Mortgage companies often maintain escrow accounts for customers, holding sums collected with monthly payments and from which they pay certain expenses once or twice a year. The complaint for this class action alleges that Citibank, NA violates New York and other state laws by not paying at least 2% interest on these escrow accounts to the borrowers.
Escrow accounts are common with mortgages. Banks and other lenders have an interest in making sure that homeowners pay expenses like homeowner’s insurance and taxes on the mortgaged property, so they often bill borrowers for these expenses on a monthly basis, along with the mortgage payment, and hold the money in an escrow account until the date on which the insurance or tax payment is due. That way, the lender can make sure that the property is protected from things like fires and tax liens and that the collateral for its loan is preserved.
But while the money is collected during the year, the escrow account generally earns interest. The law requires that the borrower, whose money is earning the interest, get some of the interest.
The law referred to in this case is the New York General Obligation Law. The section in question applies to one- to six-family homes located in the state of New York which are occupied by the owner or owned by a cooperative apartment corporation. It requires that the lender for the mortgage on such a property must pay the borrower a minimum of 2% interest for tax and insurance money that is held in the account until payments are due.
The plaintiff in this case is called 347 Townhouse, LLC, which in 2016 refinanced a three-family home occupied by its members. The members have made monthly payments of interest and principal and also for insurance and property taxes, but they claim that Citibank has not paid them interest on the insurance and property tax money.
Two classes have been proposed for this action.