It has been a few years since we blogged about escrows which usually requires a refreshed look at the industry. However, not much has changed in terms of unclaimed property laws surrounding those outside of RUUPA (the Revised Uniform Unclaimed Property Act, which was finalized in late 2016) that changed the dormancy on some escrow account types. Let’s take a deeper dive into the causes of escrow balances becoming unclaimed and some things that can be done upstream in the life cycle of the account aging and becoming dormant.
RESPA (Real Estate Settlement Procedures Act) was established in 1974. There have been some revisions with Dodd Frank in 2013 but it basically has kept the verbiage that is causing so many cases of unclaimed escrow refund checks. The act states that within 30 days of an escrow overage analysis, the mortgage company must send a refund check if the overage is $50 or greater. Under $50, companies are allowed to maintain the balance in escrow. So rather than applying any overage to the mortgage or holding it in escrow while reducing the monthly payment, checks are mailed out to unsuspecting owners.
The good news is that as these payments exceed $50, most would require the mailing of a statutorily mandated due diligence/last contact letter. Unfortunately, owners receive these letters between two and five years after the check was issued and most owners ignore the letter. This results in a substantial sum of money being sent to the states as unclaimed property.
Below are a few tips for holders that manage escrow accounts to reduce the amount of unclaimed escrow refunds:
- Maintain good records. Like all other unclaimed property records, maintaining the most up to date and accurate information on your clients prevents the generation of unclaimed property.
- Create policies and procedures to notify owners they are overpaying their escrow – ask yourself how frequent is escrow account analysis being performed and can it be done more frequently? Do we have emails for these individuals to let them know a check will be coming in the mail? Can we perhaps ask them if they’d like the overage to be applied to their mortgage and avoid the check issuance all together? You should check with your legal department to determine what may be allowed in these circumstances.
- Is this escrow refund being generated during an account closing? If so, the address on record is possibly for the prior address of the owner. A location search could help reunite many of these owners with their refund.
Like other types of unclaimed property, proper policies, procedures, organization and documentation for escrow refunds need to be in place to help ensure your company is correctly reporting these refunds. You can learn more about creating policies and managing a compliance program in this free white paper: How To (Almost) Foolproof Your Unclaimed Property Processes.