|
|
Consumer News: Mortgage Escrow Accounts
By: David W. Armstrong, President
Armstrong Custom Homes, Inc.
It’s that time of year again, when your bank or mortgage company reviews your escrow account and determines the amount of money necessary to pay your taxes and insurance for the coming year.
Section 10 of the Real Estate Settlement Procedures Act (RESPA) limits the amount of money a lender may require the borrower to hold in an escrow account for payment of taxes, insurance, etc. The RESPA statute and regulations do not require the lender to maintain a cushion. However, since 1976 the RESPA statute has allowed lenders to maintain a cushion equal to one-sixth of the total amount of items paid out of the account, or approximately two months of escrow payments
The following steps can help you estimate the amount of money you may be required to put into your own escrow account, either a new or existing account, under aggregate accounting:
1. List all the payment amounts for items that will be paid out of your escrow account, and when paid, for the next 12 months (e.g., taxes; hazard and flood insurance).
2. Divide this total amount by 12 monthly payments.
3. Create a trial running balance for the next 12 months listing all payments to the escrow account and all payments out of the account, when these items are paid.
4. Increase all the monthly balances to bring the lowest point in the account (December) up to 0. The account should fall to the cushion at least once during the year. During your escrow analysis, the lender would compare the required amount to the actual balance in your account in June.
For example:
If your balance is $1076, and the required amount if $1040, there is a surplus of $36. Your lender may choose to apply any surplus less than $50 to future payments, reducing your monthly escrow payment to $127, or may choose to return the surplus to you.
If your balance was $940, there is a shortage of $100. This amount is less than one month's escrow payment and the lender may ask you to pay this amount within 30 day or may spread it out over a year.
If your balance was $800, there is a shortage of $240. The lender must spread the collection over at least 12 months. If the lender spreads the shortage over 12 months, your monthly escrow payment would increase to $150.
If you have a deficiency in your account (where the lender has to use his own funds to pay a bill), you may have to reimburse the lender sooner than over 12 months. If the deficiency is less than one monthly escrow payment, you may have to repay the lender in 30 days. If the deficiency is more than or equal to one monthly escrow payment, the lender may require you to repay the amount over 2-12 months.
The disbursement date means the date on which the lender actually pays an escrow item from the escrow account. However, the lender must pay the items in a timely manner, that is, on or before the deadline to avoid a penalty. This is required as long as the borrower's payment is not more than 30 days overdue. Borrowers should review their annual escrow statement to make certain the lender did not make late payments and charge any penalties to the borrower's account.
Send the bill to the lender. The lender should pay the penalty for failing to pay the taxes on time as long you were current in your mortgage payments. If the lender refuses, you may wish to follow the guidelines for filing a complaint. Lenders are required by Section 6 to make escrow account disbursements on time. You should also contact your lender immediately and send a copy of the bill. Some lenders list a special address and/or FAX number for insurance and tax bills. Keep checking with the insurance company to make certain the bill is paid. You may wish to pay the insurance company directly to avoid cancellation of your policy and then seek a refund from your lender
If you have any questions or want clarification from your Lender, call the customer service number on your statement. If you are not satisfied with the response and wish to file a complaint, Section 6 of RESPA provides that borrowers may make a "qualified written request" to the lender concerning the servicing of their loan account. The request should not be included with the monthly mortgage payment. The lender must acknowledge the complaint within 20 business days and must resolve the complaint within 60 business days by correcting the account or giving a statement of the reasons for its position. You should continue to make your mortgage payment during this time.
In most cases, it is invaluable to have the funds for your taxes and insurance escrowed to spread out the cost of each and insure that they are paid timely. Most lenders are more than willing to take the time to explain any changes to your escrow payment and the reasons behind it.
|
|