[Code of Federal Regulations]
[Title 24, Volume 3]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR570.511]

[Page 143-144]
 
                 TITLE 24--HOUSING AND URBAN DEVELOPMENT
 
  CHAPTER V--OFFICE OF ASSISTANT SECRETARY FOR COMMUNITY PLANNING AND 
        DEVELOPMENT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
 
PART 570_COMMUNITY DEVELOPMENT BLOCK GRANTS--Table of Contents
 
                     Subpart J_Grant Administration
 
Sec. 570.511  Use of escrow accounts for rehabilitation of privately 
owned residential property.

    (a) Limitations. A recipient may withdraw funds from its letter of 
credit for immediate deposit into an escrow account for use in funding 
loans and grants for the rehabilitation of privately owned residential 
property under Sec. 570.202(a)(1). The following additional limitations 
apply to the use of escrow accounts for residential rehabilitation loans 
and grants closed after September 7, 1990:
    (1) The use of escrow accounts under this section is limited to 
loans and grants for the rehabilitation of primarily residential 
properties containing no more than four dwelling units (and accessory 
neighborhood-scale non-residential space within the same structure, if 
any, e.g., a store front below a dwelling unit).
    (2) An escrow account shall not be used unless the contract between 
the property owner and the contractor selected to do the rehabilitation 
work specifically provides that payment to the contractor shall be made 
through an escrow account maintained by the recipient, by a subrecipient 
as defined in Sec. 570.500(c), by a public agency designated under 
Sec. 570.501(a), or by an agent under a procurement contact governed by 
the requirements of 24 CFR 85.36. No deposit to the escrow account shall 
be made until after the contract has been executed between the property 
owner and the rehabilitation contractor.
    (3) All funds withdrawn under this section shall be deposited into 
one interest earning account with a financial institution. Separate bank 
accounts shall not be established for individual loans and grants.
    (4) The amount of funds deposited into an escrow account shall be 
limited to the amount expected to be disbursed within 10 working days 
from the date of deposit. If the escrow account, for whatever reason, at 
any time contains funds exceeding 10 days cash needs, the grantee 
immediately shall transfer the excess funds to its program account. In 
the program account, the excess funds shall be treated as funds 
erroneously drawn in accordance with the requirements of U.S. Treasury 
Financial Manual, paragraph 6-2075.30.
    (5) Funds deposited into an escrow account shall be used only to pay 
the actual costs of rehabilitation incurred by the owner under the 
contract with a private contractor. Other eligible costs related to the 
rehabilitation loan or grant, e.g., the recipient's administrative costs 
under Sec. 570.206 or rehabilitation services costs under Sec. 
570.202(b)(9), are not permissible uses of escrowed funds. Such other 
eligible rehabilitation costs shall be paid under normal CDBG payment 
procedures (e.g., from withdrawals of grant funds under the recipient's 
letter of credit with the Treasury).
    (b) Interest. Interest earned on escrow accounts established in 
accordance with this section, less any service charges for the account, 
shall be remitted to HUD at least quarterly but not more frequently than 
monthly. Interest earned on escrow accounts is not required to be 
remitted to HUD to the extent the interest is attributable to the 
investment of program income.
    (c) Remedies for noncompliance. If HUD determines that a recipient 
has failed to use an escrow account in accordance

[[Page 144]]

with this section, HUD may, in addition to imposing any other sanctions 
provided for under this part, require the recipient to discontinue the 
use of escrow accounts, in whole or in part.

[55 FR 32369, Aug. 8, 1990]