S.C. 2608).
Section 3500.2 defines
"required use" of a provider of a settlement service. Section
3500.19(c) explains the liability of a seller for a violation of this
section.
[Codified to 24 C.F.R. § 3500.16]
[Section 3500.16 amended at 61 Fed. Reg. 13233, March 26,
1996, effective April 25,
1996]
§ 3500.17 Escrow accounts.
(a) General. This section sets out the requirements for
an escrow account that a lender establishes in connection with a
federally related mortgage loan. It sets limits for escrow accounts
using calculations based on monthly payments and disbursements within a
calendar year. If an escrow account involves biweekly or any other
payment period, the requirements in this section shall be modified
accordingly. A HUD Public Guidance Document entitled "Biweekly
Payments--Example" provides examples of biweekly accounting and a
HUD Public Guidance Document entitled "Annual Escrow Account
Disclosure Statement--Example" provides examples of a 3-year
accounting cycle that may be used in accordance with paragraph (c)(9)
of this section. A HUD Public Guidance Document entitled "Consumer
Disclosure for Voluntary Escrow Account Payments" provides a model
disclosure format that originators and servicers are encouraged, but
not required, to provide to consumers when the originator or servicer
anticipates a substantial increase in disbursements from the escrow
account after the first year of the loan. The disclosures in that model
format may be combined with or included in the Initial Escrow Account
Statement required in § 3500.17(g).
(b) Definitions. As used in this section:
Acceptable accounting method means an accounting method
that a servicer uses to conduct an escrow account analysis for an
escrow account subject to the provisions of § 3500.17(c).
Aggregate (or) composite analysis, hereafter called
aggregate analysis, means an accounting method a servicer
uses in conducting an escrow account analysis by
computing
{{6-30-05 p.7009}}the sufficiency of escrow account
funds by analyzing the account as a whole. Appendix E to this part sets
forth examples of aggregate escrow account analyses.
Annual Escrow Account Statement means a statement
containing all of the information set forth in § 3500.17(i). As noted
in § 3500.17(i), a servicer shall submit an annual escrow account
statement to the borrower within 30 calendar days of the end of the
escrow account computation year, after conducting an escrow account
analysis.
Conversion date means the date three years after the
publication date of the rule adding this section (i.e., October 27,
1997) by which date all servicers shall use aggregate analysis.
Cushion or reserve (hereafter cushion) means funds that a
servicer may require a borrower to pay into an escrow account to cover
unanticipated disbursements or disbursements made before the borrower's
payments are available in the account, as limited by § 3500.17(c).
Deficiency is the amount of a negative balance in an
escrow account. As noted in § 3500.17(f), if a servicer advances
funds for a borrower, then the servicer must perform an escrow account
analysis before seeking repayment of the deficiency.
Delivery means the placing of a document in the United
States mail, first-class postage paid, addressed to the last known
address of the recipient. Hand delivery also constitutes delivery.
Disbursement date means the date on which the servicer
actually pays an escrow item from the escrow account.
Escrow account means any account that a servicer
establishes or controls on behalf of a borrower to pay taxes, insurance
premiums (including flood insurance), or other charges with respect to
a federally related mortgage loan, including charges that the borrower
and servicer have voluntarily agreed that the servicer should collect
and pay. The definition encompasses any account established for this
purpose, including a "trust account", "reserve account",
"impound account", or other term in different localities. An
"escrow account" includes any arrangement where the servicer adds
a portion of the borrower's payments to principal and subsequently
deducts from principal the disbursements for escrow account items. For
purposes of this section, the term "escrow account" excludes any
account that is under the borrower's total control.
Escrow account analysis means the accounting that a
servicer conducts in the form of a trial running balance for an escrow
account to:
(1) Determine the appropriate target balances;
(2) Compute the borrower's monthly payments for the next escrow
account computation year and any deposits needed to establish or
maintain the account; and
(3) Determine whether shortages, surpluses or deficiencies exist.
Escrow account computation year is a 12-month period that
a servicer establishes for the escrow account beginning with the
borrower's initial payment date. The term includes each 12-month period
thereafter, unless a servicer chooses to issue a short year statement
under the conditions stated in § 3500.17(i)(4).
Escrow account item or separate item means any separate
expenditure category, such as "taxes" or "insurance", for
which funds are collected in the escrow account for disbursement. An
escrow account item with installment payments, such as local property
taxes, remains one escrow account item regardless of multiple
disbursement dates to the tax authority.
Initial escrow account statement means the first
disclosure statement that the servicer delivers to the borrower
concerning the borrower's escrow account. The initial escrow account
statement shall meet the requirements of § 3500.17(g) and be in
substantially the format set forth in § 3500.17(h).
Installment payment means one of two or more payments
payable on an escrow account item during an escrow account computation
year. An example of an installment payment is where a jurisdiction
bills quarterly for taxes.
Payment due date means the date each month when the
borrower's monthly payment to an escrow account is due to the servicer.
The initial payment date is the borrower's first payment due date to an
escrow account.
{{6-30-05 p.7010}}
Penalty means a late charge imposed by the payee, for
paying, after the disbursement is due. It does not include any
additional charge or fee imposed by the payee associated with choosing
installment payments as opposed to annual payments or for choosing one
installment plan over another.
Phase-in period means the period beginning on May 24,
1995 and ending on the conversion date, i.e., October 27, 1997, by
which date all servicers shall use the aggregate accounting method in
conducting escrow account analyses.
Post-rule account means an escrow account established in
connection with a federally related mortgage loan whose settlement date
is on or after May 24, 1995.
Pre-accrual is a practice some servicers use to require
borrowers to deposit funds, needed for disbursement and maintenance of
a cushion, in the escrow account some period before the disbursement
date. Pre-accrual is subject to the limitations of § 3500.17(c).
Pre-rule account is an escrow account established in
connection with a federally related mortgage loan whose settlement date
is before May 24, 1995.
Shortage means an amount by which a current escrow
account balance falls short of the target balance at the time of escrow
analysis.
Single-item analysis means an accounting method servicers
use in conducting an escrow account analysis by computing the
sufficiency of escrow account funds by considering each escrow item
separately. Appendix E
to this part sets forth examples of single-item analysis.
Submission (of an escrow account statement) means the
delivery of the statement.
Surplus means an amount by which the current escrow
account balance exceeds the target balance for the account.
System of recordkeeping means the servicer's method of
keeping information that reflects the facts relating to that servicer's
handling of the borrower's escrow account, including, but not limited
to, the payment of amounts from the escrow account and the submission
of initial and annual escrow account statements to borrowers.
Target balance means the estimated month end balance in
an escrow account that is just sufficient to cover the remaining
disbursements from the escrow account in the escrow account computation
year, taking into account the remaining scheduled periodic payments,
and a cushion, if any.
Trial running balance means the accounting process that
derives the target balances over the course of an escrow account
computation year. Section 3500.17(d) provides a description of the
steps involved in performing a trial running balance.
(c) Limits on payments to escrow accounts; acceptable
accounting methods to determine limits.
(1) A lender or servicer (hereafter servicer) shall not require a
borrower to deposit into any escrow account, created in connection with
a federally related mortgage loan, more than the following amounts:
(i) Charges at settlement or upon creation of an escrow
account. At the time a servicer creates an escrow account for a
borrower, the servicer may charge the borrower an amount sufficient to
pay the charges respecting the mortgaged property, such as taxes and
insurance, which are attributable to the period from the date such
payment(s) were last paid until the initial payment date. The
"amount sufficient to pay" is computed so that the lowest month
end target balance projected for the escrow account computation year is
zero (--0--) (see Step 2 in Appendix E to this part). In addition, the
servicer may charge the borrower a cushion that shall be no greater
than one-sixth (1/6) of the estimated total annual payments from
the escrow account.
(ii) Charges during the life of the escrow account.
Throughout the life of an escrow account, the servicer may charge
the borrower a monthly sum equal to one-twelfth (1/12) of the
total annual escrow payments which the servicer reasonably anticipates
paying from the account. In addition, the servicer may add an amount to
maintain a cushion no greater than one-sixth (1/6) of the
estimated total annual payments from the account. However, if a
servicer determines through an escrow account analysis that there is a
shortage or deficiency, the servicer may require the borrower to pay
additional deposits to
{{6-30-05 p.7011}}make up the shortage or eliminate
the deficiency, subject to the limitations set forth in § 3500.17(f).
(2) Escrow analysis at creation of escrow account.
Before establishing an escrow account, the servicer must conduct
an escrow account analysis to determine the amount the borrower must
deposit into the escrow account (subject to the limitations of
paragraph (c)(1)(i) of this section), and the amount of the borrower's
periodic payments into the escrow account (subject to the limitations
of (c)(1)(ii) of this section). In conducting the escrow account
analysis, the servicer must estimate the disbursement amounts according
to paragraph (c)(7) of this section. Pursuant to paragraph (k) of this
section, the servicer must use a date on or before the deadline to
avoid a penalty as the disbursement date for the escrow item and comply
with any other requirements of paragraph (k) of this section. Upon
completing the initial escrow account analysis, the servicer must
prepare and deliver an initial escrow account statement to the
borrower, as set forth in paragraph (g) of this section. The servicer
must use the escrow account analysis to determine whether a surplus,
shortage, or deficiency exists and must make any adjustments to the
account pursuant to paragraph (f) of this section.
(3) Subsequent escrow account analyses. For each
escrow account, the servicer must conduct an escrow account analysis at
the completion of the escrow account computation year to determine the
borrower's monthly escrow account payments for the next computation
year, subject to the limitations of paragraph (c)(1)(ii) of this
section. In conducting the escrow account analysis, the servicer must
estimate the disbursement amounts according to paragraph (c)(7) of this
section. Pursuant to paragraph (k) of this section, the servicer must
use a date on or before the deadline to avoid a penalty as the
disbursement date for the escrow item and comply with any other
requirements of paragraph (k) of this section. The servicer must use
the escrow account analysis to determine whether a surplus, shortage,
or deficiency exists, and must make any adjustments to the account
pursuant to paragraph (f) of this section. Upon completing an escrow
account analysis, the servicer must prepare and submit an annual escrow
account statement to the borrower, as set forth in paragraph (i) of
this section.
(4) Acceptable account methods to determine escrow limits. The
following are acceptable accounting methods that servicers may use in
conducting an escrow account analysis.
(i) Pre-rule accounts. For pre-rule accounts, servicers may use
either single-item analysis or aggregate-analysis during the phase-in
period. In conducting the escrow account analysis, servicers shall use
"month-end" accounting. Under month-end accounting, the timing of
the disbursements and payments within the month is irrelevant. As of
the conversion date, all pre-rule accounts shall comply with the
requirements for post-rule accounts in paragraph (c)(4)(ii) of this
section. During the phase-in period, the transfer of servicing of a
pre-rule account to another servicer does not convert the account to a
post-rule account. After May 24, 1995, refinancing transactions (as
defined in § 3500.2) shall comply with the requirements for post-rule
accounts.
(ii) Post-rule accounts. For post-rule accounts, servicers shall
use aggregate accounting to conduct an escrow account analysis. In
conducting the escrow account analysis, servicers shall use
"month-end" accounting. Under month-end accounting, the timing of
the disbursements and payments within the month is irrelevant.
(5) Cushion. For post-rule accounts, the cushion shall
be no greater than one-sixth (1/6) of the estimated total annual
disbursements from the escrow account using aggregate analysis
accounting. For pre-rule accounts, the cushion may not exceed the total
of one-sixth of the estimated annual disbursements for each escrow
account item using single-item analysis accounting. In determining the
cushion using single-item analysis, a servicer shall not divide an
escrow account item into sub-accounts, even if the payee requires
installment payments.
(6) Restrictions on pre-accrual. For pre-rule
accounts, a servicer shall not require any pre-accrual that results in
the escrow account balance exceeding the limits of paragraph (c)(1) of
this section. In addition, if the mortgage documents in a pre-rule
account are silent
{{6-30-05 p.7012}}about the amount of pre-accrual, the
servicer shall not require in excess of one month of pre-accrual,
subject to the additional limitations provided in paragraph (c)(8) of
this section. For post-rule accounts, a servicer shall not practice
pre-accrual.
(7) Servicer estimates of disbursement amounts. To
conduct an escrow account analysis, the servicer shall estimate the
amount of escrow account items to be disbursed. If the servicer knows
the charge for an escrow item in the next computation year, then the
servicer shall use that amount in estimating disbursement amounts. If
the charge is unknown to the servicer, the servicer may base the
estimate on the preceding year's charge, or the preceding year's charge
as modified by an amount not exceeding the most recent year's change in
the national Consumer Price Index for all urban consumers (CPI, all
items). In cases of unassessed new construction, the servicer may base
an estimate on the assessment of comparable residential property in the
market area.
(8) Provisions in mortgage documents. The servicer
shall examine the mortgage loan documents to determine the applicable
cushion and limitations on pre-accrual for each escrow account. If the
mortgage loan documents provide for lower cushion limits or less
pre-accrual than this section, then the terms of the loan documents
apply. Where the terms of any mortgage loan document allow greater
payments to an escrow account than allowed by this section, then this
section controls the applicable limits. Where the mortgage loan
documents do not specifically establish an escrow account, whether a
servicer may establish an escrow account for the loan is matter for
determination by State law. If the mortgage loan document is silent on
the escrow account limits (for cushion or pre-accrual) and a servicer
establishes an escrow account under State law, then the limitations of
this section apply unless State law provides for a lower amount. If the
loan documents provide for escrow accounts up to the RESPA limits, then
the servicer may require the maximum amounts consistent with this
section, unless an applicable State law sets a lesser amount.
(9) Assessments for periods longer than one year. Some
escrow account items may be billed for periods longer than one year.
For example, servicers may need to collect flood insurance or water
purification escrow funds for payment every three years. In such cases,
the servicer shall estimate the borrower's payments for a full cycle of
disbursements. For a flood insurance premium payable every 3 years, the
servicer shall collect the payments reflecting 36 equal monthly
amounts. For two out of the three years, however, the account balance
may not reach its low monthly balance because the low point will be on
a three-year cycle, as compared to an annual one. The annual escrow
account statement shall explain this situation (see example in the HUD
Public Guidance Document entitled "Annual Escrow Account Disclosure
Statement--Example", available in accordance with § 3500.3).
(d) Methods of escrow account analysis. Paragraph (c) of
this section prescribes acceptable accounting methods. The following
sets forth the steps servicers shall use to determine whether their use
of an acceptable accounting method conforms with the limitations in
§ 3500.17(c)(1). The steps set forth in this section derive maximum
limits. Servicers may use accounting procedures that result in lower
target balances. In particular, servicers may use a cushion less than
the permissible cushion or no cushion at all. This section does not
require the use of a cushion.
(1) Aggregate analysis. (i) When a servicer uses
aggregate analysis in conducting the escrow account analysis, the
target balances may not exceed the balances computed according to the
following arithmetic operations:
(A) The servicer first projects a trial balance for the account
as a whole over the next computation year (a trial running balance). In
doing so the servicer assumes that it will make estimated disbursements
on or before the earlier of the deadline to take advantage of
discounts, if available, or the deadline to avoid a penalty. The
servicer does not use pre-accrual on these disbursement dates. The
servicer also assumes that the borrower will make monthly payments
equal to one-twelfth of the estimated total annual escrow account
disbursements.
(B) The servicer then examines the monthly trial balances and
adds to the first monthly balance an amount just sufficient to bring
the lowest monthly trial balance to zero, and adjusts all other monthly
balances accordingly.
{{6-30-05 p.7013}}
(C) The servicer then adds to the monthly balances the
permissible cushion. The cushion is two months of the borrower's escrow
payments to the servicer or a lesser amount specified by State law or
the mortgage document (net of any increases or decreases because of
prior year shortages or surpluses, respectively).
(ii) Lowest monthly balance. Under aggregate analysis,
the lowest monthly target balance for the account shall be less than or
equal to one-sixth of the estimated total annual escrow account
disbursements or a lesser amount specified by State law or the mortgage
document. The target balances that the servicer derives using these
steps yield the maximum limit for the escrow account. Appendix E to
this part illustrates these steps.
(2) Single-item or other non-aggregate analysis method.
(i) When a servicer uses single-item analysis or any hybrid
accounting method in conducting an escrow account analysis during the
phase-in period, the target balances may not exceed the balances
computed according to the following arithmetic operations:
(A) The servicer first projects a trial balance for each item
over the next computation year (a trial running balance). In doing so
the servicer assumes that it will make estimated disbursements on or
before the earlier of the deadline to take advantage of discounts, if
available, or the deadline to avoid a penalty. The servicer does not
use pre-accural on these disbursement dates. The servicer also assumes
that the borrower will make periodic payments equal to one-twelfth of
the estimated total annual escrow account disbursements.
(B) The servicer then examines the monthly trial balance for each
escrow account item and adds to the first monthly balance for each
separate item an amount just sufficient to bring the lowest monthly
trial balance for that item to zero, and then adjusts all other monthly
balances accordingly.
(C) The servicer then adds the permissible cushion, if any, to
the monthly balance for the separate escrow account item. The
permissible cushion is two months of escrow payments for the escrow
account item (net of any increases or decreases because of prior year
shortages or surpluses, respectively) or a lesser amount specified by
State law or the mortgage document.
(D) The servicer then examines the balances for each item to make
certain that the lowest monthly balance for that item is less than or
equal to one-sixth of the estimated total annual escrow account
disbursements for that item or a lesser amount specified by State law
or the mortgage document.
(ii) In performing an escrow account analysis using single-item
analysis, servicers may account for each escrow account item
separately, but servicers shall not further divide accounts into
sub-accounts, even if the payee of a disbursement requires installment
payments. The target balances that the servicer derives using these
steps yield the maximum limit for the escrow account. Appendix E to
this part illustrates these steps.
(e) Transfer of servicing. (1) If the new servicer
changes either the monthly payment amount or the accounting method used
by the transferor (old) servicer, then the new servicer shall provide
the borrower with an initial escrow account statement within 60 days of
the date of servicing transfer.
(i) Where a new servicer provides an initial escrow account
statement upon the transfer of servicing, the new servicer shall use
the effective date of the transfer of servicing to establish the new
escrow account computation year.
(ii) Where the new servicer retains the monthly payments and
accounting method used by the transferor servicer, then the new
servicer may continue to use the escrow account computation year
established by the transferor servicer or may choose to establish a
different computation year using a short-year statement. At the
completion of the escrow account computation year or any short year,
the new servicer shall perform an escrow analysis and provide the
borrower with an annual escrow account statement.
(2) The new servicer shall treat shortages, surpluses and
deficiencies in the transferred escrow account according to the
procedures set forth in § 3500.17(f).
(3) A pre-rule account remains a pre-rule account upon the
transfer of servicing to a new servicer so long as the transfer occurs
before the conversion date.
{{6-30-05 p.7014}}
(f) Shortages, surpluses, and deficiencies requirements.
(1) Escrow account analysis. For each escrow account,
the servicer shall conduct an escrow account analysis to determine
whether a surplus, shortage or deficiency exists.
(i) As noted in § 3500.17(c)(2) and (3), the servicer shall
conduct an escrow account analysis upon establishing an escrow account
and at completion of the escrow account computation year.
(ii) The servicer may conduct an escrow account analysis at other
times during the escrow computation year. If a servicer advances funds
in paying a disbursement, which is not the result of a borrower's
payment default under the underlying mortgage document, then the
servicer shall conduct an escrow account analysis to determine the
extent of the deficiency before seeking repayment of the funds from the
borrower under this paragraph (f).
(2) Surpluses. (i) If an escrow account analysis
discloses a surplus, the servicer shall, within 30 days from the date
of the analysis, refund the surplus to the borrower if the surplus is
greater than or equal to 50 dollars ($50). If the surplus is less than
50 dollars ($50), the servicer may refund such amount to the borrower,
or credit such amount against the next year's escrow payments.
(ii) These provisions regarding surpluses apply if the borrower
is current at the time of the escrow account analysis. A borrower is
current if the servicer receives the borrower's payments within 30 days
of the payment due date. If the servicer does not receive the
borrower's payment within 30 days of the payment due date, then the
servicer may retain the surplus in the escrow account pursuant to the
terms of the mortgage loan documents.
(iii) After an initial or annual escrow analysis has been
performed, the servicer and the borrower may enter into a voluntary
agreement for the forthcoming escrow accounting year for the borrower
to deposit funds into the escrow account for that year greater than the
limits established under paragraph (c) of this section. Such an
agreement shall cover only one escrow accounting year, but a new
voluntary agreement may be entered into after the next escrow analysis
is performed. The voluntary agreement may not alter how surpluses are
to be treated when the next escrow analysis is performed at the end of
the escrow accounting year covered by the voluntary agreement.
(3) Shortages. (i) If an escrow account analysis
discloses a shortage of less than one month's escrow account payment,
then the servicer has three possible courses of action:
(A) The servicer may allow a shortage to exist and do nothing to
change it;
(B) The servicer may require the borrower to repay the shortage
amount within 30 days; or
(C) The servicer may require the borrower to repay the shortage
amount in equal monthly payments over at least a 12-month period.
(ii) If an escrow account analysis discloses a shortage that is
greater than or equal to one month's escrow account payment, then the
servicer has two possible courses of action:
(A) The servicer may allow a shortage to exist and do nothing to
change it; or
(B) The servicer may require the borrower to repay the shortage
in equal monthly payments over at least a 12-month period.
(4) Deficiency. If the escrow account analysis
confirms a deficiency, then the servicer may require the borrower to
pay additional monthly deposits to the account to eliminate the
deficiency.
(i) If the deficiency is less than one month's escrow account
payment, then the servicer:
(A) May allow the deficiency to exist and do nothing to change
it;
(B) May require the borrower to repay the deficiency within 30
days; or
(C) May require the borrower to repay the deficiency in 2 or more
equal monthly payments.
{{6-30-05 p.7015}}
(ii) If the deficiency is greater than or equal to 1 month's
escrow payment, the servicer may allow the deficiency to exist and do
nothing to change it or may require the borrower to repay the
deficiency in two or more equal monthly payments.
(iii) These provisions regarding deficiencies apply if the
borrower is current at the time of the escrow account analysis. A
borrower is current if the servicer receives the borrower's payments
within 30 days of the payment due date. If the servicer does not
receive the borrower's payment within 30 days of the payment due date,
then the servicer may recover the deficiency pursuant to the terms of
the mortgage loan documents.
(5) Notice of Shortage or Deficiency in Escrow Account.
The servicer shall notify the borrower at least once during the
escrow account computation year if there is a shortage or deficiency in
the escrow account. The notice may be part of the annual escrow account
statement or it may be a separate document.
(g) Initial Escrow Account Statement. (1) Submission at
settlement, or within 45 calendar days of settlement. As noted in
§ 3500.17(c)(2), the servicer shall conduct an escrow account
analysis before establishing an escrow account to determine the amount
the borrower shall deposit into the escrow account, subject to the
limitations of § 3500.17(c)(1)(i). After conducting the escrow
account analysis for each escrow account, the servicer shall submit an
initial escrow account statement to the borrower at settlement or
within 45 calendar days of settlement for escrow accounts that are
established as a condition of the loan.
(i) The initial escrow account statement shall include the amount
of the borrower's monthly mortgage payment and the portion of the
monthly payment going into the escrow account and shall itemize the
estimated taxes, insurance premiums, and other charges that the
servicer reasonably anticipates to be paid from the escrow account
during the escrow account computation year and the anticipated
disbursement dates of those charges. The initial escrow account
statement shall indicate the amount that the service selects as a
cushion. The statement shall include a trial running balance for the
account.
(ii) Pursuant to § 3500.17(h)(2), the servicer may incorporate
the initial escrow account statement into the HUD--1 or HUD--1A
settlement statement. If the servicer does not incorporate the initial
escrow account statement into the HUD--1 or HUD--1A settlement
statement, then the servicer shall submit the initial escrow account
statement to the borrower as a separate document.
(2) Time of submission of initial escrow account statement
for an escrow account established after settlement. For escrow
accounts established after settlement (and which are not a condition of
the loan), a servicer shall submit an initial escrow account statement
to a borrower within 45 calendar days of the date of establishment of
the escrow account.
(h) Format for initial account statement. (1) The
format and a completed example for an initial escrow account statement
are set out in HUD Public Guidance Documents entitled "Initial
Escrow Account Disclosure Statement--Format" and "Initial Escrow
Account Disclosure Statement--Example", available in accordance with
§ 3500.3.
(2) Incorporation of Initial Escrow Account Statement Into
HUD-1 or HUD-1A Settlement Statement. Pursuant to
§ 3500.9(a)(11), a
servicer may add the initial escrow account statement to the HUD--1 or
HUD--1A settlement statement. The servicer may include the initial
escrow account statement in the basic text or may attach the initial
escrow account statement as an additional page to the HUD--1 or HUD--1A
settlement statement.
(3) Identification of Payees. The initial escrow
account statement need not identify a specific payee by name if it
provides sufficient information to identify the use of the funds. For
example, appropriate entries include: county taxes, hazard insurance,
condominium dues, etc. If a particular payee, such as a taxing body,
receives more than one payment during the escrow account computation
year, the statement shall indicate each payment and disbursement date.
If there are several taxing authorities or insurers, the statement
shall identify each taxing body or insurer (e.g., "City Taxes",
"School Taxes", "Hazard Insurance", or "Flood
Insurance," etc.).
{{6-30-05 p.7016}}
(i) Annual Escrow Account Statements. For each escrow
account, a servicer shall submit an annual escrow account statement to
the borrower within 30 days of the completion of the escrow account
computation year. The servicer shall also submit to the borrower the
previous year's projection or initial escrow account statement. The
servicer shall conduct an escrow account analysis before submitting an
annual escrow account statement to the borrower.
(1) Contents of Annual Escrow Account Statement. The
annual escrow account statement shall provide an account history,
reflecting the activity in the escrow account during the escrow account
computation year, and a projection of the activity in the account for
the next year. In preparing the statement, the servicer may assume
scheduled payments and disbursements will be made for the final 2
months of the escrow account computation year. The annual escrow
account statement must include, at a minimum, the following (the items
in paragraphs (i)(1)(i) through (i)(1)(iv) must be clearly itemized):
(i) The amount of the borrower's current monthly mortgage payment
and the portion of the monthly payment going into the escrow account;
(ii) The amount of the past year's monthly mortgage payment and
the portion of the monthly payment that went into the escrow account;
(iii) The total amount paid into the escrow account during the
past computation year;
(iv) The total amount paid out of the escrow account during the
same period for taxes, insurance premiums, and other charges (as
separately identified);
(v) The balance in the escrow account at the end of the period;
(vi) An explanation of how any surplus is being handled by the
servicer;
(vii) An explanation of how any shortage or deficiency is to be
paid by the borrower; and
(viii) If applicable, the reason(s) why the estimated low monthly
balance was not reached, as indicated by noting differences between the
most recent account history and last year's projection. HUD Public
Guidance Documents entitled "Annual Escrow Account Disclosure
Statement--Format" and "Annual Escrow Account Disclosure
Statement--Example" set forth an acceptable format and methodology
for conveying this information.
(2) No annual statements in the case of default,
foreclosure, or bankruptcy. This paragraph (i)(2) contains an
exemption from the provisions of § 3500.17(i)(1). If at the time the
servicer conducts the escrow account analysis the borrower is more than
30 days overdue, then the servicer is exempt from the requirements of
submitting an annual escrow account statement to the borrower under
§ 3500.17(i). This exemption also applies in situations where the
servicer has brought an action for foreclosure under the underlying
mortgage loan, or where the borrower is in bankruptcy proceedings. If
the servicer does not issue an annual statement pursuant to this
exemption and the loan subsequently is reinstated or otherwise becomes
current, the servicer shall provide a history of the account since the
last annual statement (which may be longer than 1 year) within 90 days
of the date the account became current.
(3) Delivery with other material. The servicer may
deliver the annual escrow account statement to the borrower with other
statements or materials, including the Substitute 1098, which is
provided for federal income tax purposes.
(4) Short year statements. A servicer may issue a
short year annual escrow account statement ("short year
statement") to change one escrow account computation year to
another. By using a short year statement a servicer may adjust its
production schedule or alter the escrow account computation year for
the escrow account.
(i) Effect of short year statement. The short year
statement shall end the "escrow account computation year" for the
escrow account and establish the beginning date of the new escrow
account computation year. The servicer shall deliver the short year
statement to the borrower within 60 days from the end of the short
year.
(ii) Short year statement upon servicing transfer.
Upon the transfer of servicing, the transferor (old) servicer
shall submit a short year statement to the borrower within 60 days of
the effective date of transfer.
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(iii)
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