A battle that has developed between SunTrust Mortgage Inc. and the state of Florida has left lenders and lawyers confused.
The state sued SunTrust last week, charging that it had required too much money for escrow accounts from residential borrowers.
But the suit puzzles lawyers and lenders because a federal rule to resolve the escrow issue takes effect in two months.
Changes in the Real Estate Settlement Procedures Act, where federal escrow regulations are spelled out, take effect April 24. The new rule gives lenders three years to comply with new escrow accounting methods on loans originated before April 24. Those originated afterward must conform immediately.
At present, lenders may collect and hold in escrow money for property tax payments and insurance payments, plus a cushion to protect themselves against default. But the cushion may not exceed one-sixth of the annual dollar amount needed for disbursement.
Scores of lenders have been sued over their escrow practices since 1990, when six state attorneys general, including Florida's, accused lenders of abuses. Some observers say lenders' losses have been bearable, while lawyers have made a lot of money for their work on the cases.
Several mortgage banks are still in court over their escrow procedures.
In a statement, Robert A. Butterworth, Florida's attorney general, accused SunTrust of "deceptive trade practices and civil theft."
"Despite its knowledge of the unlawful nature of its mortgage escrow practices since at least 1990, SunTrust Mortgage has continued to impose excessive deposit requirements on its customers and has continued to receive and derive benefit from the excessive escrow deposits," according to the civil complaint filed in Leon County Circuit Court.
SunTrust officials were stunned by the suit. A spokesman for the Atlanta-based lender said SunTrust had been discussing its escrow policies with the attorney general for four months. He said it received notice of the suit through a press release issued by Mr. Butterworth.
"We think we are operating the right way, and we find this suit unfortunate," the spokesman said. "I don't really care to comment on what my true feelings are."
A senior SunTrust executive in Atlanta said the lender was "not overly concerned about" the lawsuit. The executive said the suit "brings the crazies out of the woodwork who hope they can jump on some sort of lawsuit and make money off of class-action suits or something like that."
Mr. Butterworth said that the subsidiary of SunTrust Banks Inc. is holding at least $7 million in excess escrow deposits. Each violation of Florida's Unfair and Deceptive Trade Practices Act is punishable by a fine of $10,000.
The SunTrust spokesman said the attorney general's escrow calculations "are well beyond any rational numbers."
No meetings are scheduled between SunTrust officers and the attorney general's office. The SunTrust spokesman said the lender would "actively seek another meeting with the attorney general."
