A common feature of many mortgage loans is the escrow account. This is money held by your lender for the purpose of paying the periodic bills for real estate taxes and/or homeowners insurance. Unlike utilities or groceries, the bill for taxes or insurance come only a couple of times a year. Since these bills can be difficult to budget, a lender will establish a savings account to hold monthly contributions from you, building a fund that will be available for the bill when it comes. The escrow account may be optional with the lender, but it certainly helps with the monthly budget.
For example, your mortgage payment of principal and interest may be $1,500 a month. You may also deposit an additional $500.00 into the escrow account every month. This translates to $6,000 a year into the account. Your real estate tax might be $4,750 a year payable in two installments of $2,375 and your homeowners insurance might be an additional $1,250 a year payable in one big bill. The money will be in the escrow account to pay the bills when they come due.
Under federal regulations — Real Estate Settlement Procedures Act (RESPA) — the lender holding your escrow account has to send you an accounting once a year explaining what they thought was going to be paid out of the account, what they actually paid out of the account, and what they predict will be due to be paid out of your account next year. This occurs on the anniversary date of your loan. The accounting will show the monthly deposits into the account and the periodic disbursements out of the account. It is important to review this statement when you get it to make sure you understand where your money is going. From there, you can check with your town’s tax collector or your insurance company to see if the bill that was paid is correct.
So what can you do when the escrow account is mishandled? And what can you do if the mortgage company doesn’t pay your taxes on time or the insurance company cancels your insurance for non-payment?
Contact Your Lender
Although the temptation to make a telephone call is great, you should always communicate in writing. You might start with a simple phone call to get basic information, but a letter sent in the mail or by fax creates a record and evidence in case a complaint is required later. Keep copies of everything you write. You can find a sample letter form on the HUD website. If you have suffered any damage as the result of the lender not paying a bill out the escrow, you can recover your actual damages. The lender should pay late fees and other costs for their failure.
Follow Up By Filing an Agency Complaint
A number of government agencies have jurisdiction over the problem. Check the HUD website to see where a Federal complaint can be filed, as well as state and local agencies.
File a Formal Mortgage Complaint
The Consumer Finance Protection Bureau (CFPB) allows you to file a formal mortgage complaint online.
If All Else Fails, See a Lawyer
RESPA provides that you can recover your damages and attorneys fees and costs in a private lawsuit for a violation. HUD has a page set up to answer to common questions, if you want to read more.
Unpaid real estate taxes can potentially damage your credit. That’s why it’s always crucial to follow up to ensure they’ve been paid, and to check your credit reports for listings related to unpaid taxes. You can see your free annual credit reports from each of the three major credit reporting agencies. You can also obtain a free credit report summary, updated every 14 days, on Credit.com.
More on Mortgages & Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Get a Loan Fully Approved
- How to Search for Your Next Home