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Escrow shortage?

I just received a letter from my mortgage company stating that my escrow was short and I owed them 400+ dollars. This is my third home and the first time this has occurred. I understand this is 'common practice', but this also seems very fishy. How easy is it to have a home owner refinance at a low rate and then ask for escrow later (6 months in my case). Could someone shed some light on this? I hope I'm missing something and I don't have a shady mortgage company!
  • August 06 2013 - Columbus
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Answers (13)

Profile picture for wetdawgs
@Arlene Kuck Gail Strube:

When one is looking at mortgage payments, it is useful to mentally break the monthly payment into two categories.     One is the principal/interest payments (the true mortgage) and the other is the property tax./ insurance escrow.    If the principal plus interest payments decreased from your previous  mortgage, your refinance was to your benefit.      You should know what your tax payments and insurance payments are, so you can calculate an estimate of escrow.    Escrow is collected so that there is enough in the escrow account to pay these bills when they come due.    The problem with this approach is predicting the bill requires a bit of crystal ball, and usually the the predictions are a bit off.  Sometimes that is a bit off so you are owed money, and sometimes a bit off so you owe them money to make up a shortage in escrow.     It is normal for escrow payments to increase annually as taxes and insurance go up annually.     

They would be breaking all sorts of laws if they were stealing from your escrow.  You should be able to receive an accounting of the escrow

  • January 03
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I have had a mortgage with the same company for six years.  There were no problems until this year.  Perhaps this was caused by my refinancing last year when I was drawn in by the no-closing-cost, lower interest rate deal.  In October they readjusted the monthly payment by $46.62, with an escrow shortage of $385.70.  Yes, property taxes went up $245.76 or $20.48 per month.  One month later, another adjusted was made, to the tune of an additional $45.11 per month, with an escrow shortage of $681.24. How can there be an additional escrow shortage of $295.54 in one month?  This raises my mortgage payment over $93 a month.  I have called the lender but receive canned nonsensical responses, never receiving an answer to my questions.  Are they attempting to make up the closing costs by overcharging $435.48 in additional escrow.  I fully understand that changes in hazard insurance and/or property taxes would change the bottom line.  However, these arbitrary costs are unsettling, particularly when the mortgage payment is nearly back to the amount I was paying before refinancing.  Where does the additional escrow charges go?  Is there any recourse?
  • January 03
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Terri, you are referring to honest calculations/adjustments, the post before mine sounds intentional to make their loan offer the cheapest, very different scenarios.

The poster stated: I would like to add that there were no changes to my taxes or insurance payments so this was incompetence or intentional by the Originator AND Closer.
  • February 12 2014
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Profile picture for TerriCollins
I have had it happen numerous times as the lender is making adjustments - whether it be to reduce my payment because of an overage in the escrow account, or increase my payment or ask for a lump sum to bump the escrow account. They ask for more when they didn't figure enough "cushion" to begin with, or costs of taxes and insurance increase beyond what they are collecting.
Not fishy - the money is always yours in either case, and being held in trust for you.
Hopefully they won't need to do it again!
  • February 12 2014
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User 9740510, that is unfortunate. I have seen a few competitor's GFE's using 2 months taxes and 2 months insurance on refinance quotes, that is a tell that they either don't know what they are doing or are intentionally underestimating. The really sad part is that a Closer for the Lender funding the loan didn't catch it or also allowed it to Close. If the monthly tax and insurance payments were correct and your PITI payment is correct, but the escrow acct is underfunded, did you receive a large refund from the last Lender that you can forward to the new Lender?     
  • February 12 2014
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Profile picture for user9740510
This has happened to me twice, I believe it is common practice to underestimate escrow as to make a refi more appealing. In my example refinancing my home would lower my payment $170.00 and get locked in to a 3.25 fixed rate. the lower payment is what enticed me to go ahead with the refinance. Now comes the shortage and as usual the payment goes up and it is explained as a simple miss calculation or under estimation of the escrow account, I believe this to be true but deliberate. I would not have refinanced to lower my payment only $80.00 a month. point blank the mortgage company is playing dumb and could have calculated escrow from reviewing the previous escrow account. I would like to add that there were no changes to my taxes or insurance payments, just a blatant scam to get my business.They should know that this is a blow to your finances and should try harder to to satisfy there customers. Or at least be concerned not to be labeled as a bait and switch company. I think this practice should be criminal !!!!!!! 
  • February 12 2014
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I'd like to add, that if you haven't paid the shortage be very careful. Your current mortgage servicer may report your mortgage as late for as long as you keep an unpaid escrow balance. I know you posted that you're going to call your mtg servicer, I thought I might add this tidbit so you can ask the question. Best wishes, Kim Lawson
  • August 07 2013
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It doesn't seem fishy.  It happens when taxes change.  I have a mortgage on a property and every year they adjust the escrow and either send me a refund or increase it. They should give you the option to make a lump sum payment or spread it out over the next year's payments.
  • August 07 2013
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You need to talk to your loan officer and ask questions.

They should be able to explain everything.
  • August 07 2013
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Profile picture for user5951097
Everyone, 

Thanks for the responses and good advice! I'll follow up with my mortgage company about this matter.

I'm not sure if my wording was confusing, but I refinanced about 6 months ago, if that's any consolation. 

Robert
  • August 07 2013
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Nothing fishy. Either was a data entry mistake on closing docs or your taxes/ins increased. 
  • August 06 2013
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Also new tax levies that are passed will affect your bi-annual property taxes. That would affect your payment and affect the balance in your escrow account. For example, they pay taxes in June/July then notice the escrow account doesn't have enough money. They paid the amount but now you owe them.  Otherwise, I'm a bit confused.  You asked if you can set up an escrow account after closing yet sounds like you already have an escrow account if the escrow fund was short. Only other thing I could think of is:  you called your current mortgage servicer after closing and you asked to set up an escrow account. They maybe set it up but didn't ask you for the reserves (2 month cushion for each HOI & taxes). Then they sent you a notice letting you know your escrow was short. Just some thoughts but it's too hard to know what actually happened. Sounds like you need to call your current mortgage servicer and just ask what is this for and why. Best of luck, Kim Lawson, Licensed in Ohio only, Mortgage Loan Originator. Contact and licensing information can be found on my profile.
  • August 06 2013
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Two things may have occured. either the initial escrow account was not setup with enough funds or your taxes and/or home owners insurance premium went up and the escrow company was never updated.

  • August 06 2013
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