Escrow: Overcollection of Per Diem Interest
Filed under: Escrow — admin @ 2:54 pm
As a continuation to the discussion of Escrow States, let’s address CA specifically. Have you received an audit request from the CA Department of Corporations? Don’t worry…you will, especially in the current lending environment. Do you know what one of the first things they will evaluate is? OVER-COLLECTION OF PER DIEM INTEREST. Ask Wells Fargo about this one.
One of the major items to watch in the State of CA (or any escrow state for that matter) is the adjustment of per diem interest upon disbursement. Disbursement/funding of a loan is concluded by title/escrow on the day of recording. Many lenders not accustomed to lending in escrow states make the mistake of not ensuring per diem interest overages are refunded directly to the borrowers upon disbursement. Often times, title/escrow will return the overage in per diem interest to the lender, or in some cases, have the borrowers sign a disclosure releasing those funds to directly to title/escrow.
The CA auditors do not look favorably on either of these practices. It is the lender’s responsibility to instruct title/escrow to return any per diem interest overage back to the borrowers. If the money has been returned directly to the lender instead, it is then incumbent upon the lender to ensure the overage for per diem interest is returned to the borrowers. In my personal opinion and there may be some that disagree, it is never okay for title/escrow to keep the overages.
In cases where an audit is conducted, a lender’s entire pipeline extending back years can be evaluated. If per diem interest overages are discovered and no evidence can be produced to show overages were refunded to the borrowers as required, the amount of the overage plus interest at the rate of 10% interest per annum (Section 50504(b)(FC) must be refunded. This could add up to be quite costly, not to mention the fines that might be levied by the state.
There are a few simple steps that can be taken to ensure your company does not get caught up in this audit trap.
More to follow……
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