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Escrow Accounts

DeacWatcher

DeacWatcher

Ricky Peral
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Are escrow accounts law or can you separate them from a mortgage payment and pay them separately with payments directly to insurance and tax agencies?

My mortgage company is claiming I have an escrow shortage and unless I pay some 2K up front my monthly payment will go up be $150 a month. Now my taxes did slightly rise last year but not enough for this to occur. I called the mortgage company (one of those giants that buys as many as they can get) and they gave me some bullshit about how they could reduce it somewhat but that it is what it is.

This is the 2nd year in a row this has happened (both with this company) after not happening in the last 5 years.
 
what about your homeowner's insurance? how much did that go up the past two years
 
My insurance went up by $200 and my taxes by $150 because of an assessment to build a new high school in my district.

I can't see how a $370 yearly increase can cause this kind of a shortage.
 
No, mortgage escrow accounts aren't 'law' but they may be a requirement under your mortgage product.

I never have escrows with my mortgagee for the exact reason you mentioned. Once you are in that system, you have to deal with servicing pleebs that have set thresholds from a procedures manual that they have to follow. They can make you pony up thousands of dollars in situations like this and if you refuse, they can call a default on your loan.

Not only that, most mortgagees mandate a two month 'cushion' in your escrow acct to theoretically account for things like this, but all that means is that they keep more of your money sitting around in their accounts. For instance, if your property taxes are $6000 a year and your insurance is $1,200 a year, they are going to make sure you have an extra $1200 (500 x 2 mos for tax + $100 x 2 mos for insurance) in their account. You dont get that money back until you pay off the mortgage/sell the house.

Having escrows also makes it more of a pain to appeal your taxes, which is something everyone should be thinking about these days as the economy recovers and home prices are finally going up again, and with them tax assessments.

Most lenders will tell you that they will waive escrows in exchange for an extra quarter point on the rate. If you press them though, they will back down on this if you have decent credit.

Escrows are good in the sense that they allow you security/piece of mind that your taxes and insurance are affordable and taken care of in advance, but they can be a hassle. If you have the discipline to budget to pay taxes and insurance on your own, its the better way to go.
 
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Can you get a mortgage company to drop an escrow account once it has been established? I am not refinancing, just want to dump the escrow.
 
I just got my escrow review statement and the minimum balance they want in the account after any payment is two months estimated escrow.

Our house payment went up $7.

Didn't have it last mortgage but no big deal either way.
 
DeacWatcher said:
Are escrow accounts law or can you separate them from a mortgage payment and pay them separately with payments directly to insurance and tax agencies?

My mortgage company is claiming I have an escrow shortage and unless I pay some 2K up front my monthly payment will go up be $150 a month. Now my taxes did slightly rise last year but not enough for this to occur. I called the mortgage company (one of those giants that buys as many as they can get) and they gave me some bullshit about how they could reduce it somewhat but that it is what it is.

This is the 2nd year in a row this has happened (both with this company) after not happening in the last 5 years.
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I mean, it's not like you'd save any money doing it differently. All the numbers are fully transparent and add up, there are no fees. The only thing is you might be able to get better forecasting. What's happened is there's a buffer of how under/over your account can be, so something cost more one year, it was still within range, so they didn't address it year 2, then that year it was also more expensive, so then they adjust it, and now you're behind so they have to collect extra to catch up and get ahead a little. If your taxes/insurance stay stable this year, it's likely next escrow reeval your payment will go down because by law they're not allowed to have too much extra cash in the account.
 
ChrisL68 said:
I just got my escrow review statement and the minimum balance they want in the account after any payment is two months estimated escrow.

Our house payment went up $7.

Didn't have it last mortgage but no big deal either way.
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CantStandYa said:
Doesn't it vary widely state to state?
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Like I said 2 month pad is standard industry practice, doesnt vary by state. Pretty much any institutional lender or bank whether its Chase, Wells, BoA, or your local credit union is going to implement.
 
dot com said:
I mean, it's not like you'd save any money doing it differently
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You will in the instance that your home gets incorrectly re-assessed at a much higher value. Municipalities took huge revenue hits during the real estate crisis. When a city gets a large chunk of its budget through property taxes, so when values go back up, there is an imperative to re-asses and to sometimes overshoot, since most people wont challenge or even know they can.

Unless values are frozen, typically the city will re-assess in the beginning of the year and you have a few months to appeal. If you have escrows a copy of that re-assessment will go to your lender and they will automatically jack your escrows up accordingly. If you file an appeal, your taxes will then usually be assessed at a 70% value for that year, until the appeal is decided. Meanwhile though, your lender will still work on the higher amount until you get them final appeal results. That can typically take months or over a year.

None of this really matters if you are living in the BSF/BKF estate in a lean to on a dirt lot in Trumpville USA, but if you live in a city, there are bigly dollars at stake. I have had my house re-assessed for an increase of over 100K in taxable value. I have friends that have had double that in more gentrifying areas. I didnt have escrows, appealed and won. Once of my buddies got a letter from the lender asking for an extra 4K (he had the option I think of paying that over 3 pmts, but still).

As DC points out, its not a big deal if the market is static, but that is not where we are.
 
Also, if you buy new construction, you can also get fucked, since your escrows will initially be calculated on just the lot value and not the value of your fully built home, although in this case you may get a low tax bill for a year or two before they wise up and re assess.
 
TheTwinAndreBen said:
Also, if you buy new construction, you can also get fucked, since your escrows will initially be calculated on just the lot value and not the value of your fully built home, although in this case you may get a low tax bill for a year or two before they wise up and re assess.
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In North Carolina they'll go after you for back taxes plus interest for the year or two you got by not paying taxes for the improvements, even if it's their error. IOW, it's your responsibility to notify the assessor of the new improvements, even though they should have noticed there was a permit pulled for the work.
 
Same thing happened to me a couple of weeks ago. I called my mortgage lender and they essentially admitted that they have the ability to increase your escrow by X% in the event of tax increases, etc... I explained that my escrow more than accommodated for such increases and they agreed to reduce it accordingly.
 
dot com said:
That's a taxes issue. Escrow just pays your tax bill. You have to address the tax valuation regardless of how your escrow is handled.
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Yeah you are missing the point. If you get a overreaching reassessment, your bank will side with the tax authority, and immediately make you give them more money for them to hold.

Municipalities being what they are, your taxes could be under appeal for months or over a year, and the lender's policy will still be to hold your money until the appeal is resolved. You can characterize that any way you want, but if you dont have a lender escrow account, you dont have that problem. You won't lose the money, but again, if we are talking thousands of dollars I'd rather keep that money in my account, since its mine and all.
 
y'all need to stop worrying about it and come to the CT and learn how much fun having bigger nest eggs can be
 
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