Escrow shortage- help me understand

We got our annual escrow statement, and they will be adjusting our monthly payment nearly $200 a month to cover the "escrow shortage." When analyzing the statement, it looks like the amount we have in escrow is enough to make the required insurance and tax payments, but not enough for their required cushion overage.

I just don't quite understand why this would happen. Our taxes have actually not gone up (knock wood). I think that last year our escrow payment went up a nominal amount, maybe $40, but $200 is a big hit for no apparent reason. What am I missing?

Did your homeowners insurance go up (if paid out of your escrow)? Additionally, they may be assuming that your taxes will go up based on historical increases - give your lender a call and ask - I've done that before and they have been helpful. Good luck!

Brad

This has happened to us a few times and usually the next year it either adjusts down a bit or at least doesn't go up as might be expected based on annual tax increases.

By the way, how did your taxes NOT go up? Property taxes ALWAYS go up every year unless there is a reval and you are in the group that benefits from the resulting redistribution.

@bradg, no, the insurance didn't go up either (at least, not more than a few dollars).

@sac, I don't know, but shhhhhh I'd have to look at the statement again, actually; they may have gone up a little, but I remember thinking "phew!" when I got the bill. I would certainly have noticed a $2k increase in our taxes, which is what the company is projecting the shortage to be.

I would contact the mortgage company/bank to find out why. Sometimes they miscalculate (based on the later quarters of the past tax year being higher than the earlier quarters) and they will re-adjust or explain their calculations better than any of us. I've had to do that in the past as well.

Thanks. I'm looking back through past statements, and we refinanced in 2013 to switch to this lender. I wonder if that's causing the confusion, because the taxes they paid on our behalf in 2014 were about $4k more than they paid in 2013... even though OUR tax bill didn't actually go up that much.

I'll give them a call, just didn't know if there was something obvious I was missing!

Hmm, but I just looked at the mortgage company's schedule of 2015 tax payments, and they have the total right, which shows only a minor increase. So now I really have no idea. I will call

They have a formula which totally benefits the lender and, depending on the timing of the various payments, it can really come out badly. I think that there are some regulations that dictate the maximum that they can require in escrow and they make sure that they take full advantage of it because it is basically an interest-free loan from you to them.

Yes, that seems to be the case. They are requiring $2,100 extra for their "cushion." I guess I just don't understand why this wasn't an issue last year.

My mother, who lives in GA, had the same issue. The lender kept increasing the escrow amount and never gave her a satisfactory answer for why they were doing this. So what she did was uncouple both her insurance and taxes from her mortgage company. Now she goes to Town Hall every quarter and pays her taxes directly to the town.

Often one is not allowed to "uncouple" one's taxes/insurance from one's mortgage. Maybe in GA that's permitted but I don't think that's the case here. A mortgage holder has the right to make sure your taxes are paid so they don't lose a valuable asset due to one's failure to pay the taxes.

We have never paid our taxes as part of our mortgage. I think for the first 3 months, they require it. But after 3 months have elapsed, just tell them you don't want to escrow for taxes. Then you pay the town directly every quarter. The bank should also refund you whatever they have included in escrow so far.

wendy said:

Often one is not allowed to "uncouple" one's taxes/insurance from one's mortgage. Maybe in GA that's permitted but I don't think that's the case here. A mortgage holder has the right to make sure your taxes are paid so they don't lose a valuable asset due to one's failure to pay the taxes.

When I lived in Union County, I used to pay my taxes on my own, not through my mortgage lender.

campbell29 said:

We have never paid our taxes as part of our mortgage. I think for the first 3 months, they require it. But after 3 months have elapsed, just tell them you don't want to escrow for taxes. Then you pay the town directly every quarter. The bank should also refund you whatever they have included in escrow so far.

Good to know. I'll check it out. Thanks.

This just happened to me too. I had to pay an additional $500 in one payment and then an additional $30 per month thereafter. suckage.

This happened to us twice over the past five years. It's steange, but both times they were right. The cushion required really stinks!

I literally was going to post what @wendy said. Ok worth rechecking whether taxes are required based @campbell29 experience. I understood house insurance is required to protect the asset the mortgage backs and ensure its in place, does not lapse. The taxes escrow is the larger portion of money I would want.

truegrid said:

I literally was going to post what @wendy said. Ok worth rechecking whether taxes are required based @campbell29 experience. I understood house insurance is required to protect the asset the mortgage backs and ensure its in place, does not lapse. The taxes escrow is the larger portion of money I would want.

And paying one's taxes also insures that the asset won't be foreclosed for failure to pay taxes. Perhaps the mortgage company as the note holder has the right to get confirmation of all required payments and can step in to protect its asset before things lapse (after a late payment for example). Anyway, I too will re-check as I said.

In my (not so recent) experience, I think we were able to stop escrow when our equity was at least 20%, ie, LTV 80%. In any case, I'm sure we did not have escrows with our 80% loan in SO, starting in 1995.

(And why do I remember this, you ask? Because the ONLY check I ever bounced was our first tax payment to SO. Forgot that Vanguard had a longish waiting period for deposits to become available.... Mortifying.)

I believe the 2100 is double the money that your taxes went up. The first half is for the shortage and the second half is for this coming year. You can also pay it off in one shot. This happens frequently as your taxes rise.

When we bought in WO the mortgage company screwed up my first payment and it caused a little problem. They agreed to let me make the payments and sent me my escrow balance. I've been paying on my own ever since.

Yes, you need to be below 80%. I think our bank actually required it to be 75%. You can never have been late on a mortgage payment, and your credit score must be the same as when you originated the loan.

Our bank had some sort of check list.

Do they give you an option to make a one-time payment to bring the escrows to their desired level? We have always chosen to go that route; it seemed less of a shock to the system somehow, rather than having a regular monthly bill increase so much.

This also happened to me and I was able to decouple mortgage payment and taxes. I now pay taxes directly and it really brought my payments down because I don't have to subsidize the mortgage company's cushion.

My homeowners insurance has never been part of my mortgage payments. Other than showing proof of insurance at the closing, I've always paid my insurance directly to the insurance company.

wendy said:

truegrid said:

I literally was going to post what @wendy said. Ok worth rechecking whether taxes are required based @campbell29 experience. I understood house insurance is required to protect the asset the mortgage backs and ensure its in place, does not lapse. The taxes escrow is the larger portion of money I would want.

And paying one's taxes also insures that the asset won't be foreclosed for failure to pay taxes. Perhaps the mortgage company as the note holder has the right to get confirmation of all required payments and can step in to protect its asset before things lapse (after a late payment for example). Anyway, I too will re-check as I said.

I thought the step after non-payment of taxes was a lein, then a sale of the lein? Who would foreclose for lack of tax payments?

pol100gk said:

This also happened to me and I was able to decouple mortgage payment and taxes. I now pay taxes directly and it really brought my payments down because I don't have to subsidize the mortgage company's cushion.

I'm definitely going to ask about this. Seems like a win-win.

Tarheels,

Is the mortgagee paying you interest on the undistributed escrow monies? If so, is it at a rate you find reasonable for short term deposits?

TomR

Tom_R said:

Tarheels,

Is the mortgagee paying you interest on the undistributed escrow monies? If so, is it at a rate you find reasonable for short term deposits?

TomR

Nope!

Never had interest bearing with any escrow mortgage accounts as well - this is why I find it odd not more regulated/audited around this process.