The ten questions below recur in conversations with seller-carry holders during a trust account intake. Each has a clean technical answer when the records are in order and a complicated answer when the records are gaps. A holder who can answer the ten questions below has the foundation a licensed servicer or a state examiner expects to see at the start of any review.

Where do my borrower’s funds sit today?

The answer should be a specific bank account, titled as a trust account, with the bank name, the account number, and the account agreement on file. A “personal checking” answer is a finding before the conversation goes further.

How is the trust account titled?

The title identifies the trust purpose — “[Holder Name] — Borrower Trust Account” or the state-specific format the bank product supports. A title that does not reference the trust nature of the account is a finding on the bank-statement face.

What does my borrower sub-ledger look like?

The sub-ledger tracks each borrower’s share of the trust balance separately. On a single-note file the sub-ledger has one borrower; on a multi-note file the sub-ledger has one row per borrower. The sub-ledger total ties to the trust account bank balance every month.

How often do I reconcile the trust account?

Monthly is the correct cadence. The reconciliation ties three numbers — bank, ledger, and sub-ledger — to the penny, with reconciling items identified and cleared inside the month they arise.

Where do disbursements come from?

From the trust account directly to the recipient — the tax collector, the insurer, the HOA. Intermediate transfers to an operating account and back create commingling exposure on the intermediate balance.

What backs each disbursement in the file?

The disbursement record (check stub or wire confirmation), the underlying obligation document (tax bill, insurance renewal notice), the borrower sub-ledger entry, and the authorization tied to the borrower’s loan terms.

What does my §1024.17 escrow statement look like?

An annual escrow statement to the borrower under Regulation X §1024.17 — produced within thirty days of the escrow account computation year — walks the year’s escrow activity, computes the next year’s monthly escrow payment, and identifies any shortage or surplus.

What state-specific rules apply to my trust account?

The state where the borrower lives and the state where the property sits each set rules. California, New York, Texas, Washington, Florida, and others impose explicit requirements. The state regulator’s servicing rule identifies the specific obligations.

What is my retention policy for trust account records?

The retention period runs from the longer of the federal tax rule (three years from the original return) and the state servicer rule (frequently five to seven years, sometimes the life of the loan plus a number of years).

What happens to the trust account when I sell the note?

The trust account funds transfer to the buyer’s servicer on the sale date, with a full reconciliation showing the borrower sub-ledger allocation. The records travel with the note. The seller retains a copy of the records for the retention period that applies to past activity.

Frequently Asked Questions

Can I answer these ten questions on a spreadsheet?

Yes, on a small portfolio. The spreadsheet has to reconcile to bank, retain the underlying documents, and survive a state examination. A spreadsheet that cannot produce the audit trail does not pass.

What is the cheapest answer to all ten questions?

A licensed-servicer engagement that produces the answers as a byproduct of the operating model. The monthly cost of professional servicing is a fraction of the cost of getting any one of the ten questions wrong.

When should I bring in legal counsel on trust account questions?

Before any deposit lands in the wrong account, before any disbursement runs late, and before any state examination opens. Consult qualified legal counsel on state-specific trust account rules and licensing requirements in every state where the holder operates.

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