I hope this newsletter finds you doing well. For today’s newsletter, I will focus on the importance of your annual mortgage escrow statement.
For those of you who have never had to deal with a mortgage with escrow, a mortgage escrow account is an account that is set up and administered by your mortgage company on your behalf. The account is primarily used to pay for your property taxes and property insurance on your behalf.
With an escrow account, instead of paying your taxes and insurance directly, a portion of your monthly mortgage payment goes into the escrow account and the mortgage company uses these funds to pay for your taxes and insurance.
If your mortgage is federally-related (backed by Fannie Mae, Freddie Mac, Veterans Administration (“VA”), Federal Housing Administration (“FHA”), etc.) and your mortgage company collects for escrow, you have the right to an annual escrow analysis and statement. Your mortgage company will complete the analysis and mail the statement to your address of record, unless you are signed up for electronic statements only. If you are not sure when your mortgage company will be completing the next analysis for your escrow account, I would suggest calling your mortgage company and asking. They should be able to tell you over the phone.
It is really important that you read your annual escrow statement carefully. Remember that your mortgage company is estimating how much will be needed to cover taxes and insurance for that year, so you most likely will not be paying the exact amount into escrow that is needed for your taxes and insurance.
From time to time, your mortgage escrow account can have a “shortage,” meaning that there is not enough in the escrow account to cover the taxes and insurance. Your escrow account could also have an “overage,” meaning that there are additional escrow funds available even after your taxes and insurance are paid.
If you see anything on your annual escrow statement that does not seem correct, call your mortgage company right away. We had a client one time whose mortgage company overestimated how much the taxes and insurance expenses would be and they collected over $6,000 extra for his escrow account. Once the mortgage company realized this, they cut him a check for the overage amount, which was over $6,000.
Another reason to review your escrow statement carefully is to watch out for an escrow shortage. If you end up in an escrow shortage situation, and if it is not rectified promptly, you can end up in default on your mortgage. Keep in mind that failure to pay taxes and insurance is also an event of default under most Florida residential mortgages and can be a basis for your lender to file an action to foreclose on your home.
We could go on and on when it comes to mortgage escrow accounts. For now, CLICK HERE for helpful information on mortgage servicing and mortgage escrow accounts, released by the federal Consumer Financial Protection Bureau. It is a great reference for homeowners.
In our next newsletter, I will offer some helpful tips on how to bring an escrow dispute to a resolution if you do identify an error on your escrow statement and the mortgage company refuses to promptly rectify it for you.
I hope this information has been helpful. I hope you have a wonderful Sunday!
Until next time,
Ryan C. Torrens, Esq.
Consumer litigation attorney