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February 20, 2009

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I don't know your exact situation, but I ran into a similar issue with my mortgage. By law banks are allowed to have a 'cushion' in your escrow account. At your lowest level you have to be a certain percentage of your total need above zero.

What does your mortgage contract say about the escrow? Your contract should have details on how the escrow account works.

You may very well be obligated to fund that escrow account above the actual property tax and insurance rate year round in order to give them a safe buffer. Tax and insurance can go up so they don't want the account to fall short if that happens.

If your account seems fully funded right now it could be because your property tax is due soon or something. They probably build up a balance to pay the tax annually rather than monthly. My account pays in about $200+ a month to escrow and then builds up the balance well over $2000 and then in spring the tax comes due and they pay out the whole year at once and the account balance drops down to a much lower level. So right now my escrow balance is getting high.

Jim

Yeah, call back and find someone that knows what is going on. If the next person doesn't know what they are talking about. Ask for a manager.

Another thought I just had. Get rid of your escrow and handle it yourself. They don't give you interest on your escrow amount (at least mine doesn't) and set up an online savings account (that pays interest) with an automatic monthly deposit equal to your escrow amount. Just call up your mortgage company and cancel the escrow. They should write you a check for what is currently in the account. You may need 20% equity in your house to do this though.

I used to work in the mortgage dept of a local bank in escrow servicing (back a bout 25 years ago, mind you). We would escrow 1/12 of what your homeowner's and taxes were per month to build up enough to pay them when they were due. Once a year, we would do an "escrow analysis" and if your taxes/ins went up, so did your payment. The increase would be based on the new amount AND on making up whatever shortage there was from the payment going up. We always had tons of phone calls from pissed off mortgage holders who couldn't understand why their payment went up.

When my husband and I bought a house, I insisted on having no escrow account. We pay the same amount for principal and interest every month. We have a separate savings account where we put X amount of dollars each month to cover our taxes and insurance. We are much happier this way.

Patty

My mortgage with Citibank actually does pay interest on the escrow account. I made 1-2% last year which isn't bad really.

Jim

Hey, all. I'm the fella who has the issue being discussed. Thanks for the thoughtful replies.

1) Reading the relevant portion of the mortgage contract is definitely something I'll do, and should have checked already. I can't help but think, however, that if they could demand a certain amount, they would have done so on the bill. The March bill says to pay the March payment (principle, interest, and monthly escrow) by date certain or else pay $X in penalties. The 'past-due escrow' amount on the bill merely says 'please pay'.

2) I do get interest on the escrow, but I don't know how competitive the rate is.

3) The amount in escrow now plus the monthly payments between now and the due dates for the insurance and property taxes will be more than enough to cover those bills, unless I fail to pay my regular payments between now and then, or unless one of those bills gets significantly larger, which seems like a very remote possibility.

4) I put 22.x% down originally, so I might have 20% equity still, though property values have fallen somewhat around here since August.

5) I do plan on calling back, but I wanted to get a little more informed about the subject, first. Thanks for all the help with that.

My Escrow gets analyzed every September.

When they do they calulated what all my payments will be for the next 12 months, and when the two property tax disbursements and the property tax insurance will be. They then have a minimum amount that the escrow balance can get to which is actually a number that is equal to about 2 months of escrow payments.

So for example if my escrow payment is 300 dollars per month my balance at any given time can never be below 600 dollars even right after all disbursements have been made.

If they determine my balance will be down to for example 360 at sometime in the next year they will call me up and tell me my balance is going to be 240 short and ask if I want to make a supllemental payment of 240. I always say no and then they just add on enough to my payments to make up the difference so my escrow payments go up 20 bucks a month so that by the end of 12 months they will have built up a 600 dollar buffer for the lowest month.

If my property tax or insurance went up they will do another analysis and I will be short again and they will then do the whole process over.

Not sure how your bank handles the short fall but likely the problem you are encoutering is the difference between your lowest month and their guaranteed buffer amount. Someone already suggested this. My bank doesn't make me make it up right away. Not sure if they have to give you the option to add it to your payment like mine does or not. I just know that is how mine handles the shortfall from their guaranteed buffer reserves.

If they require payments that prevent your escrow account from going below 1/6th of your years total bills (usually 2 monthly payments worth) at its lowest point in the year, it is against the law (Real Estate Settlement Procedures Act). This is most likely neglect (not them intentionally wanting more money cushion), but I would think telling a bank you know they are breaking the law may get the issue worked out quicker.

My problem has been solved. I did not pay the 'past due escrow' - instead, the mortgage lender has mailed me a check for the escrow account balance overage. That is, instead of me mailing them a check for the $500 they were asking for they mailed me a check for $450 instead.

Lesson learned: If I had mailed them the money when they first asked for it (last fall) then essentially I would have lost the use of the money for months.

Thanks for all your advice - I appreciate it.

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