Requires that notice of increase in mortgage escrow account be given in advance

BILL NUMBER:S2700

Title of bill

An act to amend the general obligations law, in relation to increases in mortgage escrow account requirements

Summary of specific provisions

Section 1: Adds a new Section 5-603 to the General obligations Law providing that a mortgage investing institution that maintains a mortgage on any real property in the State of New York shall give ten days written notice prior to requiring payment of an increase in the amount of escrow if the amount is more than 5% of the total monthly payment. No service charge shall be imposed for the giving of such notice.

The term "mortgage investing institutions" shall refer to any banking organization or other entity engaged in the business of offering mortgage financing to the public or investing in mortgages.

Justification

Usually a home mortgage transaction includes a provision for escrow that the borrower is required to pay every month. At the time of closing the lender may require. the borrower to deposit several months of payment covering interest, principal, PMI, taxes, etc. to this escrow account. Most borrowers roll all monthly payments including taxes, mortgage, insurance, etc into one payment to avoid several bills each month.

Ideally, this escrow system flows seamlessly with no problems. Unfortunately lenders make mistakes, miscalculations, tax increases beyond control, insurance increases and factors can make the escrow system a nightmare for many homeowners. Homeowners have often complained of receiving an increase in their escrow with no prior notice to be paid immediately.

Currently, a mortgagor can raise escrow payments by any amount and not give any notice. This bill would allow a mortgagee to prepare for the increase with at least 10 days notice that payment is due.

FISCAL IMPLICATIONS:; None.

Effective date

Ninety days after enactment.