source:
  type: guide
  id: hud-4000-1-iii-g-escrow
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — g. Escrow
    (10/01/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part III — g. Escrow
    (10/01/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-iii-g-escrow-full
  canonical_id: hud-4000-1-iii-g-escrow-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part III — g. Escrow
    (10/01/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part III — g. Escrow
      (10/01/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'g. Escrow (10/01/2025) i. Definition An Escrow Account is a
      set of funds collected by the Mortgagee for payment of taxes, insurance, and
      other items required by the mortgage Note. ii. Escrowing of Funds (A) Standard
      The Mortgagee must segregate escrow funds, including those funds escrowed at
      closing, and deposit the funds in a special custodial account characterized
      by the following: • with a financial institution whose accounts are insured
      by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union
      Administration (NCUA); • that does not limit the Mortgagee’s access to funds,
      require an advance notice of withdrawal, or require the payment of a withdrawal
      penalty; • that clearly identifies the type of funds being held in that account;
      and III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs
      Forward Mortgages 1. Servicing of FHA-Insured Mortgages Handbook 4000.1 1165
      Last Revised: 11/26/2025 • the Mortgagee may maintain a “cushion” that may not
      be increased beyond what is acceptable under RESPA regulations. Mortgagees utilizing
      a Trust Clearing Account must withdraw the portion that is to be applied to
      escrows within 48 hours of the deposit and must transfer the portion to the
      escrow account for the Borrower’s Mortgage. Mortgagees are not prohibited from
      holding escrow funds for all types of Mortgages in a single bank account; however,
      the Mortgagee must not commingle escrow funds, even temporarily, with funds
      used for the Mortgagee’s general operating purposes. (B) Interest on Escrows
      HUD regulations neither forbid nor require that escrow accounts earn interest.
      However, if escrow funds are invested, the Mortgagee must pass on to the Borrower
      the net income derived from the investment in accordance with the following:
      • The Mortgagee must make investments and payments in compliance with state
      and federal agency requirements governing the handling and payment of interest
      earned on a Borrower’s escrow account. • The Mortgagee may only deduct the actual
      cost of administering the interest- bearing account before passing on to the
      Borrower the net earnings from the investment of their funds. • The Mortgagee
      may not charge the Borrower expenses for maintaining the interest-bearing escrow
      account in an amount exceeding the gross interest earned from investing the
      funds in that account. (C) Items to be Escrowed [Text was deleted in this section.]
      The Mortgagee must require that the Borrower’s total Mortgage Payment includes
      escrow funds to provide for payment of property charges, the security instrument,
      and applicable law. Items to be escrowed include: • real estate taxes; • special
      assessments, including any assessments related to a PACE obligation; • Hazard
      Insurance required by the Mortgagee; • Flood Insurance as applicable; • FHA
      MIP; • Ground Rent, if any; and • other items which can attain priority over
      the security instrument as a lien or encumbrance on the Property, other than
      Condominium or Homeowners’ Association (HOA) Fees. (D) Required Documentation
      The Mortgagee must retain documentation of its holding of all escrow funds on
      deposit. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs
      Forward Mortgages 1. Servicing of FHA-Insured Mortgages Handbook 4000.1 1166
      Last Revised: 11/26/2025 iii. Escrow Analysis The Mortgagee must perform analysis,
      at least annually, of the escrow account to provide for adequate collections
      to pay escrow bills when due without creating excessive surpluses. The Mortgagee
      must begin these analyses no later than the end of the second year of the life
      of the Mortgage. The Mortgagee must retain any escrow surplus discovered when
      performing the annual escrow account analysis for a Delinquent Mortgage pursuant
      to the terms of the mortgage documents and federal law and regulation, including
      RESPA. iv. Processing Payments from Escrow Accounts When making payments from
      escrow accounts, Mortgagees must: • request a bill from the billing agency or
      a tax monitoring service indicating the property tax amount owed, if a bill
      has not been received within a reasonable amount of time before the payment
      due date; • contact the Borrower, if necessary, to obtain the bill or the information
      needed to pay such bills if a bill is not received within a reasonable amount
      of time before the known payment due date; • send payment directly to the billing
      agency or the taxing authority, as bills become payable, or as otherwise directed
      by state or local law; and • make timely payments, even if making the payment
      requires advancing corporate funds when the escrow deposits are inadequate to
      meet these obligations. The Mortgagee may contract with a tax service organization
      to manage the payment of taxes. (A) Timeliness of Payments from Escrow Accounts
      (1) Standard The Mortgagee must ensure that all disbursements made on behalf
      of the Borrower are made as bills become payable. If the Mortgagee fails to
      timely disburse escrow proceeds, the Mortgagee is prohibited from passing on
      to the Borrower any penalties resulting from the late payments unless: • the
      late payment was the result of the Borrower’s error or omission; and • the Mortgagee
      attempted to obtain the billing information from the Borrower, billing agency,
      or the taxing authority in sufficient time to enable it to timely make the Disbursement.
      III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward
      Mortgages 1. Servicing of FHA-Insured Mortgages Handbook 4000.1 1167 Last Revised:
      11/26/2025 (2) Required Documentation The Mortgagee must document in its Servicing
      File its efforts to obtain the billing information from the Borrower, billing
      agency, the taxing authority, or a tax monitoring service indicating the property
      taxes status. (B) Payment of Insurance Premiums (1) Long-Term Policies (a) Definition
      Long-Term Policies refer to those insurance policies with terms of greater than
      one year. (b) Standard The Mortgagee may not reject Long-Term Policies if the
      carrier and amount are otherwise acceptable to the Mortgagee. (c) Collecting
      Funds for Renewal Premiums The Mortgagee may collect funds for renewal premiums
      on Long-Term Policies in the following ways: • For renewal with the same policy
      term: the Mortgagee may immediately begin collecting a monthly amount calculated
      to make funds available 30 Days before the policy expires; or • For renewal
      with a one-year term: the Mortgagee may defer collection of monthly escrows
      until 13 months before the expiration date of the policy then begin monthly
      collection of 1/12th of the renewal premium for a policy providing similar coverage.
      The Mortgagee may require a Borrower requesting to renew for a longer term to
      make a lump sum deposit to escrow for the additional amount required to pay
      the renewal premium with the Mortgagee 30 Days before the expiration date of
      the present policy. If the additional deposit is not made, the Mortgagee may
      renew the policy for one year and continue to escrow as for a one-year policy.
      (2) Optional Policies (a) Standard The Mortgagee may advance corporate funds
      when the escrow deposits are inadequate to meet obligations for payment of premiums
      for optional insurance coverage, but the Mortgagee must not charge against the
      escrow account any funds for these advances. III. SERVICING AND LOSS MITIGATION
      A. Title II Insured Housing Programs Forward Mortgages 1. Servicing of FHA-Insured
      Mortgages Handbook 4000.1 1168 Last Revised: 11/26/2025 (i) Personal Property
      and Personal Liability Insurance The Mortgagee must only escrow for the payment
      of Personal Property and personal liability insurance coverage premiums if:
      • the Borrower has obtained Personal Property and personal liability insurance
      coverage not directly related to the mortgaged Property; and • the premiums
      are combined with Hazard Insurance in one insurance premium payment. (ii) Life
      Insurance and Disability Insurance Mortgagees may not deposit premiums for life
      or disability insurance coverage in the same bank accounts as other escrow payments.
      The Mortgagee must maintain separate records for these life or disability insurance
      coverage payments. HUD does not require Mortgagees to itemize the Borrower’s
      monthly contribution for life or disability coverage on payment coupons. (b)
      Required Documentation The Mortgagee must note on the initial and annual escrow
      statements any Borrower’s discretionary payment made as part of a monthly Mortgage
      Payment for optional policies. (3) Insurance Protecting Only the Mortgagee The
      Mortgagee must not charge the Borrower any part of the cost of insurance coverage
      that does not benefit the Borrower. v. Use of Escrow Funds The Mortgagee must
      only use escrow funds for the purpose for which they were collected. The Mortgagee
      must never deduct amounts from a Borrower’s escrow account to pay the following:
      • penalties for late payments not directly resulting from the Borrower’s error
      or omission; • attorney’s fees incurred in foreclosure actions that are not
      completed; • inspection fees; and • Delinquent mortgages or refunds of overpaid
      subsidy. III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs
      Forward Mortgages 1. Servicing of FHA-Insured Mortgages Handbook 4000.1 1169
      Last Revised: 11/26/2025'
  judgment: false
