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: