25.1015.01005
Title.03000
Adopted by the Industry, Business and
Labor Committee
Sixty-ninth
January 28, 2025
Legislative Assembly
of North Dakota
Introduced by
Representative J. Johnson
A BILL for an Act to create and enact a new chapter to title 6 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; 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.
BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF NORTH DAKOTA:
SECTION 1. 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.
Page No. 1 25.1015.01005
HOUSE BILL NO. 1378
PROPOSED AMENDMENTS TO
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4. "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.
Page No. 2 25.1015.01005
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4. 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.
Disclosure - Opt - out.
1. A lender shall state in the mortgage agreement and in periodic statements how escrow
funds are managed, including details on the interest rate and how interest is credited.
2. A borrower may opt - out of the interest payment provision only if the borrower's
mortgage agreement explicitly allows the borrower to opt - out and the borrower agrees
to forfeit the interest in exchange for a reduced mortgage rate or other benefit.
SECTION 2. APPLICATION. This Act applies to an escrow account created after the
effective date of this Act. For an existing escrow account, interest payments required by this Act
must begin on January 1, 2026.
SECTION 1. AMENDMENT. Section 47-10.2-01 of the North Dakota Century Code is
amended and reenacted as follows:
47-10.2-01. Definitions.
In sections 47-10.2-01 through 47-10.2-03, unless the context or subject matter otherwise
requires:
1."Borrower" means the obligor under a residential mortgage held by a mortgagee.
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.
4. "Interest rate" means the percentage rate paid by the lender on funds held in escrow
accounts.
5. "Lender" means a bank, mortgage company, credit union, or other financial institution
that services residential mortgage loans and holds escrow accounts. The term does
not include the North Dakota housing fin ance agency.
6. "Servicer" means a person or entity maintaining an escrow account for a residential
mortgagee.
Page No. 3 25.1015.01005
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3.7."Surplus amount" means from the annual escrow account analysis, any amount
greater than or equal to fifty dollars, excluding any escrow cushion required by the
servicer.
SECTION 2. A new section to chapter 47-10.2 of the North Dakota Century Code is created
and enacted as follows:
Lender's obligation to pay interest on 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.
SECTION 3. A new section to chapter 47-10.2 of the North Dakota Century Code is created
and enacted as follows:
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.
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.
SECTION 4. A new section to chapter 47-10.2 of the North Dakota Century Code is created
and enacted as follows:
Disclosure - Opt - out.
1. A lender shall state in the mortgage agreement and in periodic statements how escrow
funds are managed, including details on the interest rate and how interest is credited.
2. A borrower may opt - out of the interest payment provision only if the borrower's
mortgage agreement explicitly allows the borrower to opt - out and the borrower agrees
to forfeit the interest in exchange for a reduced mortgage rate or other benefit.
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SECTION 5. APPLICATION. This Act applies to an escrow account created after the
effective date of this Act. For an existing escrow account, interest payments required by this Act
must begin on January 1, 2026.
Page No. 5 25.1015.01005
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