Escrow accounts and property tax handling
Frequently Asked Questions
Straight answers to the questions we hear most.
An escrow account is held by your mortgage servicer to pay for your property taxes and homeowners insurance on your behalf. You pay a portion of these annual costs with each monthly mortgage payment. The servicer then manages the timely payment of these bills. Your escrow payment is reviewed annually, and your monthly amount may change if your tax or insurance premiums increase or decrease.
While rare, servicer errors can occur. If you receive a late notice or cancellation warning from your tax authority or insurance company, contact your mortgage servicer immediately. They are responsible for making timely payments from your escrow funds. Keep all documentation and follow up in writing. The servicer is typically required to pay any late fees incurred due to their error.
Your primary point of contact is your mortgage servicer, whose contact information is on your monthly mortgage statement. If you are unable to resolve an issue with them (for example, a dispute over a shortage calculation), you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or your state’s banking or financial regulator.
An escrow shortage occurs when there isn’t enough money in the account to cover your tax and insurance bills. This usually happens because one or both of those bills increased. Your lender will typically give you two options: 1) Pay the full shortage amount in a lump sum, or 2) Spread the shortage amount over the next 12 months, which will result in a higher monthly payment.
When you refinance your mortgage, your old loan is paid off and the existing escrow account is closed. The remaining balance in that account will be refunded to you, usually within 30-45 days after the payoff. When you sell your home, the escrow account is closed as part of the settlement process, and any remaining funds are returned to you after the sale is finalized.
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