This document is provided pursuant to the provisions of Cal. Civ. Code § 2954(a) which permits the “establishment of [an impound account] on terms mutually agreeable to the parties to the loan, if, prior to the execution of the loan or sole agreement, the seller or lender has furnished to the purchaser or borrower a statement in writing, which may be set forth in the loan application, to the effect that the establishment of such an account shall not be required as a condition to the execution of the loan or sale agreement, stating whether or not interest will be paid on the funds in such an account.” This provision does not apply to certain loan with certain conditions (listed in Ibid.), in connection with which an impound or escrow account can be required.
The statement must specify whether “interest will be paid on the funds in such an account.” According to the provisions of Ibid. § 2954.8, every financial institution which makes loans secured by real property containing a 1-to-4 family residence must pay at least 2% simple interest per annum on the amounts held within an impound account. An exception is made for “moneys which are required by a state or federal regulatory authority to be placed by a financial institution other than a bank in a non-interest-bearing demand trust fund account of a bank.” (Ibid. § 2954.8[d])
While Cx1231 is provided for all loans secured by a primary residence, whether an impound account is required or not, the language of the form is structured so as to make it effectively applicable only to loans in which an impound account is not required.
The first part of the document lists the conditions under which an impound account may be required. The second part then states that if none of these conditions exists, then the borrower may elect to have an impound account established and a disclosure of the times required under California law is provided.
Some confusion, however, has arisen over the wording of this particular part of the second part:
“If none of the above conditions apply to your loan request, the lender may not require the establishment of an impound account. However, you may elect to establish an impound account. The lender is required to pay two percent simple interest per annum on the impound account.”
While the context of the part indicates that the interest payments are to be made only in connection with a loan in which an impound account is elected, some have interpreted this part to mean that the lender must pay the interest on all impound accounts, even ones which are required by a state or regulatory agency, which are explicitly excluded from the 2% interest requirement.
In order to mitigate this confusion, we will be rephrasing the last two sentences so that they will be as follows:
“However, you may elect to establish an impound account. If you do so, the lender is required to pay two percent simple interest per annum on the impound account.”
This change will take effect on August 14, 2014. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.
August 7, 2014