- The Washington Times - Wednesday, September 10, 2003

Q: My escrow is analyzed every year. The second year, my lender dropped my

payment about $30. This year, my third year into the loan, the lender sent me a letter advising me it had made an error and raised my payment $230 per month. What are the rules governing escrow management?

A: It’s unusual for a mortgage service provider to “miscalculate” the amount needed each month for escrows. It is not unusual, however, for escrows to fluctuate throughout the life of the loan.

Escrows are the funds paid each month by a borrower to cover the lump-sum payments due throughout the year for taxes and hazard insurance.

To protect its secured loan, a lender obviously would want to be assured that the taxes are paid when they are due. If not, the house could be sold to pay taxes, and the lender would be put at risk of losing the collateral for the loan it has provided the homeowner.

Some critics of this system point out that the lenders also are gaining quite a bit of interest money from the funds that are held in escrow throughout the year. Because lenders are not required to pay the borrower any interest earned on the money, they can hold the funds in interest-bearing accounts — obviously making money on the side, but that’s another story.

For your escrow payments to jump so much in one year, it appears the lender is having to do two things at once — making up for the insufficient funds it didn’t collect last year and, more than likely, jacking up the amount to cover the increase in taxes and insurance for this next year.

If you believe the lender is mishandling your escrow funds or collections, you can file a complaint to a couple of groups.

• The Real Estate Settlement Procedures Act (RESPA) is the legislation that regulates the collection and handling of escrow funds. The enforcement of this law falls under the Department of Housing and Urban Development (www.HUD.gov). Go to the site, search for RESPA, and you’ll find all you need to file a complaint there.

• The Mortgage Bankers Association of America established a self-policing arm several years ago. More information on that agency can be found at www.StopMortgageFraud.com.

Keep in mind that even though you file a complaint, the wheels of justice (as well as investigations and enforcement) roll along slowly. The wheels of foreclosure and sales on the courthouse steps move at a much quicker clip. When it comes to your mortgage payments, keep making them even though you may disagree with what’s happening on the lender’s end.

As for fluctuations in your escrow payments: This is normal. The top reason for increasing or decreasing escrow amounts is local taxes. When homeowners are ecstatic about appreciating home values, they tend to forget that they’re going to be bitten by increasing taxes. If the fair market value goes up, so does the tax assessment. If your local jurisdiction doesn’t adjust its tax rate, your bill is about to jump.

That’s what happened to me. My taxes in Fairfax County have increased by about $122 per month.

It’s a hard pill to swallow, and it is a surprise to many new homeowners who bought a house, in part, to get away from rent increases.

Easing the pain: The tax increases are deductible on your federal tax return. Your lender should provide you with a statement at the end of the year, Form 1098, which reports the amount you have paid in real estate taxes.

M. Anthony Carr has covered real estate for more than 15 years. Contact him by e-mail ([email protected]).



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