Which federal act permits the lender to ask for no more than one-sixth of the annual property taxes to be escrowed in advance?

The Real Estate Settlement Procedures Act (RESPA) is designed to protect consumers during the home buying process and to promote transparency in the mortgage industry. One of the key provisions of RESPA relates to the management of escrow accounts for property taxes and homeowners insurance. According to RESPA, lenders are permitted to require borrowers to deposit no more than one-sixth (1/6) of the annual property taxes into the escrow account at closing. This regulation ensures that borrowers are not overburdened with prepayments while also ensuring that there are sufficient funds set aside to cover property tax obligations as they come due.

This provision helps to balance the need for lenders to secure collateral for property taxes with the borrower’s ability to manage their cash flow effectively. By allowing only a limited amount to be collected upfront, RESPA protects borrowers from having to fund excessively large escrow reserves and promotes fair lending practices in the real estate transaction process.