OAR 274-020-0388: Property Tax Amortization and Escrow Accounting

(1) Except as otherwise provided herein, payments required on all loans shall include an amount, which represents advances, for taxes paid by the Director of Veterans' Affairs (Director) on the security: (a) The amounts shall be determined each year by dividing the amount advanced by the number of loan payments due during the year, increased to the next whole dollar; (b) The amounts so determined shall be added to and become part of the loan payment unless full payment of the advance is made pursuant to subsection (c) or (d) of this section; (c) As soon as possible after taxes are paid on November 15th of each year, the Director may notify each borrower by mail of the amount of the tax advance. If full payment of the tax advance is made to the Director, the amount determined in subsection (a) of this section shall be deleted from the loan payments. Upon such payment the borrower shall be credited with prior loan payments made to the extent of the amounts contained therein that represent repayment of the tax advance; (d) If for any reason the taxes cannot be paid on November 15th, the Director will send the notice as provided in subsection (c) of this section as soon as possible after the taxes are paid; (e) Effective with taxes paid in November of 1990 (1990–91 taxes) through November of 2003 (2003–2004 taxes), the Director generally did not advance funds for the payment of taxes on property that was security for a loan being charged less than seven percent interest unless an escrow account had been established on the loan for the payment of taxes. The interest rate charged was the "loan rate" or "composite rate" where more than one loan (with different interest rates) is secured by the property; (f) Effective with taxes (including delinquent taxes) to be paid in November of 2004 (2004–2005 taxes), the Director may approve a borrower's request to advance funds for the payment of taxes on property that is security for a loan unless an escrow account had been established on the loan for the payment of taxes. The interest rate being charged is the "loan rate" or "composite rate" where more than one loan (with different interest rates) is secured by the property; (g) Notwithstanding the provisions of subsection (1)(e) and (1)(f) of this rule, the Director may advance funds for the payment of taxes on property that is security for a loan under the provisions of the Servicemembers Civil Relief Act. In addition, the Director may advance funds to pay property taxes if sufficient funds are not available in the escrow account, by overdrawing the escrow account balance. (2) The Director may allow owners of the security to directly pay the taxes and hazard insurance due on the security, subject to the following conditions: (a) For existing accounts or qualified assumptions of existing accounts, the owner of the property must make written application to the Director on a form prescribed by the Director. Said application also must conform with the following: (A) The application must be submitted by September 1st of the year application is made; (B) At the time of application, payments on the loan must be current and the applicant's credit history must be satisfactory as determined by the Director at his sole discretion; and (C) The loan balance, including any accruals, at the time of application must not be more than 80 percent of the "real market value" of the security as shown by the county tax assessor. (D) If a request is approved, any funds the Director holds in an applicable escrow account, which are not scheduled for disbursement will be returned to the borrower and the borrower will be responsible for any future disbursements. (b) For new loan applications, the applicant must make written request to the Director. Said application also must conform with the following: (A) The loan-to-value ratio must be 80 percent or less of the net appraised value; (B) The loan must have no restrictions by virtue of mortgage insurance that the lender pay taxes and insurance. (3) All applications, for permission to pay taxes and hazard insurance directly, will receive a written approval or disapproval from the Director. If the application is approved, the applicant will be advised of the date when the Director will discontinue making disbursements, if applicable and the date the loan payment will be adjusted, if necessary. (4) The Director may revoke any permission granted concerning the payment of taxes and hazard insurance on the security by giving the owner of the security 30 days written notice of the revocation, except as otherwise provided herein. If the Director advances funds to pay unpaid taxes or hazard insurance, any advance by the Director for such a shortage or deficiency also will constitute immediate revocation by the Director of permission for the owner to pay directly any taxes and hazard insurance due on the security, and the account will revert to the last signed agreement between the Director and borrower for the payment of taxes, hazard insurance and other obligations. Any advances by the Director, including any interest and fee, shall be paid back within the remaining payment/escrow year. The borrower may not change this obligation without prior written approval from the Director. (5) Sections (1), (2), (3) and (4) of this rule are not applicable to payments made under contracts for the purchase of state-owned property. A contract purchaser may prepay the current year’s property taxes in a lump sum and have the tax portion removed from the following year’s payment(s). (6) Pursuant to the provisions of ORS 407.169, beginning November 1, 1990, escrow accounts are available for the prepayment of estimated property taxes and insurance. All borrowers with loans, and all purchasers buying property from the Director on a land sale contract, based on a daily simple interest calculation, may make prepayments of estimated property taxes into an escrow account, subject to the following conditions: (a) The owner of the property must make written application to the Director on a form prescribed by the Director; (b) Applicants will have the option of either repaying the previous year's tax advance as provided by section (1) of this rule, or of permitting said tax advance to remain part of the principal balance on the loan with the payments of said loan adjusted to repay the tax advance with interest over the remaining life of the loan. (7) On monthly simple interest loans with escrow accounts, the required escrow payment may be based, inter alia, on the preceding year's disbursements for such items as property taxes, hazard insurance premiums, other required insurance premiums, and condominium or homeowner’s association dues. In cases of un-assessed new construction, the estimate may be based, inter alia, on the assessment of comparable residential property in the market area. (8) The Director will pay interest on the escrow account as provided by ORS 86.245(1). (9) The definitions in section (10) of this rule apply to this section (9). Effective May 24, 1995, all escrow accounts on monthly simple interest loans and tax escrows on daily simple interest loans will be administered in the following manner: (a) The Director may require a cushion that shall be no greater than 1/6 of the estimated total annual disbursements from the escrow account. Estimated disbursements may be modified by an amount not exceeding the most recent year's change in the national Consumer Price Index for all urban consumers (CPI, all items); (b) At the end of an escrow account computation year, an aggregate analysis will be completed on each escrow account to determine the borrower's escrow account payment(s) for the new payment year. The borrower will be notified of any shortage, deficiency, or surplus in the escrow account and the amount of escrow account payment to be included in the loan payment; (c) If the loan is two months or more delinquent in payments an analyzes will not be done until the loan is brought current. (d) If the analysis determines there is not sufficient money in the escrow account to pay the required disbursements, the shortage or deficiency may be advanced by the Director. The required escrow payments on the loan will be increased to recover any interest, fee or advance by the Director for such a shortage or deficiency, or the borrower may repay the advance, interest or fee in a lump sum; (e) If the analysis determines there is a surplus in the escrow account equal to or greater than $25, the entire surplus shall be refunded to the borrower. If the surplus is less than $25, this amount will be retained in the escrow account and credited against the next year's escrow payments; (f) A statement itemizing all escrow account activity, (annual escrow statement) will be provided to the borrower each year. (10) The following definitions apply to section (9) of this rule: (a) "Aggregate analysis" means to analyze the escrow account by calculating the sufficiency of escrow funds as a whole, as opposed to calculating components separately. (b) "Cushion" means funds that the Director may require a borrower to pay into an escrow account to cover unanticipated disbursements or disbursements made before the borrower's payments are available in the account. (c) "Deficiency" means the amount of a negative balance in an escrow account. (d) "Escrow account" means any account that the Director establishes or controls on behalf of a borrower to pay taxes, insurance premium, or other charges, as applicable. (e) "Escrow account computation year" means a 12-month period that the Director establishes for the escrow account. (f) "Shortage" means an amount by which a current escrow account balance falls short of the target balance at the time of escrow analysis. (g) "Surplus" means an amount by which the current escrow account balance exceeds the target balance of the account. (h) "Target balance" means the estimated month-end balance in an escrow account that is just sufficient to cover the remaining disbursements from the escrow account in the escrow account computation year, taking into account the remaining scheduled periodic payments, and a cushion.