Dear Mr. Azrael:
I would like to know if there is any way that I can take over and manage my own escrow account. (My lender) recently did not pay my town taxes, and I have gone through a lot of hassle trying to rectify this problem. I would like to know what the rights of a consumer are when the mortgage company is not handling an escrow account properly.
Barbara E. Snyder
Dear Ms. Snyder:
Many mortgage lenders require the borrower to maintain an escrow account to pay real estate taxes and property insurance. The monthly mortgage payment includes an extra amount, approximating one-twelfth of the annual tax bill and insurance premium. When these bills come due, they are sent to the lender (either directly or by the borrower) and paid by the lender from the escrow account.
Occasionally, problems occur in the lender's paying real estate taxes and insurance. For instance, there may not be enough money in the escrow account because the monthly payments have been underestimated; or because the borrower fell behind in the rnortgage payments; or, the lender, through administrative error, failed to pay the real estate tax or insurance bill on time.
When Taxes or insurance are not paid because of a lender (mistake), the lender clearly is responsible to correct matters at its expense. The lender should bear penalities or interest charged by the taxing authority, if the escrow account had sufficient funds to pay the taxes on time.
When the lender handles the escrow account improperly, the borrower should register a detailed complaint in writing to the lender, and request a written reply.
Some borrowers prefer to pay their real estate taxes and property insurance directly. Many lenders recognize this preference, and offer mortage loans that do not require an escrow account. Instead the lender has the right to requirethe borrower to supply evidence each year that real estate taxes and insurance have been paid on time.
You should contact your lender and find out it it will change the terms of your loan to a "no escrow" loan. There's no legal obligation on the lender to agree.
If your current lender insists on keeping the escrow requirement, your alternative is to refinance your mortage through a "no escrow" loan program.
However, since refinancing will involve additional costs and lees, and may cause you to pay a higher interest rate, you should carefully consider whether refinancing makes sense in your particular situation.