Legal Q&A: WI Act 340 Eliminates Escrow Requirement

Q: Are Wisconsin Financial Institutions Required to pay Interest on Escrow Accounts for Loans Covered by a First Lien Mortgage or Equivalent Security Interest in a 1-4 Family Dwelling Used as by the Borrower as a Principal Residence?

A: Not after April 18, 2018. Wisconsin Act 340 includes a provision that eliminates the requirement that a financial institution pay interest on escrow accounts for residential mortgage loans originated on or after the effective date of the Act. Thus, a Wisconsin financial institution is not required by law to pay interest on any escrow account maintained in association with a loan originated on or after April 18.

Wisconsin Section 138.052 previously required financial institutions to pay interest on the balance on any required escrow accounts. 138.052 applies to loans secured by a first lien or first lien equivalent in a 1-4 family dwelling that is used as the borrower’s principal residence. Wisconsin Act 340 modified this requirement so that it only applies to loans originated prior to the effective date of the Act. So, financial institutions must continue to pay interest on escrow accounts they required prior to the effective date of Act 340. However, for any escrow account associated with a loan originated after the effective date of Act 340, 138.052 no longer requires payment of interest.

Click here to view Wisconsin Act 340.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance. Questions? Email the WBA legal team.


By, Amber Seitz