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“Homestead Exemption” Concerns Lead to Advisory Ruling
A federal law known as RESPA, the Real Estate Estate Settlement Procedures Act, limits the amount of “cushion” that a lender can require to be maintained in a mortgage escrow account. Generally, at its low point each year, an escrow account cannot contain more than two months’ worth of the total annual payments.
Any factor which reduces the amount paid out of the account each year should result in a corresponding reduction in payments into the account, as well as a reduction in the permitted “cushion.”
In order to extend a measure of property tax relief to Maine homeowners, the Legislature in 1997 authorized a “homestead exemption”, reducing taxes by exempting a portion of the value of residences from taxation. However, certain legislators felt that homeowners were not seeing the full benefits of the program, in part because corresponding reductions in escrow requirements were reportedly not being made.
Although a bill drafted to specifically address the situation (L.D. 97, “An Act to Require Mortgage Holders Who Escrow Property Taxes to Reduce the Escrow Due to the Homestead Exemption”) did not pass, the airing of the issue did provide an appropriate opportunity for the Office of Consumer Credit Regulation and the Bureau of Banking to remind regulated lenders of their obligations to reduce escrow balances whenever the amounts of required payments from the accounts are reduced.
The notice from the Office of Consumer Credit Regulation took the form of Advisory Ruling #108.