REAL ESTATE SETTLEMENT PROCEDURES ACT: RESPA SECTION 10 GUIDELINES

The Real Estate Settlement Procedures Act (RESPA) has strict guidelines on Escrow Accounts under Section 10. Sec. 10 places limits on the amount of money a lender requires a borrower to hold in an escrow account for payment of taxes, homeowners insurance, flood insurance, private mortgage insurance, or any other charge related to the property. RESPA’s Section 10 does not require that all loans have an escrow account, instead it regulates the maximum amount of money that can be deposited into an escrow account.

Lenders under Section 10 must conduct a escrow account analysis at least once a year and if there is a shortage they must notify the borrower of the problem and if a borrower’s escrow account has more than $50.00 the lender is required to refund the borrower the difference.

Lenders are also forbidden from inserting excessive fees or amount for the escrow account. Lenders are prohibited under RESPA guidelines from demanding that borrowers pay more than one twelfth (1/12) of the total amount of all escrow account disbursements payable during the year, plus any amount needed to pay for any shortfall in the escrow account.