I

103D CONGRESS

1ST SESSION H. R. 27

To amend the Real Estate Settlement Procedures Act of 1974 to reflect

changes in the mortgage servicing industry and the availability of improved technology to escrow agents, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mr. GONZALEZ (for himself, Mr. SCHUMER, Mr. FRANK of Massachusetts, Mr.

KENNEDY, Mr. MFUME, and Mr. RUSH) introduced the following bill;

which was referred to the Committee on Banking, Finance and Urban

Affairs

APRIL 22, 1993

Additional sponsors: Mr. GUTIERREZ, Mr. TOWNS, Mr. DE LUGO, Mr. WATT,

Mr. BARRETT of Wisconsin, Mr. BLACKWELL, Mrs. MEEK, Mr. FROST,

and Mr. GENE GREEN of Texas.

A BILL

To amend the Real Estate Settlement Procedures Act of

1974 to reflect changes in the mortgage servicing industry and the availability of improved technology to escrow

agents, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Escrow Account Re5 form Act of 1993’’.
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1 SEC. 2. LIMITATION OF PAYMENTS INTO ESCROW AC2 COUNTS.

3 (a) PAYMENTS AT SETTLEMENT.—

4 (1) IN GENERAL.—Section 10(a)(1) of the Real

5 Estate Settlement Procedures Act of 1974 (12

6 U.S.C. 2609(a)(1)) is amended by striking ‘‘, plus

7 one-sixth’’ and all that follows through ‘‘twelve8 month period’’.

9 (2) EFFECTIVE DATE.—The amendment under

10 paragraph (1) shall be made and shall take effect

11 upon the expiration of the 1-year period beginning

12 on the date of the enactment of this Act.

13 (b) REGULAR MONTHLY PAYMENTS.—

14 (1) IN GENERAL.—Section 10(a) of the Real

15 Estate Settlement Procedures Act of 1974 (12

16 U.S.C. 2609(a)) is amended by adding at the end

17 the following new undesignated paragraphs:

18 ‘‘Notwithstanding paragraphs (1) and (2) and any

19 mortgage agreement, each lender or servicer maintaining

20 any such escrow account shall provide that, not less than

21 once during each annual escrow period, the balance in

22 each such escrow account shall equal an amount not great23 er than the amount equal to one-sixth of the sum of the

24 total amount of taxes, insurance premiums, and other

25 charges anticipated to be paid during such annual escrow
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1 period (or such lesser amount as provided in the mortgage

2 agreement or other mortgage instrument).

3 ‘‘For 12 consecutive calendar months (the first such

4 month being the month in which the first installment pay5 ment under the mortgage is due), an amount in each such

month not exceeding 1 6 ⁄72 of the estimated total amount

7 of taxes, insurance premiums, and other charges which are

8 reasonably anticipated to be paid on dates during the an9 nual escrow period may be collected by the lender as a

10 sum in excess of the amount sufficient to pay such taxes,

11 insurance premiums, and other charges during the annual

12 period.’’.

13 (2) APPLICABILITY.—The amendment made by

14 paragraph (1) shall apply to any annual escrow pe15 riod (as such term is defined in section 10(h) of the

16 Real Estate Settlement Procedures Act of 1974, as

17 amended by this Act) for a federally related mort18 gage loan that begins after the expiration of the 1-

19 year period beginning on date of the enactment of

20 this Act.

21 (c) COVERAGE OF SERVICERS.—Section 10(a) of the

22 Real Estate Settlement Procedures Act of 1974 (12

23 U.S.C. 2609(a)) is amended—
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1 (1) in the matter preceding paragraph (1), by

2 inserting ‘‘or servicer (as the term is defined in sec3 tion 6(i))’’ after ‘‘lender’’; and

4 (2) by inserting ‘‘or servicer’’ after ‘‘lender’’

5 each place it appears in paragraphs (1) and (2).

6 SEC. 3. INTEREST ON AMOUNTS IN ESCROW ACCOUNTS.

7 (a) IN GENERAL.—Section 10 of the Real Estate Set8 tlement Procedures Act of 1974 (12 U.S.C. 2609) is

9 amended by adding at the end the following new sub10 section:

11 ‘‘(e) INTEREST ON AMOUNTS IN ESCROW AC12 COUNTS.—Any lender or servicer that establishes or main13 tains an escrow account in connection with a federally re14 lated mortgage loan shall pay interest on the balance in

15 the escrow account at an annual rate of not less than the

16 current passbook savings rate, as determined by the Sec17 retary (in the same manner determined for purposes of

18 determining family annual income under title I of the

19 United States Housing Act of 1937). Interest accrued

20 under this subsection shall be payable annually, except

21 that any amounts accrued upon termination of an escrow

22 account shall be payable upon the termination of the ac23 count. The Secretary shall, by regulation, provide for the

24 manner and timing of payment of interest accrued under
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1 this section to the borrower or the account of the bor2 rower.’’.

3 (b) APPLICABILITY.—The amendment made by sub4 section (a) shall apply to any escrow account (in connec5 tion with a federally related mortgage loan) that is estab6 lished after the expiration of the 1-year period beginning

7 on the date of the enactment of this Act.

8 SEC. 4. OPTION OF BORROWER TO TERMINATE ESCROW

9 ACCOUNT.

10 (a) IN GENERAL.—Section 10 of the Real Estate Set11 tlement Procedures Act of 1974 (12 U.S.C. 2609), as

12 amended by section 3 of this Act, is further amended by

13 adding at the end the following new subsection:

14 ‘‘(f) BORROWER ASSUMPTION OF ESCROW ACCOUNT

15 RESPONSIBILITY.—Any borrower in connection with a

16 federally related mortgage loan for which less than 80 per17 cent of the original principal obligation under the loan re18 mains outstanding may terminate any escrow account for

19 the loan by submitting to the lender or servicer of the loan

20 a statement certifying that the borrower agrees to make

21 timely payments of all taxes, insurance premiums, and

22 other charges paid from the escrow account. Notwith23 standing subsection (a) or any mortgage agreement, a

24 lender or servicer may not require the establishment or

25 maintenance of any escrow account for any federally relat-
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1 ed mortgage loan for which the escrow account is termi2 nated under this subsection.’’.

3 (b) EFFECTIVE DATE.—The amendment under sub4 section (a) shall be made and shall take effect upon the

5 expiration of the 180-day period beginning on the date of

6 the enactment of this Act.

7 SEC. 5. ENFORCEMENT OF BORROWER RIGHTS.

8 (a) CIVIL MONEY PENALTIES.—Section 10(d) of the

9 Real Estate Settlement Procedures Act of 1974 (12

10 U.S.C. 2609(d)) is amended—

11 (1) in paragraph (1)—

12 (A) by striking ‘‘failure to submit a state13 ment to a borrower as required under sub14 section (c)’’ and inserting ‘‘failure by a lender

15 or servicer to comply with the provisions of this

16 section’’; and

17 (B) by striking ‘‘failing to submit the

18 statement’’ and inserting ‘‘failing to comply’’;

19 and

20 (2) in paragraph (2), by striking ‘‘the require21 ment to submit the statement’’ and inserting ‘‘a pro22 vision of this section’’.

23 (b) ACTIONS.—Section 10 of the Real Estate Settle24 ment Procedures Act of 1974 (12 U.S.C. 2609), as
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1 amended by sections 3 and 4 of this Act, is further amend2 ed by adding at the end the following new subsection:

3 ‘‘(g) ACTIONS TO ENFORCE BORROWER RIGHTS.—

4 ‘‘(1) DAMAGES AND COSTS.—Whoever fails to

5 comply with any provision of this section shall be lia6 ble to the borrower for each such failure in the fol7 lowing amounts:

8 ‘‘(A) INDIVIDUALS.—In the case of any ac9 tion by an individual, an amount equal to the

10 sum of—

11 ‘‘(i) any actual or incidental damages

12 to the borrower as a result of the failure;

13 and

14 ‘‘(ii) in the case of a pattern or prac15 tice of noncompliance with the provisions

16 of this section, any punitive damages as

17 the court may allow, in an amount not to

18 exceed $10,000.

19 ‘‘(B) CLASS ACTIONS.—In the case of a

20 class action, an amount equal to the sum of—

21 ‘‘(i) any actual or incidental damages

22 to each of the borrowers in the class as a

23 result of the failure; and

24 ‘‘(ii) in the case of a pattern or prac25 tice of noncompliance with the provisions
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1 of this section, any punitive damages as

2 the court may allow.

3 ‘‘(2) ATTORNEYS FEES.—In any action pursu4 ant to this section, the court shall award to the pre5 vailing party the court costs of the action together

6 with reasonable attorneys fees.’’.

7 SEC. 6. DEFINITIONS.

8 Section 10 of the Real Estate Settlement Procedures

9 Act of 1974 (12 U.S.C. 2609), as amended by sections

10 3, 4, and 5 of this Act, is further amended by adding at

11 the end the following new subsection:

12 ‘‘(h) DEFINITIONS.—For purposes of this section:

13 ‘‘(1) The term ‘annual escrow period’ means a

14 period of 12 consecutive calendar months occurring

15 during the term of a federally related mortgage loan.

16 The annual escrow period beginning in each cal17 endar year shall begin with the calendar month dur18 ing which the first installment payment under the

19 mortgage was due.

20 ‘‘(2) The term ‘balance’, with respect to any es21 crow account, means the total of any amounts re22 maining in the escrow account, irrespective of the

23 purpose or manner in which such amounts were de24 posited or are to be used.’’.
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1 SEC. 7. JURISDICTION OF COURTS.

2 Section 16 of the Real Estate Settlement Procedures

3 Act of 1974 (12 U.S.C. 2614) is amended—

4 (1) by inserting ‘‘(a) KICKBACK AND TITLE

5 COMPANY VIOLATIONS.—’’ after ‘‘SEC. 16.’’; and

6 (2) by adding at the end the following new sub7 section:

8 ‘‘(b) ESCROW ACCOUNT VIOLATIONS.—Any action

9 brought pursuant to the provisions of section 10 may be

10 brought in the United States district court or in any other

11 court of competent jurisdiction, for the district in which

12 the property involved is located or where the violation is

13 alleged to have occurred, within 3 years from the date that

14 the borrower under the federally related mortgage loan

15 first had actual knowledge of the violation. Actions pursu16 ant to section 10 may be brought by the borrower, the

17 Secretary, the Attorney General of any State, or the insur18 ance commissioner of any State.’’.

19 SEC. 8. STUDY OF STANDARD ESCROW ACCOUNT MANAGE20 MENT PROCEDURES.

21 (a) IN GENERAL.—The Secretary of Housing and

22 Urban Development shall conduct a study of the accrual

23 and disbursement dates for taxes, insurance premiums,

24 and other charges under escrow accounts maintained by

25 lenders and servicers in connection with federally related

26 mortgage loans, procedures regarding shortages and sur-
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1 plus amounts in such escrow accounts, and the impact and

2 treatment of inflation with respect to such accounts, to

3 determine the feasibility of requiring standard procedures

4 for managing such escrow accounts.

5 (b) DEFINITIONS.—For purposes of this section—

6 (1) the term ‘‘accrual date’’ means, with respect

7 to taxes, insurance premiums, and other charges to

8 escrow accounts, the date on which the amount for

9 a charge is required to be deposited in an escrow ac10 count maintained for payment of such charges; and

11 (2) the term ‘‘disbursement date’’ means, with

12 respect to taxes, insurance premiums, and other

13 charges to escrow accounts, the date on which the

14 amount of a charge is withdrawn from an escrow ac15 count maintained for payment of such charges.

16 (c) REPORT.—The Secretary of Housing and Urban

17 Development shall submit to the Congress a report regard18 ing the results of the study under subsection (a), not later

19 than June 30, 1993. The report shall include the following

20 information:

21 (1) A determination of the overall cost to lend22 ers and servicers of converting accounting proce23 dures used for escrow accounts from single item

24 analysis to an aggregate analysis procedure.
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1 (2) A determination of the feasibility of estab2 lishing an accrual date for each charge to an escrow

3 account that occurs 30 days before the disbursement

4 date for the charge.

5 (3) A determination of (A) the feasibility of

6 identifying the disbursement dates for various State

7 and local tax collection agencies throughout the

8 United States and (B) any cost to the Secretary of

9 Housing and Urban Development of issuing a list of

10 such disbursement dates on an annual basis.

11 (4) A description and comparison of various ac12 counting methods for estimating the annual percent13 age increase in property taxes for a property secur14 ing a federally related mortgage loan.

15 (5) An examination of mortgage agreements

16 and a determination of the extent to which such

17 agreements permit any increase in the amounts re18 quired to be deposited by a borrower upon transfer

19 of the servicing rights for the mortgage loan.

20 (6) A determination of the extent and frequency

21 of deficiencies of amounts in escrow accounts and a

22 description and comparison of the various proce23 dures used to remedy such deficiencies.

24 (7) A description of the various procedures used

25 by State and local tax authorities and lenders and
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1 servicers in increasing tax charges and collecting re2 lated amounts for escrow accounts.

3 (8) A recommendation regarding the feasibility

4 of requiring standard procedures for management of

5 escrow accounts.

6 (9) Any other information relating to the study

7 conducted under subsection (a) that the Secretary

8 considers appropriate.

9 SEC. 9. REGULATIONS.

10 (a) REQUIREMENT.—Not later than the expiration of

11 the 180-day period beginning on the date of the enactment

12 of this Act, the Secretary of Housing and Urban Develop13 ment shall issue any proposed regulations necessary to

14 carry out this Act and the amendments made by this Act.

15 Not later than the expiration of the 90-day period begin16 ning on the expiration of such 180-day period, the Sec17 retary of Housing and Urban Development shall issue

18 final regulations to carry out this Act and the amendments

19 made by this Act. The regulations issued pursuant to this

20 section shall be subject to section 553 of title 5, United

21 States Code.

22 (b) RULE OF CONSTRUCTION.—Any failure by the

23 Secretary to issue any regulations required under sub24 section (a) shall not affect the effectiveness of the provi25 sions of this Act or of the amendments made by this Act.
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