Question

According to what regulation can an escrow account have a cushion in an amount equal to 1/6 of the yearly taxes and property insurance cost?

A) RESPA (Real Estate Settlement Procedures Act)
B) TILA (Truth in Lending Act)
C) FDCPA (Fair Debt Collection Practices Act)
D) FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act)

Answer 1

An escrow account can have a cushion equal to 1/6 of the yearly taxes and property insurance cost according to the Real Estate Settlement Procedures Act (RESPA). The correct option is A.

Step-by-step explanation:

An escrow account may have a cushion equal to 1/6 of the yearly taxes and property insurance cost according to the Real Estate Settlement Procedures Act (RESPA).

RESPA is a federal statute that governs the closing and settlement processes of residential real estate transactions, and it includes provisions relating to escrow accounts for property taxes and insurance. This regulation ensures that the escrow account holds enough funds to cover these recurring costs while providing a limit to the cushion, preventing the accumulation of excessively large cushions.

Hence, Option A is correct.