Escrow Shortage?!?

Jecca

We just got our Escrow Analysis and I'm hoping someone can help me understand what's going on. Our account was short $1575. That seems like an enormous amount to me, especially since the last few years it's only been short like $400. Anyway, the only thing that changed from last year to this year is that our homeowners insurance went up by $800. That's a whole separate issue I have to deal with. In the meantime, I can't get anyone to explain to me how an increase in payments due of $800 results in a shortage of $1575. The mortgage company keeps telling me that it's because our homeowners payment is due in December and our taxes are due in February, so by the end of Feb our account will be below the "cushion" amount. Fine. I get that. What I don't get what happened LAST YEAR to get us to the point where we're so short THIS YEAR. Can someone out there explain to me how this works and whether my mortgage company is somehow at fault?

-Jessica.

SaveComment17Like
Comments (17)
Thank you for reporting this comment. Undo
spewey

Your property taxes may have risen as well, contributing to the shortfall.

What happened is that your insurance went up this year, so next year there won't be enough of a cushion to legally meet their escrow requirements next year. Hence, the adjustment.

You can usually pay the shortage up front, or do nothing and pay higher monthly amounts (in addition to the higher amount it is going to go up anyway, in your case $140 or so a month).

1 Like Save    
Thank you for reporting this comment. Undo
Jecca

Thanks for the response. Actually, our property taxes stayed the same. That's why I'm so confused. I could see being short the $800 that our insurance was increased. But even without that increase, we would still have been short almost $800. What happened there? Is my mortgage company somehow to blame for this huge miscalculation?

-Jessica.

Save    
Thank you for reporting this comment. Undo
kathyg_in_mi

Here's how I understand it. Your escrow was short by $800. SO, they have to add in enough of a raise in your escrow payment next year the $800 that it was short (paying off last years shortage).
NOW, since you were short by $800 they must raise your escrow by $800 for the next year so you won't be short by that amount again.
That is why they raise the next 12 payments by the $1,575. BUT remember, once the last years shortage is paid off your escrow payment for the following year should drop by $800 because the shortage has been paid.
It just sounds confusing, but really isn't.
IF you pay last years shortage of $800 your payment would only go up by the future $800. The amount that your insurance went up.
I sure hope you can understand all of this. I remember when it happened to us and I went --- "Say what?"
Good luck, Kathy G in MI

1 Like Save    
Thank you for reporting this comment. Undo
Jecca

I hadn't thought of it that way, Kathy. $800 for last year and $800 for the coming year. Ok, that's reasonable. Still high, but...

I bit the bullet and wrote the check. I'm still mad, but what choice do I have. I checked back on the last two years of escrow shortages (the first year we owned the house we got money back, imagine that!) and they were $400 and $300. And this year it jumped to $1575. Argh!

-Jess.

Save    
Thank you for reporting this comment. Undo
houseful

The same thing happened to us! We had the option of writing the check or doubling the monthly escrow. We opted to double the monthly escrow for a few months. The reason is after paying our mortgage on time every month, they said we could take over our own escrow payments. We had to wait until our anniversary date, but it worked out for us. We now pay $350 less every month, our monthly insurance premium increased but it was minimal, and we have two payments a year for taxes which we can manage by putting some aside each month.

Find out if it is an option for you to take over your own escrow. It's nice having the control and NO surprises!

Save    
Thank you for reporting this comment. Undo
quasifish

We had a shortfall a few years ago and the escrow amount we were charged went up about twice as much as I thought it would. In our case, we were low, but not in the red. The mortgage company required not only the actual increased amount, but also an additional amount to pad escrow and another additional amount as anticipated increases (based on having a big increase one year). The following year, they cut the increase back to half.

Save    
Thank you for reporting this comment. Undo
deblw

hello, I too have this happening now and have looked into it am finding that this is happening everywhere to lots of people. Seems it borders on fraud as new payments are so high people can;t afford to pay and get foreclosed on but some how there are loop holes for mortgage and escrow companies. Biggest thing i have found is a refund check that is sent by escrow company than a new statement showing shortage! Has scam written all over it! Just another way they are legally able to foreclose on home!? I ahve even been told my company will not send written confirmations concerning conversations I have had with mistakes and shortages, will only give verbal confirmation and add to my computer file so i am sending letters of confirmation of phone conversations return receipt. would like to compile all people who are involved in this shortage scam and return of funds check!

Save    
Thank you for reporting this comment. Undo
tanya_malinov_yahoo_com

I have the same thing..i really want to know who is responsible for all this mess i have to go through???? my additional taxation was not disclosed to me and no i have a shortage of $3900 or to loose my home! who is responsible, who can we sue???

Save    
Thank you for reporting this comment. Undo
barbcollins

"my additional taxation was not disclosed to me"

Your county/taxing district doesn't send you an annual property tax bill?

When I get mine I look to see if it has gone up or down, and wait to see what they do to my payment to compensate.
I think I would notice if they under estimated my taxes by over $300/month.

This is the first year I may be happy when I get our tax bills. All of the assessments have dropped, so that taxes should go down.

Save    
Thank you for reporting this comment. Undo
kristyheffren1

I have questions. I have a house that for 2 yrs now I have had escrow shortages. Last yr I paid monthly the extr to pay it off. But this yr I am told I have. $2,000 escrow shortage. I changed to a diff ins comp which,was more expensive so I talked,to them and got my insurance cost down by $700 some dollars a yr. When I get my refund back I will apply it to escrow only. But I am just curious,if that will tale,care of my shortage. My mortgage comp said that my cushion is 2 months house note plus 2 months insur cost and that is part,of the,reason for shortage. I just think that cushion is ridiculous. I don' t know what to do. My husband left me and sent me divorce pgs. So I getting the home ready to sell and it only in my name. Any ideas on the,crazy shortage amt and if I make,money when I sell the home is it taxes or do I get to keep it. I have had my home and loved in it for 3 yrs and 3 months. Please let me know. Thanks.

Save    
Thank you for reporting this comment. Undo
steve_o

kristyheffren1, it's hard to say if an undefined amount of tax return will reduce a balance that is (unknown amount of mortgage) x 2 plus (unknown amount of insurance costs) x 2. But that's just math.

You really need more help than an Internet forum can offer. Call your lender and telling them what's going on -- especially if your husband's name is on the mortgage. In the house or not, he still is responsible for loans he has signed on to, either individually or with you. Your lender can offer to adjust your mortgage payment, tell you what your options are for the future, etc. They also can provide numbers like current escrow balances, payoff figures, and so on.

1 Like Save    
Thank you for reporting this comment. Undo
josephene_gw

We had escrow shortages too because Wells Fargo was paying our property taxes twice in one year. Their mistake but we paid for it. This happened twice.

lucky we were able to pay off the mortgage and get rid of Wells Fargo before they made a bigger mistake

1 Like Save    
Thank you for reporting this comment. Undo
sheltimom3

I'm in the same boat U R! $2000 escrow shortage and don't know why! Could a real estate Lawyer help or just $ down the drain? New payment is $200 higher!!

Save    
Thank you for reporting this comment. Undo
bry911

I'm in the same boat U R! $2000 escrow shortage and don't know why! Could a real estate Lawyer help or just $ down the drain? New payment is $200 higher!!

First, a real estate lawyer is probably a great way to turn a $2,000 escrow shortage into a $2,000 escrow shortage and a $450 lawyer bill.

You need to find out why you were short. In the end, escrows are pretty simple and the report should be easy to read. Your escrow account pays for certain things authorized by you in closing. The two most popular things are (1) property taxes and (2) insurance, but some banks will add HOA fees to the list.

You will get a statement from the bank that shows the demands made on the escrow account and the payments into the account. If both of these are correct and there isn't an overpayment, then you owe the higher amount.

As mentioned above, many times the shortage gets doubled in the year following the shortage as they have to make up the shortage from the previous year and prepare for the higher bill the next year.

There are often hiccups in the first few years as timing differences get sorted out. Often the property taxes have weird due dates but these typically stabilize in year 3. After that check your property insurance and tax rate to see if there has been an adjustment.


Save    
Thank you for reporting this comment. Undo
Randy Gillard

I thought that the mortage payment was for the insurance,taxes and house payments, why would I need a escrow account if that was the truth?


Save    
Thank you for reporting this comment. Undo
maifleur01

Randy Gillard it might have been better to start a new thread rather than adding onto one from several years earlier when you start another one.

The escrow account is the one that part of your house payment goes into for insurance and taxes each time there is a payment. It is setup so that buyers do not have to save on their own for large payment for those things and the mortgage company knows that there is funds for those things and that they are being paid.

Save    
Thank you for reporting this comment. Undo
Bruce in Northern Virginia

Mortgage payment = Principal, Interest, Taxes, Insurance (PITI).

- Principal and interest are based on the loan agreement.
- The estimated amount for taxes and insurance are what goes into the escrow account. It is always estimated up front, and adjusted as taxes and insurance go up. Escrow account funds build as you make PITI payments, and then it is "spent" out of the escrow account when tax and insurance payments are due.

For most loans there are regulations that cover how much "cushion" they can maintain for future tax and insurance payments, which prevents them from building up and holding a large amount in your escrow account. This is a link to the federal regulations. https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1024/17/

It would be a waste of money to hire a lawyer to complain about an escrow account, unless you have actually identified something illegal.

Bruce

1 Like Save    
Browse Gardening and Landscaping Stories on Houzz See all Stories
Life 12 House-Hunting Tips to Help You Make the Right Choice
Stay organized and focused on your quest for a new home, to make the search easier and avoid surprises later
Full Story