You Have Escrows…You Have Options!

Until now, escrow disbursement in Wisconsin has been a normal yet frustrating routine as you come to the close of another year of paying property taxes. This is the time when mortgage servicers (or that demanding customer who wants to change things up, regardless of how they contracted for escrow disbursement) find out if the mortgage loan closed earlier this year correctly calculated property tax due. 

But this year is going to be much different, and as mortgage servicers who are bound by the Real Estate Settlement Procedures Act (RESPSA), and/or by WI Statute 138.052, you now have to deal with customers whose mortgage payment in 2020 was either deferred or followed forbearance benefits under the CARES Act. And that, my servicing friends, makes things more complicated. But there are options. 

First, when entering into the informal forbearance agreement with your customers earlier this year, I hope you convinced them, at the very least, to keep current with the escrow portion of the monthly payment. While the CARES Act and your investor allowed for delayed monthly payment, there was no provision to delay, defer, or suspend property tax due to the municipality at the end of 2020. This holds true if you deferred mortgage payments for mortgage loans held in your portfolio as well. If your customer missed these payments, there will not be enough escrow balance to pay this year’s property taxes. 

Second, under WI Statute 138.052, you and your customer agreed to a way money held in escrow would be disbursed. Typically, I find the most accepted method is to disburse the funds held in escrow payable to both the borrower and municipality and to do so by Dec. 20.  But don’t forget that your third option is to pay the property taxes when due. In Wisconsin, taxes are due Jan. 31, or alternatively in installment payments due Jan. 31 and July 31. If you are following your signed disclosure and disburse the funds held by Dec. 20, the customer may not have enough to pay property tax and will be calling you to help figure out a solution – but not until after you mailed them the check. I recommend you be proactive with those deferred payment customers and re-establish the method in which escrow will be disbursed prior to Dec. 20 and consider option three of section 138.052. Don’t forget to get a new agreement in place if you go this route. 

Third, you can overdraw the escrow account and fund the entire amount of the expected property taxes that would be due by Dec. 20. While this will make your customer happy, it could put both you and them at risk. Don’t forget, this new balance will be included during your annual escrow analysis in early 2021 and force the shortage to be made up over the next nine to ten months. The result could be payment shock to your customer and multiplied if the 2020 tax bill increased. Before exploring this option, I would re-underwrite the debt-to-income of the customers to be sure they can afford this option. 

Fourth, what about those customers who do not escrow, but fell on hard times during COVID and also experienced a cash shortfall this tax season? As a servicer and community banker, I would proactively reach out to customers to visit with their mortgage lender to pursue viable options, including the establishment of a new escrow account.    

Finally, any proactive steps you can take in the next few days and weeks will help your mortgage servicing team deliver good customer service and reduce the unnecessary burdens of re-processing escrow disbursement payments. Your customer will thank you for it too. 

If you have questions about your escrow process or compliance issues surrounding your options, please contact me at jschmid@fipco.com. Together we can help you find the right solution.

Schmid, CRCM, CERP is director of compliance and management services at FIPCO. He can be reached via email or 608-441-1220. You can find more regarding FIPCO's compliance and management services by clicking here.

By, Alex Paniagua