Page 53
ATTACHMENT 4-A
CONDITIONS FOR LENDERS NOT HOLDING FUNDS IN ESCROW
A lender who does not hold borrower funds in escrow for taxes and insurance should consider the following:
x The Agency’s loan guarantee covers a maximum of twelve months’ past-due real
estate taxes and hazard insurance.
x Loan losses attributable to the borrower’s failure to maintain appropriate hazard
insurance will not be covered by the Agency’s loan guarantee.
x Loan losses attributable to the borrower’s failure to pay real estate taxes when due
will not be covered by the Agency’s loan guarantee.
x The lender will report annually to the Agency the number of borrowers who failed
to pay real estate taxes and/or hazard insurance premiums which resulted in the lender advancing funds on the borrowers’ behalf.
Lenders who do not hold borrower funds in escrow should consider doing the following to minimize the risk of taxes and insurance not being paid:
x Prior to loan closing, the lender must extensively counsel applicants about the
need for prompt payment of real estate taxes and hazard insurance premiums. Applicants must sign a statement indicating that they fully understand the significance of these obligations.
x The lender must include the estimated monthly tax and insurance expenses in the
ratio calculations when determining the borrower’s loan eligibility.
x The lender should encourage applicants to set money aside for taxes and
insurance through payroll deductions or bank accounts with direct deposit.
x The lender must ensure that taxes and insurance are paid by monitoring insurance
policy expiration, contacting the taxing authority annually, and reviewing local newspapers for tax delinquencies.
(03-09-16) SPECIAL PN 4-11 Revised (08-05-25) PN 649 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts