Mortgage escrow accounts are a fact of life for most people with a mortgage. In most cases, your escrow account runs in the background and you probably don’t think about it unless something goes wrong. You just make your monthly mortgage payment— a portion of the payment goes to the lender, and the other portion goes to the escrow service, which holds the money you send them in an account which is then used to pay your property taxes and homeowner’s insurance when they are due.
Most people with an escrow account have it because it was required by their lender when they purchased their home. (Most lenders require escrow accounts for first-time homebuyers or when you don’t put down much when you make the purchase.)
The escrow account helps lenders protect their investment and makes it easier for many homeowners to budget for their property taxes and homeowners insurance because they make the payments on a prorated basis – you can think of it as a forced savings account.
Mortgage escrow accounts are designed to protect the lender, but they also make things easier for the homeowner as well. Let’s take a deeper look at mortgage escrow accounts, including what they are, how they work, who they protect, pros and cons, and whether or not you can avoid using a mortgage escrow account, or if you’re stuck with yours.
Table of Contents
What Is An Escrow Account?
An escrow is a legal arrangement with a neutral third party where money or goods are deposited until a contract is legally satisfied.
In layman’s terms, this means an escrow service is basically a middleman between a buyer and a seller, or in the case of a mortgage, a middleman between a homeowner and the county (for property taxes), insurance companies, and anyone else who the homeowner designates to pay with funds from the escrow account.
How Does a Mortgage Escrow Account Work?
Mortgage escrow accounts are very popular for mortgages, and, in many cases, mandatory.
Mortgage escrow services first became popular as a means to decrease the number of foreclosures due to people not paying property taxes. The problem was people were not always prepared to pay a large annual property tax payment.
Escrow accounts are actually pretty simple concepts, but there is a lot of confusion surrounding these accounts. There are some people who have owned a home for decades, but still don’t understand escrow accounts.
When you get a mortgage loan, the lender is going to add real estate taxes and insurance premiums to the monthly payment.
The lender is going to set this money aside into a separate account, and that’s your escrow account.
Money in the escrow account is used to pay your mortgage principal and interest, as well as your property taxes and your homeowner’s insurance premiums.
The real purpose of the escrow to ensure the lender won’t lose any money from tax liens.
How An Escrow Service Works, Internally
A mortgage escrow service is much like a forced savings account. Money is paid directly to the escrow service where it is held until payments are due.
For example, when you pay your mortgage bill, several hundred dollars per month are added to your payment.
However, the money doesn’t go toward your interest payments or principle. This money is set aside in your escrow account and used to pay your annual or biannual property taxes, homeowner’s insurance, and other bills.
Setting up an Escrow Account
Many lenders require you to use an escrow account when you obtain a home loan through them. In many cases, they will set up an escrow account for you when you close on your mortgage.
However, there is a chance the lender didn’t require you to set up an escrow account when you got the loan. Not every lender requires one. If not, it is up to you to decide whether you want to set up an escrow account to help budget your money for taxes and insurance.
Luckily, it’s easy to set up your own account.
Before you set up an account, you’ll need to decide how much money you’ll need to deposit into your escrow every month.
To do this, you need to get your annual homeowner’s insurance premiums, divide the number by twelve, and then add in your property taxes (also divided by twelve).
Once you’ve added those two numbers together, then this how much you will need to put into your escrow account every month.
After you’ve calculated how much you’ll need in the account, then you need to decide where to hold the account.
The best place to start is with the bank you already use. More than likely, your bank has an escrow agent that can help you set up an account.
If your bank doesn’t offer escrow services, then you can just do a simple search for “escrow company” and you will see dozens and dozens of different options.
To open the account, you’re going to need a lot of information.
They will need the:
- purchase price
- address
- termite report
- financing information
- seller’s name
- and much more
Some banks and companies are going to require additional information. You should contact them beforehand to ensure that you have all of the documentation that you need.
After that, you can put the initial deposit into the account and set up automatic deposits that will put money into the account every month.
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Advantages of Using a Mortgage Escrow Service
The main benefit of using an escrow account is not having to come up with a large payment every 6 months for your property taxes or annually for your homeowner’s insurance.
When everything works as advertised, you will have contributed an equal portion of these bills in the months leading up to their due date. In this sense, the escrow account works as an accrual account.
It is much easier for most people to pay $200 per month into a ‘forced’ savings account instead of paying $2,400 at once.
Mortgage escrow accounts also guarantee your bills are paid on time. Your payments have already been budgeted for you and the money is waiting and available in your account.
When the bill is due, the escrow account takes care of everything for you. It is nice not to have to remember payment dates, amounts, etc.
There are advantages to the lender and county as well.
The lender is assured your insurance premiums will always be up to date, so their asset (your house) is protected in the event of destruction. The county is assured they receive their property tax payments on time.
Unfortunately, sometimes things go wrong, which is one of the major disadvantages of escrow accounts.
Downfalls of Mortgage Escrow Accounts
There are several downfalls to escrow accounts. Basically, you are paying someone to do something you could do yourself (make payments on a schedule). Other downfalls occur when escrow accounts don’t work properly, when there is an overage or shortage, and due to missed opportunity cost.
When escrow doesn’t work
The biggest downfall of an escrow account is when things get mucked up, regardless of who is at fault. Many mortgages are bought and sold, which sometimes causes a change in the escrow company. Sometimes things get messed up in the transition.
Other problems can occur if your escrow company misses a scheduled payment, or if your escrow company goes broke. Your escrow company may be FDIC insured, but it still may take some time to get your funds, which may delay your property tax or insurance payments.
Escrow shortfalls and overages
Another downside to escrow accounts is that they are set for your last property tax rate or homeowners insurance rate. If property tax values change, you may find yourself with an overage or a shortfall (either too much or too little money in escrow).
An overage is no big deal, you simply paid too much and missed out on a little bit of interest that you could have used if you had your money stashed in a savings account.
An escrow shortfall, on the other hand, can be a big deal. This happens when you don’t have enough money in your escrow account and your tax or insurance bill causes your escrow account to run low.
Your escrow account may cover the shortfall (you are usually required to have a buffer in your account), but you will need to replace your buffer and pay more on your mortgage payments in the months that follow to both replace the buffer that was depleted and to make up for the higher tax or insurance rates you are paying.
Escrow shortfalls and overages are one of the most common reasons your mortgage payment can change even with a fixed rate loan. This happened to my wife and I twice in the first two years we were married, one time $150 per month, the other time about $10 per month. Thankfully, both of these were reductions in our mortgage payments!
*It is a good idea to frequently review your property tax assessment and challenge your property taxes if there is a discrepancy. This was how we had a drop in our mortgage payments.
Missed opportunity cost
The final downfall to using a mortgage escrow account is that the average homeowner usually has several thousand dollars tied up in escrow at any given time, money which could be earning you interest instead of someone else.
Most escrow accounts do not earn the account holder interest, though some earn interest at a low rate.
For someone with a large house and a $10,000 property tax bill, this adds up to a lot of lost opportunity every year.
There may also be associated escrow service fees which cut into your bottom line.
Can You Avoid Using an Escrow Service?
Yes, but not always.
Some mortgages require escrow accounts, especially for first time home buyers or home buyers with small down payments.
There are some advantages to going without an escrow service – your money can earn you interest and you may be eligible for early payment discounts for some bills.
But, the disadvantages are obvious – you are required to pay your tax bills and insurance payments on time or risk losing your house.
While you can’t always avoid having an escrow account, there is a chance you can have your account canceled in the future.
In most cases, if you are borrowing more than 80% of the value of the home, then they are going to require you use an escrow account for the mortgage loan. After you’ve paid off enough of the loan, there is a chance you can get the escrow requirement waived, depending on the lender.
There can be some restrictions to canceling your escrow.
Some banks or lending companies require the mortgage loan to be at least one year old and have zero late payments before they will consider waiving the escrow requirement.
Other companies are going to require there are no taxes or premiums due in the next month. Some companies are going to require a waiver fee when you cancel your escrow account.
If you want to cancel the account, contact your mortgage company and they can walk you through the process.
Should You Use an Escrow Account?
Looking through this list, it seems as though the cons outweigh the benefits, and as I mentioned earlier, you are basically paying someone to do something you can do yourself. So why even bother with an escrow account?
The answer for many people is easy: it is required by the lender. Some lenders won’t even give you an option of doing away with your escrow account unless you can prove you have a certain amount of funds on hand or you own a certain percentage of your property.
There are other reasons to use an escrow account, which mostly boil down to convenience. The homeowner simply has to make a monthly payment and the escrow service takes care of the rest.
In fact, I even know people who own their house and continue to use an escrow account because they can set it on autopilot and don’t have to worry about making payments when they are due. Owning their home reduces the risk of their escrow company changing, and thus reduces their worry. It’s a small price to pay for peace of mind.
Summary
Hopefully, this post has cleared up any confusion that you have about escrow accounts and how they work. They aren’t as confusing or scary as they might seem. In fact, they can be a very valuable tool once you understand how they operate and the advantages of these accounts.
If you have any specific questions about your account, contact your lender and they can answer any issues that you have or clarify any questions that you still have.
A mortgage escrow account is an easy and simple way to manage your annual tax and insurance payments and put them on autopilot.
Sure, it costs a little extra money every month, but to me, it is well worth the convenience.
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Paul Rivera says
I answer thousands of calls every year regarding escrow. I can give you some important insights that you may want to include in your future articles.
JJ says
When I bought my house five years ago, the lender at that time forgot to set up an escrow account and I’ve been good with that. It’s important to note that I never signed any escrow papers. I’ve been paying my own property taxes and insurance. My mortgage was recently sold to Chemical Bank and they’ve been withholding an escrow even though I have paid my last property taxes and am paying my home insurance. I am also continuing to save for my summer taxes. This is horrifying and leaving me financially strapped. Is this legal, as I have signed no escrow document ever authorizing this lender to take an escrow.
Blaine L says
I personally always seem to be having trouble with the escrow accounts and find them very stressful.
First the bank(s) keep moving the mortgage to another bank and then I need to follow up with them to make sure they have the correct addresses/accounts on file to transfer the funds for insurance or taxes.
Second, there are the times that they take the money out of escrow and then I get a let from the tax office 20-25 days later saying that they still haven’t received the payment. The story (i.e., with Chase Mortgage) is that it takes 30 days for a transfer to take place. So if a tax payment is due on the 31st, Chase will take the money out of your account 30 days before. And even then, there is no guarantee that they will pay on time.
Joe says
AS far as being paid on time and not having to worry about payment dates I never had that luxury. Property taxes were paid… but more often than not, 12 out of 17 years, I had to call the mortgage company to remind them the mandatory homeowners insurance was due…… They would not listen to me so I had to call the insurance company who conferenced the mortgage company in and confirmed it was time to pay the mortgage insurance. I do not understand why the mortgage company took this so lightly. The insurance I paid for protected their share of the property as well if something disastrous happened. If the home was damaged, I, ME, NOT THEM, Funded the insurance that would rebuild the home so that in the event it had to be sold… IE foreclosure….. they had something to sell………!!!!!!!!!!!!!! Don’t be fooled…… mortgage companies often have to be held to task.
Eliz Trin says
Wells Fargo just tacked on an additional $22.00 onto my Home Mortgage amount. This is a fixed rate loan at 3%. and the explanation is
Interest on Escrow..
HUGH>> what is that. Never heard of the actual balance on a fixed rate loan going up….. and they’re charging me, interest on MY money in escrow. Beginning to dislike WF…. Is this right and is it a new law or rule??
Ryan Guina says
I’m not sure. I’ve never heard of this. I recommend contacting Wells Fargo and ask them to explain this fee. You should also review the terms of your escrow account to verify this type of fee is allowed. You may also try asking if they will waive the fee.
teresa says
if you are on disability can you claim the interest paid on your mortgage when you do your income tax? Thank you
jill bates says
Escrow Account question: Mortgage company paid cancelled hazard ins & new hazard ins in 2015. I called immediately & told them about the error. They said it was corrected & check was not sent to my cancelled hazard ins but it was. This year they paid the cancelled ins & the new hazard ins I obtained in 2015. I called the old hazard ins & told them & they had it noted where I called in 2015 to cancel the ins but the agent failed to tell me that since the policy was in my husbands name he had to verbally cancel it. I got my husband on the phone & he cancelled it & they sent us refund checks for 2015 & 2016. Our new hazard ins charges $1500 annually but the old hazard ins went up to $2811 last yr & over $3000 this yr & that’s why we switched. My question is the mortgage company said to cash the checks & make it payable to them & put escrow refund. I’m not for sure how much we paid into escrow in 2015 & 2016. We don’t mind sending the refund but does all this sound correct & how do we know if it’s due them? Advancement to us or did we have enough in their to cover this mistake? Do I need to ask for something before I send them this refund?
Phyliss Butler says
Hi Ryan,
I have read most of your comments and your responses. I gather you are not in a position to really help other than to refer to mortgage lenders ,escrow servicers, etc. However maybe some of your readers may be able to relate and respond. I have been having an escrow account for years with a balance exceeding 30,00.00. Yes, the insurances and taxes are paid through the escrow. At one point I had forced insurance in which would not benefit me just the lender. At one point my escrow was 99,000.00 for real. I know I am being jipped,when the principal is only 537.00, and the interest is like 339.00 and the escrow is 2200.00 a month. My interest is 3.5 right now, will change in 2018. My monthly payment is almost 3,000.00 a month. Help ! I am nearing 66 years old. and would like to retire but can’t. Help!!!!!
Ryan Guina says
Hello Phyliss,
I recommend contacting the escrow company and requesting they refund you the amount of money over what is needed or required by your contract. You can also contact your mortgage lender and request they change your payment amount to reflect your mortgage, interest, taxes and insurance payments. If contacting these organizations doesn’t work, then you may need to hire a real estate attorney to help you draft a letter or even take them to court, if necessary. I wish you the best!
Molly says
We sold out home in June and the new owner just got his tax bill, which is about 30% more than it was last year. He sent a letter from his lawyer requesting the difference, prorated for the 169 days that we lived in the house in 2016. Is this common?
Ryan Guina says
Molly, you will want to look at your contract, and/or state laws regarding how property taxes are required to pay. In our state, the seller paid the property taxes for the year we moved into the home because real estate taxes are charged the year after (in other words you pay 2016 property taxes in the 2017 calendar year). We were informed we would have to do the same thing when we sold our home. I don’t know if this is how it works in every state, so be sure to check your contract and/or state laws.
Jith says
Hello,
I am going to do the closing of a newly constructed house by end of next month in Pittsburgh, PA.
My Mortgage company wants to open an escrow account and money for a full year of property tax will be collected for the escrow during closing.
Reason for them to collect the escrow is that my down payment is only 10% and I am the first time buyer.
Is the escrow needed in situations like this in PA? Is there an option to cancel the escrow later? What is the procedure?
During closing can I waive the escrow?
Thanks for your advise!
Ryan Guina says
Hello Jith, escrow is often required by the lender to protect their interest in your loan. Failure to pay property taxes or insurance puts their money at risk. Escrow requirements vary by lender and by location. You would need to read the terms of your mortgage for more information regarding whether you will be able to waive escrow.
STEVEN says
We have had an interest only loan for the past 15 years and now we have to pay it off in 5 years with a whopping huge payment of $3600/month P&I NO escrow.
Note our house is only 1000sq ft. But we have improved it for our needs.
We have never had to make escrow payments and do not have an escrow account and we pay all our taxes and insurance on time. The payment is nearly wiping us out but with serious cost cutting we may make it to a point we can refinance it to a lower payment, The mortgage people will not work with us!. They are trying to drive us out in fact. They appraised our house at a value lower than nearly every house in our subdivision even the smaller and older ones.
Even though we do NOT have an escrow account they made a city tax payment 2 months PRIOR TO DUE DATE, the city sent our check back in February. We now have an Escrow advance balance that we can’t pay back until it note is due nor can we claim taxes paid on our income tax since we did not pay into escrow. Who do we contact in Michigan regarding their illegal practice. We were NOT notified of their actions except by way of city returning our check. In 15 years we have never made late payments to city taxes or insurance and now the mortgage company is paying taxes prior to due date.
We have had a lawyer trying for past 4 months to get a harp loan without success and they now pull this,maybe we do NOT want another loan with these crooks and just pay until appraised value is low enough for a payment we can easily afford for as short a time as possible.
Sandi says
Dear Mr. Guina –
I have a mortgage loan with State Farm Bank. When I opened the loan, I opted for an escrow account to pay for my taxes. I have never had an escrow account to pay my homeowner’s insurance, I pay that myself monthly. In the past year I have been disabled. Due to my disability I was granted a Homestead Waiver. Meaning I no longer pay property tax. I mailed a letter, along with a copy of my Homestead Waiver paperwork, and ask to have the escrow account for my property taxes closed and to be refunded the balance of my account. State Farm Bank is refusing to close the account and is still making me pay $200+ per month to my escrow account. How can they charge me for something I don’t owe? It makes no sense to me.
Ryan Guina says
Hello Sandi, I’m sorry to hear about your experience. This is something you will need to take up with State Farm Bank. I would start by reviewing your mortgage contract to see if there is language regarding property taxes in the event you become disabled, or no longer owe taxes. If so, escalate the issue with their customer service to see if you can have the escrow requirement waived, based on your current circumstances. They may have requirements for a certain form to be filled out by the tax authority, or assurance that this is permanent, and not a temporary issue. You could also contact a real estate attorney for assistance with this if you are not able to do this on your own.
Finally, all the money that goes into escrow will not go to waste, or enrich the escrow company or lender. It is earmarked for taxes, and they will submit the payment on the normal schedule. The overage will be returned to you, although it may take some time and it may be a hassle. I understand this is a major inconvenience, and may cause financial hardship. So in your case, it may be better to enlist the aide of a real estate lawyer to help you resolve this if you can’t get it done on your own. I wish you the best!
John Scheafnocker says
I was told that a Mortgage Banker must pay you the same interest rate on your escrow monies that you pay on you Mortgage, Is that true?
I had chosen not to escrow when I purchased, Then fell behind on my property taxes, that is when the lender chose to exercise their right to escrow. Do they still have to pay the Interest rate I am currently paying on my Mortgage? It is 6.875%
Thanks, John
Ryan Guina says
I have never heard that before, John. You should read the terms of your mortgage for more information regarding your escrow account.
Janus says
Hello,
I sold my house for cash mid October. I had over 3000. in escrow, but had to pay out the cash funds, the tax payments due from January through closing date.
I am still waiting for the former Mortgage holder to refund my escrow. They have been paid off. How long is normal to wait to get my escrow back? Thanks, Jan
Cynthia says
I need to know if this is right! The company handling my escrow on my new built house tells me they only have enough to pay my land taxes and house insurance and that I have to pay my house annual taxes myself. I am a first time house buyer and was told this was what an escrow account was for. Now I have to come up with money for taxes.
Ryan Guina says
Cynthia, if your house was only recently built, this may be the case. The reason is that property taxes for escrow purposes are based on the most recent property tax assessment. If the house was just built, the taxes are probably based on unimproved land values. Once you build the house, the property taxes increase. Unless this was reported to the escrow company, they won’t have enough money in reserves to pay the property taxes at the higher rate. This is something that should be set up when purchasing or building the house, but someone in the chain might have missed it, or didn’t think to ask. If this is the case, expect to have to pay the full property taxes (speak to your county to see if you can make payments), and expect your escrow payments to increase going forward as they have to make up for the shortfall so they can make the tax payment for you going forward. This is an unfortunate situation, and I wish you the best in putting the pieces back together.
Stella says
My taxes are going up 2016 January. Bank of America already adjusted it making me pay the upgraded taxes now, 2015, as of 1 August. What’s going on? I called them and they said well I’m sorry you don’t understand! I just can’t wrap my head around it.
MICHAEL HARPER says
Does the mortgage company have the right to refuse to give me my annual escrow account disclosure statement? I used to get them 1st of April. I called them and asked why I have not gotten one for 2015 and they give excuses that they don’t run them anymore. I thought it was a federal law that they must provide that information every year.
karen says
I just found a escrow refund from 2013! Can i still cash the check? Theres no void after 90 days written on it!
Ryan Guina says
I would certainly try cashing the check. It’s your money.
Les says
Try asking your mortgage company if you can pay off your escrow account for the year. After all, my $1600.00/mo payment has an $822.00 escrow payment. If I paid that off, wouldn’t the rest of the payments have that amount go to principle? They say no. You cannot “zero out your escrow account”. Yet, on the payment coupon, there is an box for “Additional Escrow”.
What gives?
Ryan Guina says
Les, I’ve never asked my mortgage company that question. However, your assumption that the remaining payments would go toward principle is incorrect because you would still be paying toward the interest on the loan. Regarding additional escrow payments, you might want to inquire as to how that works. Each lender has different escrow rules and requirements. The ability to pay additional escrow payments probably just allows borrowers to add a little extra to their escrow account if they believe they would otherwise be short. This can prevent a nasty surprise in the coming years, as underpaying toward escrow can cause your mortgage payment to jump dramatically.
Steve says
We are a first time buyers and color us STUPID!! But still unsure about the funds that go into escrow. We got approved through USDA loan 100% financing @ 30 yr fixed. We came up with 3.5% of the price of the home to put into escrow, now does that money get returned to us or does a couple months of ins. and taxes come out of that and do we get the balance after closing? Is there a credit that we can qualify for to pay the closing costs so we can get some or all money in escrow? CONFUSED!!
Timothy says
I am a total and permanent 100% disabled veteran. On November 21st 2014 I closed on my first home with a V.A. mortgage. I received 100% financing through the V.A. and another advantage to purchasing is I am exempt from paying property taxes in Broward County FL due to my disabled veterans status. Upon receiving pre-approval my wife and I started shopping for a modest home. All mortgage calculations were based on principal and interest and projected homeowners insurance escrow only. We found a suitable property and and was informed by the lender that the projected mortgage would be approximately $1,060 per month. ($780 mortgage payment and $280 homeowners insurance escrow). At the closing the property tax was included in the escrow accounts at $187 per month bringing the total mortgage payment to $1247 per month. I objected but it was explained to me that the property tax escrow had to be on the note by law. However, I was advised that after closing I could contact my local property appraisers office and file for Homestead Exemption and permanent and total disabled veterans exemption. In January my first payment was due and I paid the full amount. After the sale of the property was recorded into public records I received both exemptions from my county and I forwarded the approval documents to my lender. My escrow was adjusted and my payments for Feb. 2014 was adjusted to $1064. Shortly thereafter my loan was sold to another bank. They told me that the loan amount due is $1247 per month (including property tax escrow) and there is nothing that I can due to change it. I was informed that any previous arrangements made with my previous lender does not matter to them. I was under the impression that when a loan is sold or transferred to a new servicer, the terms cannot be changed. Please advise.
Ryan Guina says
Timothy, each state has its own laws regarding home loans and escrow accounts, and each lender has its own policies. So this isn’t something I can offer much advice on, other than to try and work it out with your lender. You could also contact a real estate lawyer to see if they have any recommendations. Best of luck, and thank you for your service to our country.
Tom says
I don’t understand why I have to pay an escrow. I am 100% disabled veteran in Michigan and property tax exempt. I also pay my own Homeowners Insurance. And why does it change every few months ?
Ryan Guina says
Tom, I don’t have an answer for you. You should contact your lender and ask why they require you to pay into escrow when you aren’t using it. It may be that they require you to pay escrow based on the property tax you would pay, even if you aren’t required to pay it. If that is the case, find out if there is a waiver for a situation like yours. Also, make sure you are receiving refunds for the amount you pay into escrow each month/year. Best of luck, and than you for your service!
Theresa says
Last March my bank sent me a notice that my escrow funds needed to be increased by $800 and gave me the option to either pay the amount in full or I could pay an additional $100 on my mortgage each month interest free till the amount was settled. It’s been eleven months I have more than settled this “debt” and my bank is now insisting I need to pay the additional $100 for a full year then they will review my account to see if I need to still pay this amount? Is this normal? I have called my bank three times and I just keep getting the same standard response.
My insurance and property taxes did not increase so I do not understand why they need the additional funds to begin with.
Ryan Guina says
Theresa, yes, unfortunately this is standard. Has you paid the amount in full, they would not have increased your payment, at least until they did a review at the end of the year. IF your account was still low, then they would have increased your payment this year. If your account is over by a certain amount after the 12 months of paying the additional amount each month, then you will probably receive a refund. As for why the escrow requirement was increased, it could be for many reasons. It’s possible they amount was too low for awhile, then got to the point where it was under their threshold. Only your escrow company can give you the answer. If you have specific questions, ask them to provide you documentation that covers their rules. That way you know what to expect going forward. Best of luck!
Juanita says
Hi, after my house when to foreclosure ,I have filed bankruptcy and now is discharged, Im still living in my house and now I applied for the HAMP program and got approved and after the approval the mortgage company had sent me a “Refund check” of money that they received and they do not specify who gave them that money but they said its not sufficient to cover the debt, What is your advise? should I cash it? or its a trap?
Mary says
Hi Ryan,
Thank you so much for answering my questions. I did get the transaction history and I don’t agree with what they did.. So I will be taking additional steps for help which I know I will need. The company I’m working with is Ocwen and if you don’t know anything about them their terrible. I know I’m in for a real fight..
Mary says
I’m hoping someone can answer this question for me. I had a modification done in March, during this process I had a credit balance of 887.70.Ocwen did an escrow and a priniple balance adjustment. I really don’t understand how or why they would take money from my escrow account. My Insurance came due the following month and this left me with a the money out of my escrow negative balance of 778.00? Is this legal??
Ryan Guina says
Mary, you need to call your former escrow company and ask them for a line item review of your escrow account. They should be able to walk you through every transaction and show where the money came from and where it went. That will give you the information you need to understand why they made the deduction. From there you will need to decide if the reason sounds legitimate or not. If their answer doesn’t seem legitimate, then you should contact a real estate attorney.
Ann says
Green Tree purchased my loan in June of last year They have force-placed an escrow account on my poverty exempt property due to my disability. Performed a corporate advance to pay Taxes and insurance which was refunded back to them because all bills were paid in full My mortgage has been $178.56 for 18 years. The escrow raised it to $455.00 The force placed mortgage I did’t know was actually in effect because the last correspondence was that they would investigate before considering cancelling the escrow account 1/24/2014. I continued paying the $178.56 My home is now in Foreclosure sell date 9/11/2014. All payments since 11/2013 have gone into a Unapplied Fund Account I Need Help to save my home
Ryan Guina says
Ann, I strongly recommend visiting a real estate attorney ASAP. Explain your situation and see if you can work out an arrangement with the attorney. You need professional assistance as soon as you can get it. Best of luck.
JOYCE KING says
we are currently going through a mortgage application. the bank wants an escrow account of which we have no problem with. we always thought that the escrow account was for the payments of taxes and insurance, not the entire mortgage payment. we were told by the mortgage lender that they want 6 months of complete payments in escrow. is this really how it is supposed to be now? he has also said about new rules for Freddie Mac and Fannie Mae and we applied for a conventional loan, not a govt. loan. so we are really confused on what to do now because they are trying to get into more personal information than we feel comfortable with. he claims that all the banks do this now, so we are not sure on what to do. he answers none of our questions when asked, he changes the subject. all we want to do is buy a house for when my husband retires.
Ryan Guina says
Joyce, I would find another lender. I won’t do business with someone I am not comfortable with, and that would include someone who doesn’t answer direct questions. As to your question about requiring 6 months of full mortgage payments in an escrow account – I have never heard of this. That may be this particular lending company’s policy, but it is not a federal regulation. Any lender refusing to answer questions about why the escrow needs to have so much money in it would be immediately removed from my list of potential lenders. The same goes for any company that refused to answer any question I asked or refused to take the time to explain any policy I wasn’t familiar with. There are plenty of lenders around who would be happy for your business, so I recommend shopping around for a company that has a stellar reputation and offers an attractive interest rate. Best of luck on your home purchase.
Carolyn says
Bank of America gave our mortgage account (house) over to Pennymac which I think they hired to manage. My home owners insurance just informed me that Pennymac has not paid my homeowners. Also, my escrow looks like its been dipped into. The figures don’t match with the amounts being taken out each month and applied to escrow. I have a V.A. account and intend to contact them and also RESPA. I get tired just thinking about it.
Chris says
Hello,
We just refinanced and the title company sent it the full payment to the lender via wire. Apparently the escrow account was short, so the lender attempted to contact us unsuccessfully before returning the entire amount back to the title company after 2 weeks and including a larger shortage with interest charged. So i have 2 questions. 1. By law is the lender supposed to contact the borrower or the title company regarding the shortage? (the title company was never aware of shortage until the full amount was returned. 2. Is the lender allowed to hold that money for 2 weeks, making interest off of it, then charging us as the client for 2 weeks worth of interest? Any help would be greatly appreciated.
Jeanette says
Hi, I have a question. I just ran into a problem and am not sure how to handle it. My loan company assessed my taxes on the previous year, in which there was no house on the lot. The home was built in Sept 2012, they reassessed in March 2013. Now they have come back saying that they paid the taxes because there clearly was not enough in the escrow account. They have given me one month to pay$7000 and my mortgage has gone up by $400. If I cant pay the $7000 they will let me spread it out over a year, which bumps my mortgage up an extra $500 a month. I understand the mortgage rising $400 for taxes. However, I am confused as to how they so grossly underestimated the 2013 taxes, when they were aware that there was now a house on the property. Is there anything I can do to not have to pay so much money up front or even over year? Also the bank only paid $5036 to the tax office so I am confused as to why I owe $7000
Ryan Guina says
Jeanette, it’s common for escrow accounts to be short the first year for newly built houses. Many mortgage companies don’t take into account the improved value of the lot when they make tax projections — they simply fill in the previous tax rate. Remember this if you ever buy another new home, and ask the mortgage company to use a local comp for tax purposes, or get an estimate from the county before you close on your property. Regarding the $7,000, that most likely has to do with escrow companies keeping a buffer in the account. If taxes are $5,036 per year, they likely want to keep a little extra in your account in the event your taxes or property taxes increase. You may be able to contact them to see if they will decrease this amount a little bit, but it all depends on company policy and your mortgage agreement. Best of luck with the situation.
Erin says
I was recently on payment plan for my mortgage because I was having some difficultly paying my monthly bill. During this payment plan time I was advised that I have $856 overage from last year in my ecrow that is owed to me. I told them to apply it to my balanace when I was first notified of it. Wells Fargo is now not allowing me to apply this to a past due balance that I owe…they said they would do it when $856 is all I owe on the past due balance. Can I tell them to send me the check? Or do they have some recourse to keep it and not apply it to my balance because I am past due?
Ryan Guina says
Erin, each company has its own policies regarding how overages are applied. If Wells Fargo won’t apply the overage to your past due balance, it is possible they may send you a refund of the overage amount, and you can then apply it to your past due balance. You will need to work it out with them. Bests of luck!
Patricia says
I’ve just received notice that our escrow account is in shortage of $2,700. That seems like an awfully big change in one year. How do I find out why the amount went up so drastically?
wowzer says
Hey,
I recently went through a refinance with my original lender. 4 months advanced funds were taken from the settlement statement to prepay the escrow accounts (tax and insurance). However, after a few months they informed me of a deficiency in the escrow account. The deficiency was justified as “aggregate adjustments” and taken from the escrow funds? I have a strong suspicion that this act is illegal. Escrow funds can only be used for one purpose and one purpose alone, that is to pay off the designated tax and/or insurance on the property. Usage for any other purpose may be illegal. Property is in California. Do you have a site that can assure me what was done was either illegal or legal in regards to these funds alone?
Ryan Guina says
I don’t have a site that will give you this information. My recommendation is to look up the state statutes regarding escrow funds, or contact a lawyer who specializes in real estate law.
Sherri says
I am buying my home on a “lease purchase with option”. A portion of my monthly payment is put into an escrow account (opened by the homeowner, she alone has access). When I asked how much I have accumulated in the escrow account, she says it’s not my business as it is HER money. It was my understanding that when our lease is up, we have a 3 year balloon, we are to obtain our own financing using this “escrow” account as our down payment. We have already exercised our “option” when we gave her a down payment. Am I missing something? Is it legal for her to use my escrow money, or is it in fact HER money?
Ryan Guina says
Sherri, I am unfamiliar with this type of escrow arrangement. Typically an escrow is held by an impartial 3rd party. My recommendation is to speak with a real estate lawyer to determine if this is a normal, or legal, arrangement, and to help determine your best course of action.
Ray A. says
Hello I got hurt on my job a few years back then after a while could not make my full mortgage payments anymore. I agreed to give my home back to Chase in Nov 2012 and did not owe anything at all that was our agreement in court. There was a escrow account for taxes and insurance i think about $6000 was in it. Should I be getting a refund back from the title co? What do I need to do to be proactive in this? Thanks a million.
Ryan Guina says
Ray, I don’t know how this will work out. I recommend you contact the lawyer who helped you settle your case with Chase. He or she should be able to look into the matter for you as part of the settlement for your house. I wish you the best.
Jack C says
My home burned down and the payoff was over $100,000 with approx $18,000 left owed on the property. I opted not to rebuild and sent the check to the lender for the payoff on the property. They deducted their money and sent me a statement to that effect and the sign-off on the property lien but are sitting on the remainder owed to me. Is that legal or do they have to send the overage even though I did not rebuild? It has been almost three months since they sent the statement. Thanks for any insight.
Ryan Guina says
Jack, I’m sorry for the loss of your home. I hope everyone was safe and the only losses were material possessions. Regarding the escrow, I don’t have a good answer for you. I recommend calling them to ask for a detailed explanation in writing to explain the payout and why they are still holding on to some of the money. There could be a legal reason or a policy that you are unaware of. If their answer doesn’t sound right, then I recommend contacting a lawyer who specializes in real estate law. A lawyer will help you deal with the situation based on the specifics of your case. Best of luck!
Jay says
I have the bank escrowing mine right now (that may change in the near future). However my question is can the bank withhold those tax payments from city’s tax collector when the city is not performing the services they are suppose to (eg. snow removal). It seems that the law is against the property owner in this and that you have no right to withhold money for taxes when services are not performed.
Ryan Guina says
Jay, so far as I know, citizens do not have the right to withhold their taxes from the government for failure to provide services. Failing to pay taxes could be disastrous and extremely expensive. I would not recommend this course of action.
August Lopes says
In 2003 BOA sent me a check for $928.96 which was for released escrow funds as a result of my mortgage refinancing. The check was misplaced and never cashed . We found it recently and BOA is refusing to issue another check , because they cannot even find records of this transaction . Is there any way I can recover these funds. I have looked it up on my state’s ” unclaimed funds ” and nothing shows up.
Cristina Perez says
I refinanced my home, I have $3,700 in my old account for taxes and insurance. well the new loan has $3,700 added to the total to pay for taxes and insurance. Neither the bank or loan company wants to answer my questions about the escrow money. The bank said that they pay the taxes with my escrow money. The loan company said that they pay the taxes, and added to my new loan. Any advice?
Pam says
Is it legal for a financial institution to charge a fee to start an escrow account?
Ryan Guina says
I have no idea. I imagine it depends on individual state laws. I’m sure the fees must be reasonable, but again, I don’t have a good answer for you. My recommendation is to ask the real estate lawyer who helped you with your home purchase. Or you can contact a real estate lawyer if you didn’t use one when you bought your home.
paul says
I am in the middle of refinancing and I am concerned with some of the closing costs. The particular item i am concerned about is the initial escrow deposit. If I understand Escrow, you are always paying the next years taxes throughout the current year. It looks as though the mortgage co. is trying to charge me all at once to fund the escrow account although I have been funding the account all year. This amount is built into the mortgage, but it seems like I shouldn’t have to pay this amount. Can anyone offer any insight to this matter. In all I am being charged rougly $3800 in Settlement charges for a 215k loan. It seems high.
Ryan Guina says
Paul, when I refinanced earlier this year the mortgage company required I pre-fund a certain percentage of my escrow account, which is standard for many lenders. If you already have money in yoru escrow, it will be refunded to you. What ends up happening is they will open a new escrow account for you and close your old one. This is normally a requirement, even if you are using the same lender, because a new loan is being created. I hope this helps.
Beth says
My mortgage company is telling me that they will not be paying my property taxes until the due date of Januray 31,2013. I want my property taxes paid in December of 2012. Can I get them to pay them in December, 2012?
Ryan Guina says
I have no idea. You would need to contact them regarding their policies or what your contract states.
tricia says
i received my escrow anyalysis from Citimortgage stating I overpaid 2012 by 1850. My account is delinquent and I have requested the money be applied to my account. They state RESPA will not allow them to transfer the money. They said they can write me a check ONLY if my account is current. (makes sense) SO why can’t they apply to the arreage? They overestatmated my escrow by $1850 , causing the arreage ( that tis 350 morth than a monthly payment) and state the money will sit in my escow account until my account is current. The account would be current if they applied the money. There has to be a way to get this money applied. Why should the bank have use of this money? They overcharged me, now refuse to use the money. Can anyone offer some advise, please?????
Patricia says
My escrow account was severely underestimated, and I did not find out until six months after closing. This and only this caused a shortgage I could not afford. I have never missed or been late with the maximum payment I qualified for at origination, I cannot afford the extra $500 per month they want. How can a consumer be forced to pay additional money above thier maximum, or lose their home? I thought your maximum payment was based on your salary during the origination process, so you would not be blindsided later. It occurs to me consumers are being set up to fail through foreclosure. We were not given the choice of declining purchase. My home became underwater six months after purchase 2008, and continues to decline 2012, yet my mortgage payment still remains above my maximum.
Jennifer says
I have a question. I am required through a promisary note to have an escrow, but the bank that currently holds this account made some gross miscalculations which resulted in our having to pay an extra 300 dollars a month last year. Can I change the bank where my escrow is held. I no longer trust this current bank to be accurate. I had to do a lot of overtime to cover their mistake. Not interested in allowing that a second time. Thanks
Ruby says
I was approved for Disability tax exemption for 2012, which also qualified me for a refund from the year 2011 in the amount of $508.00. All principal payees mailed the refund check to my address because of my name on the tax roll. The mortagage company was mailed the refund check from Harric County tax office. My mortgage company refuse to give me access to these fund. They first stated that have the right to place these funds in escrow. The explanation on my payment summary first stated [real estate tax paid] and later listed as real estate tax credit. Do they have the right to take these funds in which is needed because of my disabilities and lack of funds. I am in need of new garage door which cost over $600.00.
Michelle Flores says
I moved in with my bf about a year ago and he owns his condo. As I was cleaning out the spare room I ran into an unopened piece of mail from his bank. Inside it was an Escrow check for $400. Unfortunately, the check was 7 months old and we were unable to deposit it into the bank. What happens with that money? Does it go back into the account? He called to see if they could re issue a check and they said that he wouldn’t see any escrow money until next year.
Ryan Guina says
If the check was never cashed, then the money never left the account. Most escrow companies only settle the accounts once or twice per year. Since the check wasn’t cashed, the funds should remain in the escrow account and the escrow company will likely settle the account at their regular schedule.
Carol July says
I was forced into purchasing a mobil home many years ago. Due to things like robberies (5), a break in that damaged the walls (a hammer was used), and the parks attempted theft of a personally purchased water system, I was left with no choice but to move. No one was willing to explain to me what would happen to the money that was placed in escrow. Is there any way to find out if it’s still there?
Ryan Guina says
Carol, you will need to contact your lender regarding your escrow account. If you sell your home, then you should receive the funds that are held in escrow. If you move your home, but maintain the same mortgage, then nothing should change. The only people who can tell you are the people who run your escrow account. You should be able to get the information from your mortgage statement, or by calling your lender.
joe says
I’m a first time home buyer and i got a fixed 30 year loan at 4.5 percent. amerifirst was my lender my payments were 729 a month. well after the first payment they sold the mortgage over to chase bank. 4 months later they said my escrow account was to low and i owed them 1048 to get it back to where it needed to be. then they still raised my payment to 892 a month. is that illegal to do? to raise my payment even though i payed the 1048 2 months ahead of time???
Ryan Guina says
I don’t think it’s illegal, Joe. The lender has a policy in place to make sure your escrow account is up to date at all times. It’s quite possible that your original escrow estimate was on the short side, so the lender requested the $1,048 to make up for the shortfall, then increased your payments to prevent future shortfalls. If you have too much in your escrow at the end of the year, you will likely receive a refund. It’s inconvenient, but in most cases it is necessary. You may try contacting them for clarification and to see if you can decrease the monthly payment. There is no guarantee they will do so, but they may be able to adjust it somewhat if it is causing financial hardship. Just keep in mind you will need to have money set aside in case your insurance or property taxes aren’t accounted for by the money you have in escrow.
Brett DeCarion says
To reiterate what Joe said; Call your mortgage provider to see if they will let you pay an overage towards escrow to get your monthly payments back down to what you want to pay. This is a double edged sword however. If you are able to get extra money put towards escrow then you won’t have to worry about paying a high monthly bill. However, escrow does not accrue interest. If you keep what you would have needed to put towards escrow in a savings account, though the interest may be low, it’s still collecting interest.
Mortgage companies usually want to keep an extra 7% to 15% in an escrow account from the $0 mark to allow for a cushion for inflation. They do this by totaling all expenses from an escrow account for the last 12 months of the property and adding the extra percentage in for the cushion. (oversimplified i.e. Your total escrow payouts to insurance, city taxes, MIP, etc. come to $10,000 for the past 12 months. 7% of that is $700. This bring your next 12 months of total escrow payments toward the escrow account to $10,700.) They take a look at your current escrow payment and make adjustments accordingly. If you have too much in the account you’ll get a check back for the difference, too little and they’ll ask for an extra payment.
This is probably where the increase in you monthly bill is coming from. They took a look at the year over year difference for the property for payouts on escrow. (Anything that escrow would pay out on city taxes or property insurance is public record. So you may not have owned the home the previous 12 months but the mortgage company would still have access to that information.) They asked for a extra payment towards escrow so that the balance does not fall below $0. Then they increase your monthly bill to pay the extra 7% to 15% towards escrow. The escrow account stays in good standing for the next 12 month period, (it may fall below the $0 mark for a month or two but the normal escrow payments would bring it back up.) The mortgage company gets to collect the extra percentage for inflation in each monthly payment. You get to keep the money in your back account to accrue interest until it is needed.
Emmanuel says
My morgarge company said my escrow account is short and I have to pay to ath it up by one year is that legal and they pay insurance and tax from account
Hedy says
I have Everhome Mortage – lost payments, no mail for almost a year, refuse to answer serious questions since they took over loan in 2006 (changed written agreement many times and lies). I sued them since there is a payment of 800.00 from June 2010 never credited, late fees when not late, just ignore eerything and say you have to write then ignore these things. My balance is now 800.00, but they added a little over 6,000.00 to my loan (escrow) and never showed me bill or anything else. I sued them and they responded – not 6,000.00 worth, especially when my balance was down to 832.00 (800.00 still missing from Western Union payment which I scanned and sent them same day abd resent many times. They went up on my escrow-always got statement and overpayment, Everhome claims negative 1,500 (called MD tax and Statefarm; emailed them information just ignored me only went up 220. yr/Everhome 1,300. Is this legal? My balance was 4,238 and I paid 6,900. -taxes/insurance 3,00 (everything went down but Everhome still went up and there is nothing they paid to put my escrow negative 1500 and they refuse to answer any questions, so I sued. Then they add all of this money to my loan from 30 years ago, simply stating it is advance legal fees – they made me write a letter to get all details and legal bill, but was not on response and they want me to pay the -4,000 (legal fees since they already took the rest why my escrow is negative). I have requested payment history since they took over and none of my requests are answered/Waterfield send them yearly, quarterly, and if you called they helped you nut Everhome makes you write and responds to half your letter then tell you you answer the same question too many times. Now with this large legal bill, with so many lies, I am not sure there is a bill and they told me to write, only way to get information, so I asked for attorney bill and again my payment history, again sent them the scanned Western Union email sent in 2010 – nothing has occurred. Everything went down last year, but Everhome went up.
I have Huntington’s Disease and this is very stressful to me trying to deal with this, and they sent me Agreement to drop my suit – pay them 2,000. and they’ll call my house paid off – from 4238 (paid 6,900 now they want 2,000, and I don’t know where the money goes), and this money includes the attorney’s fees, which I beloieve are illegal, even though they law firm in Baltimore, Gallagher Ebelius sent me email saying they can do this, one line sentence – no bill or anything else and nothing has been done for 6,000. in filing a response to my suit, and nothing is stated about this in their settlement and they can again sue me for legal fees since I have no idea what they billed me for and my doctor wants me to move and they keep keep doing this. I told them I am disabled and don’t make the same money and asked for modification of the 13%, cancel pMI, put 1 payment on back; they increased by loan by a little over 100.00, which Waterfield never did then gave me different reasons after I proved they were lying, then they claimed to put 1300. into my escrow since they never wanted m escrow less than1300 – no proof, and after they did this, even though my taxes went down, they went up and one year taxes went up by 220. Everhome 110. monthly increase after I was laid off and disabled.
Cindi says
I received a letter in Nov 2011 from Bank of America (California) informing me that they paid my 2009 & 2010 taxes and have opened an escrow acct for my DELINQUENT Taxes. My new mortgage will be 1270 + 336 mo extra for delinquent + $540 mo for April 2012 and Dec 2012. However I already paid my property taxes for april 2012 in advance…Bank of America is refusing to remove the payment of 3241.06 for april 2012 taxes out of my escrow even though I faxed them proof that april 2012 is paid!!! They now say the escow payment of 540 will be for 2013 April property taxes? How can they collect now for 2013 property taxes in this 2012 escrow account? I was requesting they charge me 270 instead of 540 which is one half….since I already paid one half of taxes…. I dont think its legal to charge for 2013 in 2012 escrow. Please let me know what I can do? Report to HUD? or who?
Tu says
I am currently refinancing my house and have opted to setup a mortgage escrow.
Can you opt out of the escrow down the road?
Thanks,
Samantha says
I just received a letter from my mortgage company stating my payment is ahead $810 and they have applied this amount to my account. This overage is from my escrow account. Is it lawful for my mortgage company to take the escrow overage and apply it to my mortgage principal or do they have to refund me this amount? I did check the RESPA site and it said they could keep 1/6 as a cushion and refund the remainder.
Thanks
Kay Jones says
Ryan: I have a mortage with Wells Fargo. I have a house in Georgia and its property taxes have dropped. Georgia taxes are paid from July through October each year. All property taxes, waste mgmt fees (included in escrow), and hazard insurance has been paid (approx. $215/mo). So, all taxes have been paid through October for 2011. I have a balance of $1,400 in my escrow account. Based on 2011 taxes, my fees are down approx. $60/mo. I’ve asked Wells Fargo to revise the escrow analysis to reflect the drop in property taxes based on 2011 taxes. Georgia typically doesn’t have a bill ready until June or July. Wells Fargo doesn’t want to adjust my mortgage until May 2012. By then I will have twice the amount of funds needed to pay 2012 taxes. What law governs the need to refund overages? And how long can Wells Fargo delay in refunding the overage?? Should I contact a property lawyer?
Ryan says
Kay, each company has its own policies regarding how they updates escrow accounts and each state determines its laws for escrow companies operating within their state lines. My recommendation is to search the Internet for information specific to your state, or contact a lawyer who specializes in real estate. You should be able to get a quick consultation via phone or e-mail that will point you in the right direction. Best of luck.
Terry W. Tipado says
Can you use your escrow account to make a mortgage payment?
Ryan says
Terry, you will need to contact your escrow company regarding this question. I don’t believe I am able to do so with my escrow account – the money is used to pay my taxes and homeowners only; any overages are sent to me via check. If there is an underage, then I need to make that up with a higher monthly payment.
I recommend contacting your escrow company to find out their policies.
Xavier says
I just received my next mortgage bill, i was paying 998 and now they want me to pay 1268, when i called they said it was becouse the property tax was estamated wrong, is this legal? I signed a contract that says my mortgage is 998, why should i have to pay more.
Ryan says
Xavier, unfortunately, this is a common experience among homeowners. Your mortgage payment (principal plus interest) should not have changed. However, your additional payments which go to escrow are subject to change, depending on any shortfalls, or excesses which may be in your escrow account. These generally occur when your escrow payments are miscalculated or when your homeowners insurance or property taxes increase or decrease. I wrote an article about it here: Mortgage payments can change. It also works both ways – sometimes monthly payments go up, sometimes they go down. For example, when I wrote about this a few years ago, out payment went down almost $150 per month. We recently bought a home, and even though our escrow payment had an excess in it and we were issued a refund check, our mortgage payment went up by around $50.
Brett DeCarion says
This just happened to me. On October 3rd, 2011 my monthly mortgage payment was $1045. But on October 26, 2011 it changed to over $1300 due to my Home Insurance changing. The insurance was paid via Escrow. I currently working with my insurance provider on getting this fixed. BoA wants me to pay this new minimum on November 1st, 6 days from the date it changed. My question to this is, is there any minimum length of time that the mortgage company is required to adhere to before this change takes place? i.e. If a credit card is set up with a minimum payment plan, the CC company is required to notify the customer of a change of minimum payment 45 days before the change takes place. Is there a law similar to this for mortgage companies to follow?
Ryan says
Brett, I’m not sure if there are minimum time requirements before these changes can take effect. I recommend contacting a real estate lawyer in your state, as this will vary from state to state, and possibly by the policy of the company you pay your escrow through.
Frances Gaydos says
If my principal and interest is paid on time, but the escrow portion is late (although eventually paid within 33-34 days), is the loan in default?
Carl says
I sympathize with how confusing the escrow accounts can be, but I don’t understand the people who think these accounts are responsible for ever-increasing mortgage payments and eventually not being able to afford the mortgage. Except for the fact that you have to put in enough money in advance to maintain whatever cushion the lender requires (up to the RESPA maximum), over the course of your loan, all your money is going to principal, interest, various insurance, and property taxes. You would have had to pay all those anyway. It may be inconvenient having to keep that minimum amount in the account, but it’s not as though that money mysteriously vanishes to a third party. If your mortgage continues to increase, it’s either because one or more of these other payments is increasing (property taxes, monthly interest, insurance, etc.) or because of a shortage due to not correctly anticipating those distribution amounts in the previous year. You would run into a similar problem personally if you budgeted incorrectly and then discovered your error once a year. Where you CAN get into trouble is if you assume that the escrow analysis is accurate in its projections only to be surprised and start falling behind a year later. And since I think you need to be knowledgeable enough to catch that to stay out of trouble, I also think that if you’re that knowledgeable, it probably makes sense to just control it yourself if you can. Because even if you figure out that your escrow payments probably aren’t high enough, it’s more difficult to get that changed mid-year and/or to put funds aside in anticipation of the future analysis.
So personally, I’d rather handle all these payments without an escrow account, but if you HAVE to use an escrow account, don’t assume that it’s as convenient as they make it out to be…you STILL need to stay on top of it just as if you were making the distributions yourself.
Jennie says
I just switched home insurance carriers, saving a significant amount of money. Wells Fargo had just paid my previous carrier’s premium, so the previous carrier sent me a refund check. I called WF and asked if I needed to send them a check for the new premium which was $500 less than the refund check. WF said to send the entire refund. Why do they need this? Should I just send them a check for the amount of the new premium?
Daniel says
We were First time home buyers. There for we had to get an escrow account. a year after owning our house we received a letter.”your paying to much . we lowered you payment!” it was around 75.00 a month less. The next year ” oh we messed up you should have been paying more.” then it went up about 175.00 more than originally. we struggled with multiple jobs and made those payments. Then the next year came . Another “mess up” as the customer service rep stated. for instance jumped 750.00 to 1,200.00 a month. I LOST MY HOUSE ! How can this be legal They are supposed to know what they are doing. now 2 years past my deed in lieu . After my 4 bedroom 2 bath with 5 family members we are renting a 2 bed 1 bath. Can anyone explain this better for me. Thanks and BE CAREFUL
Dan says
My mortagage company has added $100 to my monthly payment. They said it was needed because the house does not have enough insurance. My insurance company said the house is fully covered. The insurance company even sent me a check saying that the bank overpaid on my policy. What is up with the mortgage company taking even more money for escrow when the insurance company says it isn’t needed ? Bank of America holds the mortgage.
CW says
My loan was switched to Ocwen last year and they have been trying to set up a escrow account since they took over my mortgage. I pay my taxes and insurance separately and always have. They kept trying to charge me escrow on my insurance and i refused to pay it. I received a letter from Ocwen stating that since i didnt pay my taxes by the April 1st dead line they paid it. I told them i would send in the whole $4k for the taxes, however i need a letter stating my payments would go back down to my usual payment. I have yet to receive the letter and when i called them on 7/1/2011, they kept repeating seemingly scripted comments and they couldnt give me an answer on whether the payment would go back to normal or not… They are based out of India or somewhere and i request to have another contact. They said they dont have one and their escrow department doesnt accept calls, but my mortgage payments would double and i needed to make a payment. I again requested a letter and a statement of what they are charging because the NEW amount they quoted was $4k higher than what was on the original letter and the conversation i had previously with their representative.
CW says
Best places to contact should you have questions or complaints with your mortgage companies ethics;
MHC 18773005454 (govt agency)
or
18773824357
Agency: Federal Trade Commission
JL Jackson says
I close on a home in St. Louis, MO in Dec 09. I paid the first year home insurance in advanced (about $850) and also placed $559.28 in the escrow account. In Feb 2010, (after a post visit) my home insurance company (State Farm) raised my insurance premium to 1187.26 and sent a bill for the remaining balance to my mortgage company (Wells Fargo) in Mar 2010. Wells Fargo paid the balance in Nov 2010 (along with the next years premium (1187.26) and taxes (1405.51) ). I received an Escrow Refund in Oct 2010 ($577.93). My payments were $889.81 02/10 – 10/10. $888.00 11/10. $845.35 12/10 – 05/11. My Jun 2011 payment is 1097.90 due to escrow shortage. WF says it’s SF fault because they raised my premium. SF says they did raise the premiums but only by about $300 which should not have changed my mortgage by that much. I believe that WF misinterpreted the balance from SF as the premium for that year and readjusted my mortgage and now wants me to pay back the shortage and back payments for things I didn’t know I was not paying for … is this legal?
gina says
I recieved a letter from Sun Trust stating I had 10 days to pay my escrow shortage. No problem, I can do that. However the letter also said that my monthly payment will increse to cover the upcoming year increse in taxes and insurance. I called Sun Trust to see if I can pay the shortage, PLUS a lump sum to cover the predicted incresases in full. They said NO- we have to collect the escrow account on a monthley basis-and I have no power to stop my payment(30 yr. fixed) from going up. Is this true? Or can I make a lump sum to escrow to prevent payment from going up?
Ryan says
Gina, each escrow company has a set of policies and procedures they follow. My recommendation is to ask for a copy of the policy in writing, or to request to speak with a supervisor to see if they will make a one time exception to the rule.
Joseph Guidotti says
I sold my business in Feb 2004. There was escrow money set aside for Philadelphia city ($27,000.00) and Pennsylvania taxes ($5,000. 00.) by the Title company and was noted on the settlement sheet. I never heard from the title company or the buyer as to what happened to this money. I sent a certified letter last year inquiring about this money, but no one returned communication. Any thoughts on this matter?
Ryan says
Joseph, I would contact a lawyer. This is a large sum of money and a lot of time has passed. Your best bet is to seek professional assistance.
Pat says
I have an escrow shortage and the lender will not allow me to pay the shortage. They said their system would not allow it. They have increased my monthly payment. Is this legal? I thought you would pay the shortage.
Anne Parsons says
I have owned my home since 1967. Six years ago I took out a 60T mortgage on a home valued at 300Tplus. My mortgage was sols and sold again. I was late with my 2nd half of 2010 property taxes and the company put my taxes in escrow. I called and offered the $ immediately as I had withdrawn it from my 457. It was refused. My payment went from $399 to $1861 per month. I am retired now and income is $2400/month. They claimed they sent a letter on Feb 14 stating 30 days to assure them my taxes were paid. I never got it. I then recieved a letter dated Feb 24 that the mortgage co. had paid my taxes on Feb 19 and started an escrow. What happened to the 30 days? Is this legal? And why are they not required to notify [prir to] by registered mail? Their answer? You better sell your home before we take it and sell it.
Ryan says
Anne, I recommend seeking the counsel of a lawyer who specializes in real estate.
Dyan says
My mortgage is through Fannie Mae but the servicer is LBPS. I am having a lot of problems with them. My question today is related to my 1098. I received the first one in February and PMI was listed as 0 despite my requirement to pay it. After MANY calls and waisted time on hold they agreed to research it. About 45 days later they sent me another 1098 but it was also incorrect. The PMI amount was half of what it should be. When I called them I was told that 4 months of my payments were applied to principal and interest and not PMI or escrow. I pay an extra 440.00 a month for escrow. Can they decide to not use my payment for that without any input from me?
sam says
I am one of the people that BofA has in limbo with loan modification, with foreclosure papers “lis pendens” having been sent, but nothing more. They have not allowed payments for many months, since I was not able to pay their attorney’s fees of over 5300$ plus what was due on my mortgage. My question is this: My insurance and real estate taxes have been paid by BoA, so I’m assuming that those amounts will be added to the loan. Will I be able to deduct these amounts from my taxes?
Nick says
can a mortgage company take it upon themselves to pay property taxes that are more then what are in your escrow account? (the mortgage company is bank of america)
Elsie says
My mortgage increase nearly 66% due to an overpayment on my property taxes. Apparently, Chase Bank paid taxes on my property in 2008 and 2009. I purchased my condo in 2009 with a 25 year tax abatement, so there should not have been an increase in my escrow. I have been disputing this with them since April, 2010. After going back and forth with Chase, who was absolutely no help whatsoever, I decided to get in contact with the real estate agent. He informed me that I should contact the NYC Dept. of Finance. They saw the “credits” on my account and I was able to get them refund Chase back in Jan. 2011. However, when I called a few days ago, I was told that my mortgage was still the same amount. I have sent a letter to the New York State Banking Department about this. If they were paid back, shouldn’t my mortgage go back to its original amount?
Ryan says
Elsie, I recommend hiring a real estate lawyer for your situation. Best of luck.
Erica says
Can they forclose because of a negative escrow account?
Also, my interest rate is 9.5 an I have been wanting to re-finance. My husband refuses the idea because he is afraid our payments will go up and our term will be extended. He is disabled and I am the only one working, so I cannot afford for my payments to go up. I don’t know what to do,but I don’t want to loose my house of 13 years! Can you give me some information that might help me convince him to at least look into it? Thanks a mill!
Ryan says
Erica, I haven’t heard of a foreclosure due to a negative escrow account – typically the escrow company will require you to make a lump sum payment to bring it current, or will increase your mortgage payments each month to rebuild the reserves.
Regarding a refinance – I would look into it. The worst that could happen is you don’t get a better rate and you don’t go through with it. The best that could happen is that you are able to refinance to a lower interest rate and save a lot of money each month. Two points regarding payments and term: Your payments would only go up if you elected to choose a mortgage with a higher rate, or if you chose a shorter term mortgage (for example a 15 year instead of a 30 year). Regarding term: You can choose the length of your mortgage. For example, if you have a 30 year mortgage and have already paid off 13 years, you could elect to get a 20 year mortgage, which wouldn’t extend your term by a lot (3 years), and if you have a substantially lower interest rate, it may not affect your mortgage payments very much. If you were able to get a much lower interest rate and chose to get another 30 year mortgage, your term would be extended, but your payments would drop substantially.
The best thing you can do in this situation is inquire about a refinance loan and plug in the numbers to see how they work out in your specific situation. You may decrease your monthly mortgage payment and end up saving thousands of dollars over the course of the mortgage. You can find mortgage rates here.
Kevin W. Kevelighan says
Erica – Hola ur afraid for good reason. I’ve seen foreclosures due to so-called “negative escrow account;” but, even if have one id take a look @ the initial escrow disclosure 2b sure it was not initially established with a negative balance which is a respa violation and arguably a breach of contract. If you look, im sure u will find it in the closing package. If your loan was B/C paper, its likely not established at closing; w/ A paper, it usually is. With ea there’s always a provision in the mortgage allowing the Lender to establish escrow after closing when the Borrower does not pay the taxes. I understand if not paying due to the disab, ru no longer paying the taxes? When they make an advance, they cant charge it to escrow and must add it to the debt. If this is MI, there is some caselaw about the issue.
Wiley says
If I have remaining escro balance after all my taxes and insurance have been paid, can the mortgage company keep the remaining money that is in my escro account or do they have to write me a check for the balance? They keep raising the amount of escro even though I have a remaining balance after all the bills have been paid.
Ryan says
Wiley, You will need to refer to the terms in your mortgage and escrow agreement for more information about your specific situation. Some mortgage agreements require you to have a certain amount of money in your escrow account at all times, this acts as a buffer for things such as insurance and taxes (this is protection for the lender because if you don’t pay taxes you could lose your home; insurance is similar, if it lapses and something happens you could lose your home). If you lose your home, the mortgage company loses their investment. So the answer is – it depends upon the terms of your mortgage.
Ernest Marth says
A second financier assumed my mortgage from the original financier that went broke. I took out a fixed rate loan on the purchase of my home through the first party. And at the closing I was asked whether I wanted to establish an escrow account to pay the taxes and insurance, or to pay them myself. I opted to pay them directly myself. I have always paid everything on time over the 3 year duration of the loan, and the note holder was never once put in jeopardy. My preference is still to pay these items myself. But now the new financier insists on establishing an escrow for these items, citing the requirements of federal law. Since I also don’t want to be forced into a contract that benefits only the other party, can I decline their suggestion and insist that the original contract that I agreed to be keep in force? Also it appears that the new financier wants to set up the escrow and be in charge of it, not a third party as per usual, and the mortgage payment and the taxes and insurance would be co- mingled. And secondly, if I were forced to accept their escrow set up, can I insist that an independent third party, not the holder of the note, be put in charge of the escrow?
Ryan says
Ernest, I’m not sure how this plays out in your situation. I recommend speaking with a real estate attorney who is familiar with all the ins and outs of the laws, and how they might be specific to your state or unique situation.
Daniel Daly says
I would like to know what the mortgage service company can do of I cancel my homeowners insurance ? The house is significantly under water but in no danger of default. My first insurance company , six years ago, covered everything including wind and hail and no hurricane exclusion for $ 2100. They quit town and sold their premium to another company. The new company promptly excluded wind and hail and cut one third off the premium . In the interim years that followed the price has risen to more than I paid for the original coverage . The present resale for the house is , if you could find a buyer, about 80K less than the existing mortgage . I can get a roof over my head for less than half of what I am paying now and I am tired of shoveling money into the toilet. Is it possible that the servicing bank would ignore the problem and just collect the P.and I. ?
Ryan says
Daniel, I have no idea what recourse they could have. I recommend calling them and asking, or speaking with a lawyer who specializes in real estate situations.
Ofelia says
Hi Ryan,
I was behind 9 months on my mortgage for 2010 and im in the process of filing the chapter 13 to save my house. . My property tax and insurance was included in my mortgage payment. What will happen now? Please advice. We are filing our income tax and not sure what to do.
Tonya says
Hi Ryan,
My Mortgage was sold to Citi. My previous Mortgage did not include an Escrow Acconut. In addition, I set up for a direct payment withdrawal from my checkings. Some months later, I received notice that my Mortgage was in default in the amount of $3,000. My investigation uncovered the problem, as it turns out, the new Motgage Company, Citi decided that they would escrow, without my knowledge, leaving my account balance short. I have been in my house for over 20 years and have taken care of my taxes and insurance myself. It took lots of documentation, proof of payments etc… before they agreed to no escrow. and refund the funds they withheld. The aftermath is a wrecked credit score, hendering my chance for a new mortgage. Aside from the long process through the Credit Bureau, is there a shorter process.
Ryan says
Tonya, I think you need to take this up with Citi, because they were the company that made the reports to the credit bureaus. You can also go to the credit bureaus and dispute the negative reports. It will take a little work and might take some time, but it will be worth it if your credit score improves.
Naby says
Hi,
What happens to the extra money in an escrow account after the end of the year? Can you request for that money to be sent to you instead of applied to the mortgage?
Does the bank have the right to keep the extra money in the escrow account? Can they automaticcaaly transfer the extra money of the escrow to the following year without your consent?
Tks
Anita says
Thanks Ryan for your friendly and apt advices.
Anita says
Hi Ryan,
We are making a decision to buy our first new home. The property taxes for this townhouse (app 1400 sq ft) are huge; app $5,500 per year. The settlement costs with 20% downpayment are almost equal to $18,000. This includes the escrow funds of $ 5,500, reimbursements to the seller of app $4000. The settlement costs are scaring us a lot, and are therefore not able to make any decision yet. I don’t understand why we have to pay the escrow, then also reimburse the seller for the prop taxes, and also pay the MMI that includes the property taxes again. I would rather pay the property taxes by myself at the beginning of every year, and get the 10% discount. I trust myself to pay the taxes on time, rather than dumping my money into the scary escrow funds. I am not sure if I am right, so please advise, and also suggest some lenders who do not need the escrow funds and do not charge for prepayment of the loans. Thanks.
Ryan says
Anita, I’m not sure why you would be required to reimburse the seller for anything – in most areas of the country it is a buyer’s market, not a seller’s market, meaning it is usually the seller who makes concessions, not the buyer. That said, there are no hard and fast rules when it comes to buying a home. Just about everything is negotiable, including fees, reimbursements, closing costs, etc.
If the settlement costs, down payment and other costs are scaring you, then it might not be a bad idea to hold off a few months before making the decision to buy so you can save more money and reassess your options. you may also be able to find something that better meets your needs and price range – remember, there are very few areas of the country where housing is currently at such a premium that you need to buy a home immediately for fear of not being able to afford one in a couple months.
Regarding lenders and escrow payments, I can’t make any real recommendations. Different lenders have different policies. You may be able to find a great rate through a large company or a small bank/credit union, and you will likely find different policies at each of them. The best thing you can do is shop around for mortgage rates and then contact the mortgage company about their escrow policies. best of luck!
Anita says
Thanks Ryan. The seller has already come down of his asking price by 25-30 k. I am surprised my agent is the one who is saying that if the seller has come down so much, he won’t share the other costs. Being a first time home buyer, I am really confused by the agent’s attitude (which is understandable as they get their 3% cut off the selling price), and the other closing costs. Regarding our decision to buy a house now, it is the low prices and the interest rates, and the amount of rent ($900/month) we have been paying for the last 8 years. The convenience of this property is the main reason I am willing to pay such huge property tax. Could you please tell what costs at closing should/must be paid by the seller, and what costs can the buyer ask the seller to contribute in this market? I guess I am more happy renting than facing this nightmare of being a homeowner.
I am happy to learn that the reimbursements can be negotiated, but in my situation is it ok to ask the seller to negotiate? I know, I sound too sympathetic toward the seller, but I also understand business is business.
Ryan says
Anita, from my understanding, everything can be negotiated – from the price of the house, to the closing costs, an allowance for home repairs, the mortgage rate, etc. You can even pay points on a mortgage, which means paying the mortgage company to lower their interest rate.
How far the seller is willing to negotiate depends on many factors, including how eager the seller is to sell their house, and how much they can afford to lose. Many people are under water on their mortgages (they owe more than their home is worth) and cannot afford to sell for less than a certain amount. But you shouldn’t make a business deal based on that – you should make a business deal based on whether it is a good deal and makes financial sense for you. If it is too expensive or you can get a better deal elsewhere, then move on. There are always opportunities.
Finally, don’t let the real estate agent talk you into a quick purchase if it doesn’t feel right. It is in the real estate agent’s best interest for the deal to be finalized quickly because then he or she gets paid more quickly. Buying a house is 100% your decision, so don’t let anyone talk you into do anything you aren’t comfortable doing.
Pamela says
Anita had to reimburse the seller for taxes they already paid. If the seller paid property taxes in January for the entire year, the buyer reimburses them for taxes from the closing date forward on a pro rated basis.
Robin says
Our experience with Citi Mortgage and our escrow account hasn’t been a good one and I wouldn’t recommend it to anyone. Last year we changed insurance companies, which saved us $1200 a year, in doing this it skewed the formula in which their computer figures your monthly payment. We tried to pay more but were told that we couldn’t do that it was against the law for our state (IN). I should have checked into it more, anyway their new calculated amount left a shortfall of $1800 dollars which now we have to come up with as well as the projected shortfall for next year, which raises the payment to almost $700/mo. Just a little advice to those contemplating doing the escrow account, keep in mind each time your taxes and/or insurance increase so does your payment, and getting out of it is not an easy nor cheap task.
TD says
Ryan, I sold my house last month and at the closing table I had to pay township taxes because my mortgage company, WF, had not paid them yet (they were not due till the end of next month). Who refunds me for this amount? Will this be included in my escrow refund check or would I get the money from the township? Each one tells me to call the other….. Could the mortgage co give me a breakdown of my escrow account so I know for sure if this amount is included in the refund I got or do I just have to take their word for it? Thanks.
Ryan says
TD, Each situation is unique and will depend on the arrangements made at the time of the sale. I can’t say who is responsible for which payments, but you can surely request a breakdown of payments to/from your escrow account.
Tee says
I’ve lives d in my house for 20 years and have to date paid my taxes and insurance independently. My mortagage was resently sold and the new company has emposed an escrow account of more than 200 dollars monthly. We became aware of it when our auto withdrawal became insuffient because of the increase to cover this escrow account. I thought that transfers of servicing companies did not change the terms of your contract. We are still paying an additional 204 dollars amount despite paying our own taxes and insurance. We are not in default of either, this can’t be legal.
Katrina says
Hello Ryan.
I am having an issue with Chase Mortgage. In 10/2009 they sent me a letter requesting that I pay the 2008 property taxes w/i 30 days, which I did and mailed them the tax receipt as proof. Well, in 03/2010, I get a letter that is dated 1/29/2010 stating that they had paid my 2009 property taxes and were establishing an escrow account. I disputed this with them via letter to the Escrow Waiver Dept. as well as the Tax Dept., based on the fact that they only requested that I pay the 2008 which I did, and that I never received a letter from them regarding the 2009 taxes, of which I had recently made a partial payment on in 02/2010.
In my letter I reminded them of the partial payment. I have yet to tell them that I recently homesteaded the property taxes which should result in a decrease in the amount of taxes that I owe for the upcoming tax year.
I just got a vague letter from them stating that they will make future tax payments on my behalf, as permitted under the mortgage agreement.
I have never had an escrow account and do not wish for one now. How do I go about disputing this to a higher authority in Michigan? Please help….
Ryan says
Katrina, I recommend reading your mortgage contract thoroughly to see how this topic is covered in the mortgage. You may wish to consult with a local real estate attorney to help with your contract if you feel it is necessary.
Kevin W. Kevelighan says
I am a Michigan Lawyer, Ryan. I have a class action suit pending here. The lender is allowed to establish an escrow account post-settlement; however, they cannot charge Katrina’s 2009 property taxes to that escrow account.
Lore says
Hello,
My escrow closed on 03/24/10 and my agent is just now sending me additional disclosure documents that require my signature. My agent is stating the bank is requesting that I sign and return the documents right away. It’s the Statutory Natural Hazard Disclosure Statement which indicates that the property is located in a potential flood zone as shown on an inundation dam failure zone map. Is it legal for my agent to request my signature for such document since I was not made aware of this very important piece of information prior to escrow closing? Can I refure to sign it?
At this point I don’t believe it’s a fair disclosure since the deal is sealed and I was not given the opportunity to make an informed decision prior to closing escrow. Please help!
Ryan says
Lore, this is probably something that should have been researched before buying the house. By itself, it doesn’t necessarily mean much, just that your home is located in a flood zone, so this is probably a requirement. My recommendation is to talk to your neighbors and/or insurance agent to find out the best kind of flood insurance policy is for your needs.
Shirley Dufresne says
We hired a broker to sell our premier Palace resort. They say they have a buyer and the escrow company(Platinum Escrow Services ) Wants us the wire the balance owing to them. in Puerto Vallarta. Isn’t this a little strange. The funds would be around 10,000.00.
I always thought when a sale takes place they pay off the contract. Am I right or wrong? I just don’t have a good feeling about it.
Ryan says
Shirley, I can’t comment on your specific situation. If you are unsure of the legitimacy of the contract, sale, or request, then I recommend hiring a lawyer experienced in these matters. It may cost you a couple hundred dollars, but it will be well worth it if it saves you $10,000. Here is more information about How to Hire a Lawyer. Best of luck.
Tim T says
By the way, I should clarify that previous question…My lender is in Forida and my property is in Illinois. If that helps any.
Thanks
Tim
Tim T says
I have a question? Here is my scenario. I refinanced on 3/6/10. Both the closing attorney and my mortgage broker said that my former leneder had 15 business days to mail out my escrow refund check to me. They also said the this would be processed about 3-11-10. Checking with my former lender they did indeed say, that the payoff went thru on 3-11. They, then went on to inform me that I would be issued my refund in 30 days. I want to know what is legal 15 business days or 30? I have fullfilled my end of the contractual agreement by paying off my loan. How can they hold my money for 30 days interest free…when if the situation was reversed I would have to pay all sorts of fines and interest. I need that money. What is the truth?
Thanks
Tim
Ryan says
Sorry, Tim, I have no idea.
Jennifer says
Hi Ryan
I recieved a statement regarding my escrow shortage. My question is does that shortage amount include my mortage payment for the month, or do I have to send a seperate payment for my mortage? Thanks jennifer
Ryan says
Jennifer, it will depend on when the statement was sent. It should be disclosed on the statement regarding the shortage amount and how much you need to send to the escrow company before your escrow account is current. If in doubt, give the escrow company a call for verification.
Brenda says
When I pay off my home, is the bank required to return the money in my Escrow Account? And, if they are, is there a law that requires them to do so (i.e., my mortgager is one of the bailout banks and I want to be prepared with legal support to get my money from them).
Ryan says
Brenda, I’m sure there are some laws out there regarding what is to become of your escrow account when you pay off your home. My recommendation is to contact your lender and/or escrow firm and ask them what the requirements are. They may hold on to certain funds until the next insurance or tax bill is due, but they certainly can’t keep the funds. they have to either pay the bills for you or return the money to you in some fashion. It’s the details I am not sure about.
Karen says
Hi Ryan,
thank you for following up with your response. I will certainly take your advice.
Sincerely,
Karen
Karen says
Hi Ryan,
I just got off the phone with my lender (which happens to be a local bank) regarding applying the surplus from last year’s Escrow payments to this year’s payments and they told me they couldn’t. Is this common practice? Are they right?
It just doesn’t make any sense to me that they can’t do that rather than take it out of the account, send it to me only for me to make monthly payments rather than just pay the whole thing off with the surplus which happens to be more than is due this year???
I would love to know if they really can choose NOT to do this because after all it’s MY money!!
Ryan says
Karen, each escrow company handles their accounts differently. There may be a section in the terms and conditions that states the only activities that funds can be used for, and how all shortages and surpluses are to be handled. Even if they won’t apply the funds this time, I recommend contacting them for information regarding how funds and payments are to be handled. That way at least you know what will happen should something similar happen in the future.
Kevin W. Kevelighan says
RESPA allows the Lender and the Borrower to make such an agreement.
Tabatha says
RESPA might “allow” certain things, but they also don’t “restrict” certain things either. In regards to my escrow account; The bank that financed my mortage is local, like Karens. I started studying my annual escrow analysis recently, and in fine righting at the bottom, it tells me that “per Federal law, you are required to maintain no less than 1/6 of your total escrow balance.” RESPA does not REQUIRE this, so SunTrust is using this as a cop-out. I visited the site that discusses RESPA, and while RESPA does not require a borrower to have a minimum amount in their escrow, the Lender still can! So, what exactly is the point of RESPA anyway?
I’ve read so many posts on this site, and it seems like escrow accounts are causing alot of financial hardships. I have owned my home for 5+ years. The first year, we had a surplus in our escrow account, and we got a check. SunTrust would NOT save it & apply it to the future years balance. Instead, at the end of that next year, we were, you guessed it…short! And had to turn around and pay a lump sum, in addition to having our mortgage pmt go up. Ever since that year, 2006, our mortgage payments have increased annually. Factor in the fact that this is a 30 year loan, and I won’t be able to afford my mortgage in about 10-15 years. It would be interesting to know if escrows and such are 1 of the reasons why foreclosures are so dominant lately.
Tony Joseph says
What gonna happen to my postive escrow funds since my loan has been charged off to FACS (unsecured loans)? Am i eligible to receive the postive balance from the escrow. Kindly mail me if anyone has an answer to this issue. 🙂
Ryan says
Tony, I don’t have an answer for you; I recommend contacting your escrow company for more information. Best of luck!
Tony Joseph says
Thank you Ryan……
B.C. says
Hello! I do have an ESCROW ACCOUNT with my mortgage company. I used to be with Washington Mutual & now CHASE HOME FINANCE LLC. is my mortage company. I have OVERPAID in my ESCROW ACCOUNT. Should I contact them about this ? Should I pay my next house payment with money or should I ask them to send me a check for the entire OVERPAYMENT ? If I do not ask, I will not know. I do not want them to keep my hard earned money & let them make money on MY MONEY !! AM I on the right track or not ? Do you have any info on my situation ? Please advise ASAP ! THANKING YOU IN ADVANCE !! B.C.
Ryan says
B.C. you can contact them if there is an overage in your excrow account. Some companies will offer to apply it to your next payment if you ask them to, or they may just send you a check. BE sure to send in your full payment each month and treat this as a separate transaction until you have written confirmation of how they will return your money to you (or apply it to your payment). That way you don’t miss or make late payments.
JACK says
I HAD MY MORTGAGE WITH ANOTHER COMPANY AND BANK OF AMERICA BOUGHT THEM OUT. I HAVE BEEN HAVING THE SAME PROBLEM WITH THE ESCROW ACCOUNT GROWING AND GROWING AND THE THING IS I WAS PAYING MY OWN TAXES AND INSURANCE WITH THE OTHER COMPANY. NOW THEY WANT TO PAY THEM AND ADD THIS MONEY TO ESCROW AND MAKE MY MONTHLY PAYMENTS HIGHER THAN MY PAY CHECK..
THEY CLAIMED THAT THEY ARE REQUIRED TO HAVE AN ESCROW SOUNDS LIKE SOMETHING ELSE TO ME….WHAT DO YOU THINK?
Ryan says
Jack, Each Escrow account and company may have different rules or requirements. I recommend contacting them for more information or to discuss your options. Best of luck.
Kevin W. Kevelighan says
Sounds like Jack ran into the same problem as Ken, Kimberly and Andrew…Ryan, you are the first hit for the search “mortgage escrow.” Perhaps we can connect on this that I can maybe moderate this string.
Sue says
Is it legal for a lender to use funds from an escrow account to cover closing cost when you are refinancing?
Mike says
We have no mortgage and want to set up our own escrow account on Quicken. We want to transfer a certain amount in to the escrow account each month with many catagories like Property taxes, Insurance, home repairs, car repairs etc. We would like to be able to look at it from time to time and see how much we have in each catagory but can’t seem get Quicken to do this?
Ryan says
Not sure, Mike. I’ve never used Quicken for this function. But I know they have a great user forums where you may be able to find the answer. Good luck! 🙂
EvilV says
I hate my escrow account. I’ve lived in my house 2 years, and they have never once paid anything on time. Fortunately they are the ones at fault for picking up the late fees on my taxes. Although it is a bit disconcerting to have my insurance policy lapsing for a week or two every year.
Evan says
I was Forced into my Escrow account and I LOVE IT!
I live in one of the most expensive places in the Country in terms of property taxes (Long Island, New York) and to not have to worry about coming up with the property taxes because I was forced to budget over 12 months is one less headache
PDubbs says
Ugh, I had the problem of a shortfall this year.
I changed our homeowners insurance policy to combine our car policies and get a multi-policy discount. So our old insurance company sent us the check (escrow had already paid them) and then our mortgage (same as escrow) company paid the new insurance company, didn’t tell us or anything. So then we have a check and deposit into our account and don’t think anything of it. Then a few months later, we get a notice saying we’ll have an anticipated shortfall in the escrow account and our monthly payment is going up $100/month. Not a huge deal for us financially, but it was a major headache getting it sorted out.
Wouldn’t do the escrow except as you noted, it is required for us (low down payment, PMI, etc).
Don @ Money Reasons says
My wife has an accounting degree, and we still let the escrow company handle our taxes and insurance payments.
In February, we’ll have our house paid off, so I think we’ll start to handle that functionality. If I’m lucky, maybe I’ll make a few bucks in interest. 🙂
I’m unfortunate in that the county I live in, messed up the assessment of my house. With my county auditors online website, I did a property search. Apparently, I have an extra 200 square feet that I’m not aware of… not! 🙁 They extended my house living area into my garage. So now I have to fight with them (hopefully fight is too strong of a word), to get this straightened out.
If anyone has a similar problem, get the process flowing at the beginning of the year. Why I say this is because often time they only evaluate property reassessments at the beginning of the year (I believe I have until March to do so). This policy is region specific, so it might not apply to you, but it never hurts to check…
Ryan says
Don, My wife and I had a similar issue – they had our house as having an extra bedroom. Our county allows one challenge per year outside of the normal reassessment period (I believe they reassess valuations every 3 years). We were able to get the issue changed and we saved a few hundred dollars per year in the process. It was well worth it!
Ryan says
There are inherent dangers with escrows – but only for those who don’t take the time to understand how they work. My first home was a new construction property in IL. Taxes in that state are paid the following year. When I purchased the property, the existing tax bill was only $400 (on vacant land). I knew the taxes would grow to around $4600 for the year if the property was assessed at what I paid for the home.
The mortgage company was to collect $40 in tax escrow for about 6 months and reanalyze it every 6 months thereafter (because they couldn’t collect more than the most recent bill in my state). Every few months, I received a new payment coupon book with the tax analysis reflecting a payment increase – $100 increase per month the first time, then $200 increase a few months after that. After about a year or so, I was contributing about $350 per month to my escrow – I THOUGHT I was on track, but I wasn’t.
Another year went by and we refinanced because the rates dropped 2% – saving me about $550/month. Our escrow was refunded to us (as required by the fed) in an amount of $600 or so. 6 months after our refinance – having lived in the property for over 2 years – I received a new payment coupon book. The payment jumped $750!!! And yes, FIXED interest rate folks.
The tax escrow was $5200 short. Not only did the tax bill come full swing, but they also wanted me to pay what I was short in my escrows! It wasn’t until then that I found out that the $350 I was contributing for what I thought were taxes, was actually $150 for PMI and $80 for hazard insurance (which doubled without my knowledge from the preceding year). I was only contributing $120 or so a month to my taxes, which were just over $400/month. For two years I had been paying $270 to $350 LESS than what should have been collected from me to avoid a shortage. So needless to say, my new payment for the house became unaffordable for me – because I had to pay the full increased tax amount AND make up for the $5,200 shortage at the same time. YIKES!
But I don’t blame the lender. I don’t blame the township. I don’t blame anybody but ME for not knowing what I was paying for. Ignornace is bliss until you’re faced with the true gravity of the situation. 1st time buyers: pay attention to your tax escrows!!!
Linda Blake says
I have recently bought a property in Cyprus and the bank has sent me up to date statements which the property company arranged. There is 5,625 Euros sitting on one of the accounts which the bank tell me is an Escrow Account. I am allowed to use this to pay my mortgage payments? Or can I ask the bank to refund that money.
Thanks for your help.
Linda
Ryan says
Linda, I am not familiar with banking procedures outside of the US. I recommend contacting your bank or mortgage broker for more information. Best of luck!
Andrew says
I am currently under chapter 13 protection and I recently recieved an escrow account disclosure statement. My monthly payment was 884.27 and they told me I have a new payment of 1,585.02 to pay for the outstanding balance due for escrow for the 2010 I will pay this amount for one year to catch up. I don’t understand how this happened, could you please give me some advice to see what I can do to stop this from ever happening again. Also on my paperwork this says that the payment will stay like this after I ve made my payments for one year to cover the escrow. I wanted to know if my payment can ever go back to what it was or what can I do to fix this. I have a fixed rate mortgage and now they have doubled it. I don’t understand what I can do. Please help ASAP. Thanks for your time.
Ryan says
Andrew, I can’t say for certain what happened with your escrow account, but it seems like the taxes and insurance may not have been correctly calculated for your mortgage payments. The escrow company usually pays these bills, so they likely cut a check for your insurance and property taxes, leaving a negative balance in your escrow, which is why they say you need to make catch up payments this year. The new payment should reflect your fixed rate mortgage, plus the cost of your property taxes and homeowners insurance, plus the amount needed to bring your escrow back up to its minimum level (most escrow accounts require a minimum amount to remain in escrow at all times). of course, I don’t know your exact situation, so this may not be the case. You best bet is to call your escrow company and ask why your rates were raised, what you can do to prevent this from happening again, and whether or not your rates will ever go lower than your current payments.
Kevin W. Kevelighan says
It looks like Andrew is having the same problem as Ken and Kimberly.
John says
Mortgage accounts typically get flagged when the borrower has an active bankruptcy case. Bankruptcy laws prohibit the creditor from soliciting the debtor for payment. Generally, when an escrow account is analyzed annually, the mortgage servicer sends out a statement or coupon book with the annual escrow account disclosure statement showing the adjusted payment amount for the coming year. This could be construed as a request to pay under bankruptcy laws. It is possible that the mortgage servicer suspended the escrow analyses during the active Ch. 13 bankruptcy (which is typically a 3-5 year structured repayment plan). When the servicer provides its Proof of Claim to the bankruptcy attorneys, the attorneys use the monthly payment amount as a set payment for calculating the post-petition payments over the 3-5 year repayment schedule. During that timeframe, any increases in the escrowed items (taxes and insurance) would have caused a shortage. Over a 3-5 year period, the shortage amount accrues. Remember, the servicer may not notify the borrower that the escrow account is short and ask for the shortage to be paid, as this is a request for payment. When the bankruptcy is discharged, the servicer will finally analyze the escrow account and determine what the shortage amount is, and what the new monthly escrow deposit will be, based on the most recent escrow disbursement amounts. Because the escrow account had not been analyzed and “balanced” over a 3-5 year period, there may be a significant shortage which accrued, unbeknownst to the borrower. It is a good idea for homeowners going through bankruptcy to write to their mortgage company and ask for an escrow account statement each year, if they do not receive one while in active bankruptcy. This way, the homeowner can at least keep track of their escrow account balance, and notice any increases in the annual disbursements. Then, they could either submit additional payments to be applied to the escrow account to defray the accrual of a large shortage when they are discharged.
circee says
escrow is a wasting money. the department suppose to be a third party, but believe me they are not. the expensive insurance they provided when people have ellaps in coverage is the same company; believe they want to make money as any how and any way, please do not take escrow on your morgage because they are not working for you but for the bank. if anyone have escort, i will advace you to start geting it cancel because it take a long time to get it process.
maria says
When I first bought my home, I didn’t have an escrow account. My mortgage lender was then sold to another lender. They are now paying my taxes, and developed an escrow account for me. I didn’t ask for this and they told me that its going to continue. What can I do to make this escrow account end?
Ryan says
Some lenders require it, and it sounds like that is the case with your lender. Some lenders will allow you to forgo an escrow account if you can prove you have a certain amount of liquid assets, but that is not always the case. I don’t know what action to take if your lender will not agree to remove the escrow account.
Lisa says
I am having the same problem with my lender Litton. They bought my mortgage on 2003. We have lived in the same house for 25yrs and always paid our own taxes and insurance. There have been a few times we have been late paing the taxes, but they have always been paid. When Litton bought our note they have done nothing but try to find ways of charging us with fees for anything. They would harrass us if our ins payment was 1 day late, wanting to charge us 400.00 for ins. I am disabled now and so this year due to so sickness I forgot to pay the taxes on time. Well they were due in Feb and April b/c I have to pay city and county taxes. Well for the first time Litton decides they are going to pay them and they are only 4 months late. Then I find out it’s really b/c they SOLD MY NOTE!!!!!!! I have contacted them and told them I never gave them consent to put escrow on my account. I mean they never did before. Why now. She said for my benefit…….I don’t think so, more like theirs. Then they turn around and charge me 1042.00 when they only paid around 660.00. I have contacted my legislators. and plan on contacting a real estate lawyer. I might not get anywhere but I feel like I was taken advantage of.
Julie Sutton says
We are in the process of refinancing with our current bank.JPMorgan Chase. There were supposed to be no out of pocket closing fees. I have an escrow account and have been putting money in it each month all year for Homeowners insurance, due next March.Today they tell me they want 2900.00 for a full year of insurance at closing! I have already put it in escrow! is this legal? They said my escrow money will be put into escrow in the new loan.I will pull my application if they want this.
Ryan says
Julie, it’s probably a policy of theirs to request the money up front. You may be able to convince them to waive that requirement if you can prove you have the money with your other escrow service or if you have sufficient funds in the bank to cover your homeowner’s insurance.
Julie Sutton says
The other escrow service has been collecting the money for taxes and insurance all year. they said that escrow money would be moved into the new account escrow. By March the noney will be there for ins. I can’t understand why they want it twice…
sue says
Do I need an attorney to process an escrow account? Who set up the escrow account and who is involved in this procedure?
Ryan says
Sue, there are various types of escrow accounts. Mortgage escrow accounts can be set up through any reputable escrow company. You can contact your lender or mortgage broker for recommendations, just be sure to research the company before signing on with them. That way you can ensure you get the best deal for your situation.
As for other types of escrow companies, you should be able to research them online or possibly through recommendations of people you know who have used an escrow service in the past. Again, research the company before signing any forms or transferring any money.
Nick says
I don’t know if anyone has heard of this but here goes:
We had a loan with Taylor Bean and refinanced out of the loan at the end of July. Prior to all the problems. We decided to pay all our taxes, insurance etc. at closing leaving a $1900 escrow balance which was to be paid out, as law states, within 30 days. Sure enough taylor bean sent the check within the 30 days and we deposited into our checking account. Here comes the kicker-the bank that was holding the escrow account stoppped the check!!!! Not only did we not get the money, we were charged the processing fee for the stop payment. Minimal copared to the $1900.00. Now trying to get answers by anyone is near impossible. As I write this I am on hold for a second time with the Florida Office of Financial Regulations for 40 min. We just want to know what is going on! It won’t be worth it to hire legal advice but the we could use OUR money?
Most people I have gotten in contact with have never heard of this. Any suggestions?
Ryan says
Nick, It sounds like you are doing the right thing by contacting the the Florida Office of Financial Regulations.
Sandy Meyers says
If you are behind in mortgage payments and have an escrow with the bank for insurance and tax can the mortgage compay be forced into allowing you to pay only the mortgage and interest in order to keep your payments current, especially if insurance and tax are all current and the home owner can afford just the mortgage and interest payment.
Ryan says
Sandy, I don’t know. You would need to discuss this with your mortgage company as each company has their own policies.
Joseph says
I have an escrow account and have never had a problem with it. However, when you add that on to the mortgage payment it does add up. Can I just pay the escrow account for the full year in advance? If so, would that lower my monthly payment to just the mortgage payment since the escrow is paid for the year, or would my mortgage company still apply a portion of my payment to escrow?
Ryan says
Joseph, You could probably do it, but you would need to contact your mortgage company to let them know not to apply any money toward your escrow. You would also need to remember to have the mortgage company add it back to your bill if you didn’t pay it in advance the following year.
You also may be able to get rid of escrow completely under some circumstances, but you would need to contact your mortgage and escrow company for details.
Dena says
This is so wrong. I just went through this with my mortgage company and due to federal regulations they won’t accept prepayment to my escrow account. In other words, “too bad, so sad.” The only choice I have is to contact .gov for information on the Homestead Exemption. I’m on SSDI and cannot afford for my mortgage to keep going up. There’s only so much money to work with. I thought I could pay them the overage amount plus the additional adjustment. Chase say “no.”
Laura says
We have never used escrow because we prefer to earn interest by investing in savings. However, we recently refinanced and the new bank (Chase) is requiring us to escrow because we don’t meet their minimum equity in our home. My question is…. should we just escrow, or should we put in the extra $6,500 to meet the minimum equity so that we don’t need to escrow? I’d like some opinions.
Tabatha says
One thing I’ve noticed about having escrow, especially in my little town is this;
Last year, our property value went up $24000. This in turn made our property taxes higher. But because our estimated tax at closing was only $400 or so, our mortgage payment went UP in order to cover the taxes for the next year.
I HATE THAT!
I would rather pay the amount in full and have a lower mortgage rate. Does anyone know if you can get OUT of the taxes being in escrow once you’ve closed?
Ryan says
Tabatha, I’m not sure. I recommend contacting your escrow company for more details.
Kevin W. Kevelighan says
Lenders will close your escrow account and give you an Escrow Waiver. They are not required to do this, but, they often do agree.
Gail says
We owe more than our home is worth. We are considering foreclosure. Does the lender just keep any monies in the escrow account (that cover insurance and taxes)? I know that we will need to stay current on our taxes and homeowners association fees – don’t want any judgements against us. Thanks.
Ryan says
Gail, I’m sorry, I don’t know the answer to your question.
Joanie says
I received my annual statement from my ins co. You know the one that says, “This is Not a Bill”. Anyway, I noticed the amount of the bill they sent to the bank and it had risen about 250.00 since last year. Yikes! We filed no claims. WTF?! So, I started looking for a cheaper rate and found one. I called my current ins co and let them know I wouldn’t be renewing my policy. They already sent the bill to the bank and the bank paid them. So, I got a refund check from the ins co in the mail.. …. The bank had to add $155 to our escrow account in order to pay the ins bill. Where did they get that money? ….. Can I just pay the new ins co myself, give the bank (or whoever) the $155 and keep the difference? Thanks!
Ryan says
Joanie, I can’t comment on your specific situation because I don’t have the details. This is something you will need to hash out with your escrow company and insurance company. Best of luck!
Kevin W. Kevelighan says
Joanie will have to show proof of insurance to the Lender and request that the Lender perform a MID-COMPUTATION YEAR ESCROW ANALYSIS without the insurance included as an Escrow Item.
Don says
Hello, I have a question regarding the escrow account. If I get a mortgage with escrow and I overpay, meaning if the escrow payment each month added up to more than my taxes and insurance and anything else. What happens to the extra money? Thanks
Ryan says
Don, the money will be returned to you or credited against future payments. You may have to request it, but some escrow accounts will either send you a check at the end of the period, or they may leave the money in your account and lower your payments for the following year. Call you escrow account to determine how they handle overpayments.
Don says
OK, thanks a lot for the reply. That what I thought but wasn’t 100 % sure.
jennifer biddick says
AWESOME! I have been looking everywhere for the answer to that question!!
Alison says
Before you get too excited…. I have an overage of $2200 in my escrow account but now Wells Fargo is stating they keep a minimum of 2 months mortgage in escrow and actually want me to pay into it. There is MORE than enough every month to pay insurance and taxes. I’m trying to fight it but not having much luck even getting anyone on the phone to help
Kevin W. Kevelighan says
RESPA requires that the Lender return any SURPLUS that exceeds $50.00. The Lender is allowed a CUSHION of 1/6 the annual disbursements and a SURPLUS is only determined after allowing the CUSHION.
Kimberly says
our yearly bill is around 2500 for tax’s and insurance but the escrow amount is all ready over 7000 our home payment went up over 600 dollars a month so the bank can use our money for whatever they choose, tried to get this straighten out for months but the accounts are handled in india. and before you think this is some fly by night mortgage company, its actually citi mortage, and we have never been late on any payments we pay 5 days before its even do, so is it really legal that they can set the payment each month on whatever they choose, because this was not what we payed the first 2 years and we have had this mortage for 5 years?
Ryan says
Kimberly, It depends on the terms of your mortgage. If you have a set rate mortgage, then your payments shouldn’t change very much. If you have an adjustable rate mortgage you may find that your rates can change.
Read the terms of your mortgage very closely and find out what your mortgage states. That should give you the information you need. If you have trouble understanding the mortgage terms, contact your mortgage company for clarification. Don’t hang up the phone until you understand why your rates have increased.
Kevin W. Kevelighan says
It looks like Kimberly has the same issue as Ken, except with respect to Property Taxes. $7000.00 likely includes a couple of years of property taxes on which the Lender made PROTECTIVE ADVANCES. Hers may also have homeowners insurance.
ken says
My insurance dropped my house without my knowledge due to an error by the insurance agent. I Found out when my mortgage company tacked the escrow on to provide insurance for the home without letting me even try to find another insurance company. the last 3 months the insurance company has taken my entire payment and applied it to the escrow account making me default on the loan. now I’m 2500 dollars behind with just enough income to pay the monthly payments and they are still threatening to default. Is that even legal?
Ryan says
Ken: have no idea if it is legal, but it certainly doesn’t sound ethical. I recommend contacting your mortgage lender and explaining the situation. If that doesn’t work, you should contact an attorney who specializes in real estate or contact your state’s Attorney General office. Best of luck to you!
Kevin W. Kevelighan says
It is legal for a Lender to establish an escrow account “post-settlement;” but, I have successfully argued that the Lender may only collect INTO the escrow account amounts sufficient to cover the PROJECTED DISBURSEMENTS for the next upcoming year’s Escrow Items.
It sounds like this Lender’s Escrow Analysis included an Opening Balance that was negative, that is, it was negative the amount of the insurance the Lender alleges it paid. If this is true, this Lender’s INITIAL Escrow Analysis was likely not followed by an INITIAL Escrow Account Statement, but, rather, by an ANNUAL Escrow Account Statement.
An INITIAL Escrow Account Statement includes an Opening Balance of “zero” and ends up disclosing the Borrower’s REQUIRED DEPOSIT, that is, the amount required, in addition to the 1/12 monthly deposits from the time of establishment to the time for Disbursement of each Escrow Item, to pay the Escrow Items.
Most Mortgage Instruments, therefore, provide a method for treating PROTECTIVE ADVANCES made on a mortgage loan that is subject to an ESCROW WAIVER. Under those Instruments, the PROTECTIVE ADVANCES are treated as ADDITIONAL DEBT secured by the Mortgage Instrument, which is payable by the Borrower, but, not due until maturity of the Mortgage Instrument.
When a Lender uses an ANNUAL Escrow Account Statement with a negative Opening Balance, it re-characterizes the REQUIRED DEPOSIT and makes it part of an ESCROW SHORTAGE. Further, it re-characterizes the ADDITIONAL DEBT resulting fromthe PROTECTIVE ADVANCES and makes them part of an ESCROW SHORTAGE.
Unlike the resulting ADDITIONAL DEBT which is deferred, with interest, to the end of the mortgage loan, an ESCROW SHORTAGE is charged to the Borrower over as little as twelve (12) months. This very likely explains the incredibly high three-month so-called “default” of $2,500.00 that Ken’s Lender alleges exists.
Victoria Chapman says
I have CitiMortgage.Inc as my “lender”. My problem with them is they send out their “escrow analysis” and are asking for more money OR they will/ have to raise my monthly payment.
I sent them $993.00 July 1st,2010 to re-instate my hazard insurance policy on my house. I thought this would cover a year’s worth of coverage. Retro-active to May when another insurance company dropped me.
A letter arrived less than a month ago, dated August 26th,2010 stating that I owed another $993.00 to maintain enough money in my escrow account OR they would add $86.70 to my monthly payment.
Is this legal? My gut says CitiMortgage has found a very deceptive way to steal people’s hard earned money. If not illegal, it is definitely unethical. I am upset to say the least.
Ryan says
Victoria, the added monthly charge is designed to bring your estimated annual payments up to the required amount. The money is yours and will only be used to pay your insurance and/or taxes, as is most likely required by your mortgage agreement. My recommendation is to contact your escrow company to discuss the numbers in more detail and to get the final word on your estimated payments, why they calculated the numbers they gave you, etc. They aren’t going after you to cheat you; they simply want to follow the terms of your mortgage and escrow agreement. Contact them and get to the bottom of this.
Ryan says
Hi Pam,
ING is an on-line bank account that is well known for having some of the highest interest rates for savings accounts, great customer service, and a user-friendly interface.
The ING account was mentioned because some people prefer to handle their own payments instead of using an escrow account because it allows them to earn interest on their money instead of it sitting in escrow for several months.
pam says
We are immigrant first time home buyers from the Philippines.What is an ING account and can we do this at the beginning of the loan or only after a number of years?thank you!
Ryan says
Sami, That sounds like a decent deal. Well, not the $250 “processing fee,” I guess the lenders will always find a way to get their money. But in the long run, it seems like you will make out. Congrats!
Sami says
After 13 years, we just cancelled our home escrow account. The lender charged us a $250 “processing fee”, but by automatically depositing money monthly in an ING account to cover the expenses ourselves, the interest will cover the fee in less than two years, and after that, we’ll earn the interest for ourselves.
Ryan says
Just a note – I updated the article due to Meg’s and Blaine’s comments. I know the escrow companies make money on fees, but I assumed they make money from earning interest as well. I couldn’t find proof either way, so I removed the statement. Thanks!
Kevin W. Kevelighan says
Most “Pooling and Servicing Agreements” provide that the Servicing Agent is entitled to employ the money held in escrow to its own uses – Servicing Agents make lots of money investing these interest free deposits. I am confident these Servicing Agents have some reserve requirement; but, I wouldnt be surprised if they dont.
Mrs. Micah says
We’ll probably do an escrow account. It just seems like such a handy way to manage it. Also, I doubt we’ll ever have a big house with the big property taxes.
Blaine Moore says
My escrow account for my mortage is interest bearing. It isn’t a huge interest rate, and I could do better with my bank’s savings account, but it satisfied the lender that there was one and it satisfied the escrow company because they got to hold the money.
Just ask at closing when you buy a house or refinance if (a) escrow is necessary if you think you can budget and save, and (b) what the interest rate is. A mortgage broker wants your business and can easily make it interest bearing.
Meg says
My mortgage broker told me that it is illegal for escrow companies to earn interest on your money in escrow. I was surprised to hear that, but he swears it’s true.
Also, I was able to avoid escrow on my own home, but I had to pay a several hundred dollar fee at closing in order to waive escrow.
I’m about to purchase a rental property though, and they won’t let me waive escrow (despite a 20% downpayment, good reserves, etc). I’ve been told you pretty much always have to do escrow with investment properties.
Ryan says
Meg, I could be wrong on escrow accounts earning interest for the escrow company. I just assumed that if it was there it was being used that way. I will have to double check and make a correction if that is the case. Thanks for the insight!
Blaine, thanks for the comment. My wife bought this house before we got married and she did everything. The next time we buy a house I will keep that in mind. Some interest is better than no interest!
Mrs. Micah, I like having an escrow account. I realize I am losing out on some interest, but the convenience is nice. I prefer low maintenance! :)Thanks for the comments!
TIm says
Hello Wells Fargo sent me a check for $1600 saying I had a overage in my escrow. I’ve been in my home 18 months now. I also get a letter from them stating they called my local city and were told no taxes are due for 2017. So I call the city on my own and they said I have never paid taxes and been getting hit with late fees. Why would Wells Fargo send me this check when it is supposed to be removed from my mortgage payment monthly? I pay 400 for escrow. And only MIP AND home owners been coming out that leaves the rest for taxes. Please let me know
Ryan Guina says
Contact your city and get them a copy of the letter Wells Fargo sent you and see if they will be willing to waive the late fees. Most city offices will be wiling to work with you when there is a legitimate problem that should have been handled by your lender/escrow company. As for Wells Fargo’s mistakes, I can’t even begin to understand some of the mistakes they have made at the corporate level in the last few years. You will need to contact them and try to sort this out.