What Happens to Your Escrow Account When Your Mortgage Servicer Changes

If you have a mortgage, you probably pay more than just the loan itself each month. That extra money goes into an escrow account, which your lender uses to pay your property taxes and homeowners insurance when they come due. Now imagine you get a letter in the mail saying your mortgage company is handing your loan off to a different company. The new company will be collecting your payments and handling your escrow account from now on. This is called a mortgage servicer transfer. It happens all the time, and for most homeowners it goes smoothly. But your escrow account is where your tax and insurance money sits, so it is natural to wonder what happens to that money when the transfer occurs. The short answer is that the money should follow your loan, but there are a few things you should watch for to make sure nothing gets lost or delayed.

When your current mortgage servicer transfers your loan to a new one, they are required by law to send the new company all the money in your escrow account. This includes the balance you have built up from your monthly payments plus any extra cushion your old servicer may have required. The transfer usually happens automatically through an electronic system, and the new servicer will record the amount they received. You should receive a statement from your old servicer within sixty days of the transfer showing the final balance of your escrow account. You will also receive a welcome letter from the new servicer that should include the amount they received and what your new monthly payment will be. It is a good idea to compare those numbers to make sure they match. If the new servicer says they only got part of the money, or if the balance is lower than what you expected, you need to call both companies right away.

One common trouble spot is timing. Your old servicer may have already paid your property taxes or homeowners insurance just before the transfer took place. In that case, your escrow account might be low or even negative. The new servicer will see that balance and may ask you to make up the difference. But you should not panic. You have the right to ask for proof that the payments were made. Get a copy of the paid receipts from your old servicer or from the tax collector and insurance company. Then show those documents to the new servicer so they can update your escrow balance accordingly. On the other hand, if your old servicer had not yet made those payments, the money will still be in the account, and the new servicer will be responsible for paying them when they come due. They will schedule those payments based on the same calendar your old servicer used.

Another thing to keep an eye on is the escrow analysis. Your old servicer did an escrow analysis once a year to figure out if you were paying enough each month to cover your taxes and insurance. The new servicer will also do an analysis within a few months of taking over your loan. They may come up with a different number. If the new servicer says you need to pay more each month, ask them to show you the breakdown. Sometimes the change is because your property taxes or insurance premiums went up, not because the new servicer made a mistake. But if the analysis seems off, you can request a copy of the old servicer’s last analysis and compare. The government requires mortgage servicers to handle escrow accounts fairly, and you have the right to dispute any errors.

One more point: your monthly payment might change slightly after the transfer. That is because the new servicer may calculate your escrow portion a little differently, or they may require a different cushion. The cushion is a small extra amount that servicers are allowed to keep in your escrow account to cover unexpected increases in taxes or insurance. Federal rules limit the cushion to no more than one sixth of the total annual payments you make into escrow. If your new servicer tries to require a bigger cushion than that, they are not allowed to, and you should let them know.

Finally, keep your own records. Write down the date you received the transfer notice, the date your first payment is due to the new servicer, and the address where you need to send payments. Make sure you continue making your mortgage payments on time during the transfer, even if you are unsure which company to pay. Your old servicer should give you at least sixty days notice before the transfer takes place, and your new servicer must accept any payment you send to your old servicer during that period without charging a late fee. Once the transfer is complete, always pay the new servicer. If you are ever in doubt, call the customer service number on your latest statement.

Mortgage servicer transfers can feel confusing, but the money in your escrow account is yours and it will follow your loan to the new company. Just be patient, check your statements, and don’t be afraid to ask questions. A little attention now can save you headaches later when tax time or insurance renewal rolls around.