2013 Maryland Code
COMMERCIAL LAW
§ 12-109 - Interest on escrow accounts; statement of balance

§12-109.

(a) (1) In this section the following words have the meanings indicated.

(2) “Lending institution” means a bank, savings bank, or savings and loan association doing business in Maryland.

(3) “Escrow account” means an expense or escrow account which tends to protect the security of a loan by the accumulation of funds for the payment of taxes, insurance premiums, or other expenses.

(b) (1) A lending institution which lends money secured by a first mortgage or first deed of trust on any interest in residential real property and creates or is the assignee of an escrow account in connection with that loan shall pay interest to the borrower on the funds in the escrow account at an annual rate not less than the 6-month average dealer bid rate on nationally traded certificates of deposit, as published by the Federal Reserve in “Selected Interest Rates (Daily) - H.15”, as of the first business day of the calendar year.

(2) Interest on these funds shall be:

(i) Adjusted, if applicable, as of the first day of each calendar year to reflect the rate to be paid during that year, as determined under paragraph (1) of this subsection;

(ii) Computed on the average monthly balance in the escrow account; and

(iii) Paid annually to the borrower by crediting the escrow account with the amount of interest due.

(3) The lending institution shall annually provide the borrower with a statement of the escrow balance.

(c) The provisions of this section do not apply to a lending institution which provides for the payment of taxes, insurance, or other expenses under the direct reduction method by which these expenses, when paid by the lender, are added to the outstanding principal balance of the loan.

(d) This section does not apply if the loan is purchased by an out-of-state lender through the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation and the out-of-state lender as a condition of purchase elects to service the loan. However, this section shall apply if the out-of-state lender sells the loan to a Maryland lender or places the loan with a Maryland lender for servicing.

§ 12-109 - 1. Use of escrow account funds for certain purposes prohibited

(a) Applicability of section. -- The provisions of this section do not apply to escrow accounts maintained in connection with loans described in § 12-103 (e) (1) of this subtitle.

(b) Prohibitions. -- Except in a foreclosure, release, or as provided in subsection (c) of this section, funds in any escrow account for use in paying taxes, insurance premiums and ground rents may not be used to:

(1) Reduce the principal; or

(2) Pay interest or other loan charges.

(c) Borrower options upon excessive balance -- In general. -- If there is periodically a balance in the escrow account that exceeds the amount provided for in the note, loan agreement, or security instrument, the borrower shall be given at least annually the option of:

(1) Receiving a refund of the excess amount;

(2) Applying the excess amount to the payment of principal and interest; or

(3) Leaving the excess amount in the escrow account.

(d) Borrower options upon excessive balance -- Refund of excess amount. -- A refund of any excess amount shall be made:

(1) Within 60 days after the receipt by the lender of the borrower's request for a refund; or

(2) If the borrower has not notified the lender of the option chosen by the borrower under subsection (c) of this section, within 60 days after the date the lender mailed notice of the excess amount to the borrower.

(e) Grace period for increase in payments; interest. --

(1) Subject to paragraph (3) of this subsection, if, after recalculating the amount that is required to be maintained in escrow under a first mortgage or first deed of trust on residential real property, a lender or a servicer of a loan determines that the amount that a borrower is required to pay must increase, the lender or servicer may not include, for a 1-year period after the determination is made, the amount of the increase in escrow payments in any calculation of the amount of interest or any fee due under the loan.

(2) This subsection may not be construed to limit the ability of a lender or a servicer of a loan to impose a late fee for any escrow payment that is due and not timely paid.

(3) (i) In this paragraph, "other expenses" does not include money required by a lender or a servicer of a loan for an escrow account cushion as permitted by the federal Real Estate Settlement Procedures Act.

(ii) A lender or a servicer of a loan may charge interest to a borrower on the amount of funds the lender or servicer advances to pay taxes, insurance premiums, or other expenses owed by the borrower in order to protect the security of the loan.

(iii) Interest may be charged by a lender or a servicer of a loan under subparagraph (ii) of this paragraph only if:

1. The lender or servicer advances its own funds because funds of the borrower were not available to pay the taxes, insurance premiums, or other expenses owed by the borrower;

2. The need for the advance was not caused by an error of the lender or servicer in servicing the loan;

3. The lender or servicer provides notice to the borrower that the advance was made and that interest will be charged on the advance;

4. Interest does not begin to accrue until 60 days after notice has been provided to the borrower in accordance with item 3 of this subparagraph;

5. Interest is charged only on the amount of funds actually advanced by the lender or servicer after the lender or servicer has used all available funds of the borrower to pay taxes, insurance premiums, or other expenses owed by the borrower; and

6. The borrower is permitted to repay the advance as permitted by the federal Real Estate Settlement Procedures Act.

§ 12-109 - 2. Management of escrow accounts; lender's bankruptcy; fees and charges

(a) Definitions. --

(1) In this section the following terms have the meanings indicated.

(2) "Escrow account" has the meaning stated in § 12-109 of this subtitle.

(3) "Lender" includes a lender and assignee of a lender.

(4) "Mortgage" includes a mortgage and a deed of trust.

(b) Management of escrow accounts; funds not assets of lender in bankruptcy. --

(1) Funds in any escrow account shall be kept separate from and may not be commingled with the funds of the lender.

(2) A lender may place escrow funds received in connection with more than one mortgage into a single escrow account.

(3) In the event of the bankruptcy of the lender, any escrow funds placed in any escrow account under this section may not be considered to be part of the bankrupt estate of the lender.

(c) Collection fees or service charges on maintenance of certain escrow accounts. -- A lender may not impose a collection fee or service charge on the maintenance of an escrow account on a first mortgage.