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Escrow accounts are intended to allow borrowers to pay an extra amount with each payment to create a special “savings account” which can then be used to pay taxes, insurance, etc. on behalf of the borrower. By having these funds on hand, the lender is more confident that payments will be made in a timely fashion.
If your lending policies dictate escrow accounts, payments into those accounts are recorded through Loan Activity as repayments. Escrow funds may be collected as a portion of the total repayment amount, or sometimes a “lump sum” is paid into an escrow account that is below a safe minimum balance. In either case, activity type repayment is used when recording the activity.
IMPORTANT NOTE: If escrow funds are received as a portion of a repayment, enter the activity date as the date the repayment was received. If a “lump sum” amount is received toward escrow, use the last valid activity date as the new activity date, and use the “notes” section to document when the funds were actually received. By using the same activity date as the last activity posted, you will not affect interest. This ensures the correct amount of interest will be collected from the next repayment. Be certain the Paid-thru date and Next Payment Due dates do not advance.
Periodically, funds from the escrow account need to be disbursed to insurance companies, etc. This is also accomplished by using Loan Activity. Use the date the payout was made as the activity date, select activity type Escrow, and under “cash amount” enter the payout as a negative number. (Ex: $200.00 check posted as –200.00). When you tap enter, the cursor will move to the escrow #1 field, where you again enter the same number as a negative. Of course, if the payout is from escrow #2, leave #1 blank and enter the negative number in the escrow #2 field. Check to be certain the previous balance and the new balance are the same, as this activity should have no impact on loan balance. Enter the “new paid-thru date” to be the same as the “last paid-thru date”. Escrow payouts should not affect the paid-thru date in the history. When future payments are posted, the program will disregard any transaction recorded as type escrow and interest calculations will not be affected.