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What Is A Lender Escrow Account?
Question: What is a lender's escrow account?
Answer: When homes are bought with 80 percent or more financing from a single lender, the lender generally requires the borrower to make monthly payments to a lender "escrow" (trust) account. The purpose of the lender escrow account is to accumulate money to assure that the borrower's property taxes and property insurance are paid (and thus reduce the lender's risk). Lenders typically collect 1/12th of the annual costs for property insurance and taxes each month. They are allowed to keep as much as one full year's worth of tax and insurance payments in the account, plus a two-month safety margin, plus $50. The only time the account is likely to have 12 monthly payments plus the two-month cushion is just before property taxes or insurance are due. Lenders must account to borrowers annually with a statement showing how much is in the account, whether monthly payments will rise or fall in the coming year, and whether any surplus or shortage appears in the account. If the surplus is more than $50, the excess must be returned to the borrower. Note that some states require lenders to pay interest on escrow accounts, others do not.
© 1998 Peter G. Miller. All Rights Reserved.
Written by Peter G. Miller.
© 1997 Peter G. Miller. All Rights Reserved. Rules, Disclaimers & Notices.
Copyright © 2012 Realty Times. All Rights Reserved.
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