HB 1378 — Relating to the payment of interest on escrow accounts for residential mortgages; to amend and reenact section 47‑10.2‑01 of the North Dakota Century Code, relating to definitions for escrow accounts; to provide a penalty; and to provide for application.

25.1015.0100525.1015.03000 Adopted by the Industry, Business and Title.03000 Labor Committee January 28, 2025 Sixty-ninth Legislative Assembly of North Dakota PROPOSEDFIRST AMENDMENTSENGROSSMENT TOENGROSSED HOUSE BILL NO.

Johnson A BILL for an Act to create and enact athree new chaptersections to titlechapter 647-10.2 of the North Dakota Century Code, relating to mandating the payment of interest on escrow accounts for residential mortgages;

to provide a penalty;

and to provide for application.for an Act to create and enact three new sections to chapter 47-10.2 of the North Dakota Century Code, relating to the payment of interest on escrow accounts for residential mortgages;

A new chapter to title 6 of the North Dakota Century Code is created and enacted as follows:

Definitions.

1.

"Borrower" means a person that holds a residential mortgage loan and has an escrow account with a lender for the purpose of paying property taxes, insurance, or other related expenses.

2.

"Escrow account" means an account held by a lender or servicer used to collect and hold funds for the payment of property taxes, homeowner's insurance, and other related expenses associated with a residential mortgage.

3.

"Escrow funds" means money placed into an escrow account by a borrower for the payment of obligations such as property taxes, homeowner's insurance, and other expenses associated with home ownership.

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"Interest rate" means the percentage rate paid by the lender on funds held in escrow accounts.

5.

"Lender" means a bank, mortgage company, or other financial institution that services residential mortgage loans and holds escrow accounts.

A lender shall pay interest on funds held in an escrow account that maintains a minimum average balance of five hundred dollars.

The escrow account must have been in existence for a minimum of three months before the interest may be credited.

Only active accounts are eligible for accumulation of interest.

Determining the acceptable interest rate.

1.

The interest rate paid on escrow funds must be based on prevailing market rates for a saving or similar deposit account.

At minimum, all interest paid under this chapter must be set at one-half percent annually.

If the lender adjusts the interest rate, the change must be consistent with changes in market rates for comparable deposit products.

A rate change may not disproportionately favor the lender.

An adjustment to the interest rate must be communicated to the borrower at least thirty days before the new rate is applied.

2.

A lender holding an escrow account shall use a transparent and clear formula for determining the escrow account interest rate and clearly disclose the interest rate applied to escrow accounts in a loan agreement.

If a lender offers multiple types of deposit accounts with different interest rates, the borrower must be informed of the type of deposit product tied to the borrower's escrow account.

Compliance and enforcement - Penalty.

1.

The department of financial institutions shall enforce this chapter.

2.

A lender holding an escrow account shall submit an annual report to the department detailing the amount of interest credited to escrow accounts, including information on the rates applied and the number of borrowers affected.

3.

A lender that fails to pay interest on eligible escrow accounts is subject to a civil penalty determined by the department and suspension of business operations within the state until compliance is achieved.

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If a lender fails to credit interest to an escrow account, the borrower is entitled to receive the unpaid interest, plus an additional penalty interest rate, not to exceed ten percent of the unpaid interest, for each year of nonpayment.