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1.3.2.8 Escrow Agent

If all of the monies from the loan proceeds are not distributed at the loan closing, the closing agent is usually responsible for holding the remainder until certain events occur. If it is a home improvement loan, it is common for the remaining proceeds to be paid to a home improvement contractor once work is completed. If the loan is covered by the Home Ownership and Equity Protection Act (HOEPA), the lender cannot (nor can the escrow agent as agent for the lender) pay this money to the contractor in the form of a check or other instrument made out solely to the contractor.21 The lender or escrow agent may have drafted an escrow agreement that governs to whom and when the remaining funds will be paid.

This type of escrow agent should be distinguished from the role played by loan servicers in managing borrowers’ escrow accounts. Under many loan agreements the borrowers’ monthly payments include principal, interest, and escrow amounts. Escrow amounts can be used to pay for homeowner’s insurance, property taxes, condominium fees, private mortgages insurance, and other similar costs. Loan servicers are typically responsible for collecting, holding, and paying out these monies appropriately. The role of loan servicers as escrow agents is discussed in more detail at Chapter 3, infra.

Footnotes

  • 21 {21} 15 U.S.C. § 1639(i).