Escrow Shortage & Deficiency

Paul,
 
I have a client who just got her NOD. Strange story. $60k loan amount. Payments of $850 per month. She is paying on time each month. The lender, Chase, took past taxes due, paid them and then her 30 days to pay the 4k, and immediately thereafter declared her in default. There was no accounting of what this $4k truly represented.
 
I know that she needs to request a full and complete accounting of payments, etc from Chase. Is there a form or template to use?
 
Thank you.
 
Pat

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Hello Pat,

The RESPA has different rules for servicers to follow in dealing with escrow ‘shortage’ and ‘deficiency’.  Both shortage and deficiency mean the escrow account has an insufficient balance, but in the case of a shortage the account still has a positive balance.  Regulation X defines deficiency as the “amount of negative balance in an escrow account”. 

Section 10 of the RESPA deals with escrow requirements for servicers and the regulations implementing it are covered in Regulation X.  Below are the relevant rules for both shortage and deficiency:

Reg. X, 24 C.F.R. § 3500.17(f)(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.

Reg. X, 24 C.F.R. § 3500.17 (f)(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.

(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.

Pat, no form letter for this, but be sure the borrower labels the letter a “Qualified Written Request” which obligates the lender to respond or risk suffering actual damages, costs, and attorney fees, plus $1,000 per violation.  Also, there is no private right of action for Section 10 of the RESPA, but it may likely be covered under a breach of contract theory or UDAP.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.