I’m having a brain freeze. On a payoff, I know we cannot net out the escrow balance from the loan balance.
1. If we are doing a refi of an in-house loan, and this refi is going to be sold on the secondary market, do we have to cut a check for that escrow balance, or can we simply do a credit in the 200 series of the HUD-1?
2. If it’s a refi of an in-house loan, do we have to give the borrower the surplus at all, or can we simply transfer it to the new escrow?
Typically if there is a surplus (greater than $50) then the money should be given to the customers and not applied towards the payoff. If the same bank is refinancing the loan and the new loan is going to have an escrow feature, then the Bank can use the surplus towards the initial escrow deposit. How to disclosure this is address in the HUD’s RESPA FAQ’s in the HUD-1 200 Series section:
3) Q: Where should the transferred escrow balance in a refinance transaction be listed on the HUD-1?
A: The transferred escrow balance should be listed as a credit in lines 204-209 of the HUD-1.
34. Q: If the borrower’s escrow account includes a surplus greater than $50 which HUD’s rules require be refunded, may the servicer credit the surplus directly to the principal, rather than refund the surplus to the borrower?
A: No. However, the servicer may inform the borrower in the information accompanying the return of the surplus that the borrower may elect to use the refund to reduce principal or have it credited against the next year’s escrow payments.