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Mistake with Escrow!


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Washington Mutual made a major mistake in estimating my taxes/escrow last year and its costing me an extra $450.00 for their dumb mistake!

I understand that its impossible to guess what the amounts going to be but why tell us that the amount they stated was going to be enough?

I told them if they can not do anything about it I'll make sure that I spread the word about how they screwd up via email and a magnetic sign on my car saying,"DO NOT USE WASHINGTON MUTUAL BANKS,ASK ME WHY"

Is there anything I can do about it?

If theres nothing I can do about it I'll make sure I get my monies worth!

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Doggone if this very issue did not come up with a new client yesterday. Very same story with the lender I had mentioned in the earlier post.

RESPA Section 10 is all about the handling of escrow accounts, and a quick read, only states that the lender/servicer must disclose annually your anticipated escrow balances, and the minimum balance may not exceed more than two months of escrow payments. This is the statement that you probably just received.

You do have a couple of options though, and maybe one RESPA violation (if applicable).

1) You can pay off the escrow shortage in one lump sum and reduce your monthly payment by the amount of being deducted for escrow shortage. From your explanation, this would involve a separate payment to your escrow account of about $3,600.00. If you take this action, be sure to indicate on the check that this is to be applied to your escrow account, otherwise the payment may go into your regular mortgage.

2) It may be possible (at lender discretion), that they can stretch your escrow defiency for more than one year (maybe a two year repayment plan), or you could possibly negotiate with the lender that they waive the two month cushion, which they are allowed to have by RESPA law (this would lower the escrow portion by about $50.00/ month). Again, this is lender discretion only.

Also at lender discretion, you may be able to eliminate the escrow account (as liverichly indicated), but you would also have to pay back the escrow defiency at that time, or they most likely would hold your mortgage payments in a suspense account, whidh would cause mortgage lates, and more problems than you would like to imagine.

Finally, there could be the possibility of a RESPA violation, if the lender did not provide you with an escrow account disclosure within forty five days of closing. Most of the time, this disclosure is provided to you at closing, but by law, the lender must provide the disclosure within forty five days. This disclosure should have been read, and everything could have been worked out at that time.

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I hope this helps.

courtesy fanniemae

Figuring Escrow Accounts:

How do I figure how much money the lender is allowed to require in my escrow account?

HUD cannot figure out your own escrow account cushion and payments. Please use the following steps and example to help you estimate the amount of money you may be required to put into your own escrow account, either a new or existing account, under aggregate accounting:

1. List all the payment amounts for items that will be paid out of your escrow account, and when paid, for the next 12 months (e.g., taxes- $1200 -- $500 paid July 25 and $700 paid December 10; hazard insurance -- $360 paid September 20).

[if you have a payment like flood insurance, which is paid every 3 years, you must project a trial balance over that 3-year period.]

2. Divide this total amount by 12 monthly payments ($1560 divided by 12 = $130).

3. Create a trial running balance for the next 12 months listing all payments to the escrow account and all payments out of the account, when these items are paid.

4. Increase all the monthly balances to bring the lowest point in the account (December -$780) up to 0.

Month----Pay to Escrow-----Disbursement------Trial Bal---Balance

June------paid at closing--------0------------------780---------780

July-----------130---------------500 (taxes)-------370---------410





December----130--------------700* (taxes)-------(-780)-----* 0

January------ 130----------------0------------------(-650)----- 130


March---------130-----------------0----------------- (-390)------390




The above illustration would be a perfect world scenario to the consumer, however, the balance column shows the actual balance would be a perfect world situation (the withholding amounts equal the actual disbursements). If you look at the trial balance column, you will notice that the actual balance in the account goes to a negative amount once the July installment of property taxes are paid. Therefore to properly figure what is needed in the escrow account must be figured in a way so that there is no interim minimum balance.

Federal law has establihed that the lender may cushion the amount of the minimum escrow balance to two months additional reserves.

Add any cushion your lender requires to the monthly balances. The cushion may be a maximum of 1/6 of the total escrow charges (1/6 of $1560 = $260). Therefore, your actual escrow account statement should look a little more like this:

Month Pay to Escrow Disbursement Trial Bal Balance

June-----paid at closing---------0-----------------1040--------1040

July-----------130--------------500 (taxes)--------670----------670


September---130--------------360 (insurance)---570----------570



December---130--------------700 (taxes)-------* 260---------260

* Reflects the minimum allowable escrow balance allowed by law.




April----------130--------------- 0------------------780----------780



In this example, $1040 is the maximum amount the lender should require in the account. The account should fall to the cushion at least once during the year. In this example, it is in December ($260).

New Accounts -- In this example, if you settled May 15, and the first payment was due in July, $1040 would be the maximum amount you should be required to place in an escrow account. If your lender requires less than the maximum cushion, the amount would be less.

Existing Aggregate Accounts -- In this example, during escrow analysis, the lender would compare the required amount of $1040 to the actual balance in your account in June. For example:

If your balance is $1076, there is a surplus of $36. Your lender may choose to apply any surplus less than $50 to future payments, reducing your monthly escrow payment to $127, or may choose to return the surplus to you.

If your balance is $1090, there is a surplus of $50. The lender must return any surplus of $50 or more to you within 30 days of the analysis.

If your balance was $940, there is a shortage of $100. This amount is less than one month's escrow payment and the lender may ask you to pay this amount within 30 day or may spread it out over a year.

If your balance was $800, there is a shortage of $240. The lender must spread the collection over at least 12 months. If the lender spreads the shortage over 12 months, your monthly escrow payment would increase to $150.

If you have a deficiency in your account (where the lender has to use his own funds to pay a bill), you may have to reimburse the lender sooner than over 12 months. If the deficiency is less than one monthly escrow payment, you may have to repay the lender in 30 days. If the deficiency is more than or equal to one monthly escrow payment, the lender may require you to repay the amount over 2-12 months.

It is important to the homeowner that they keep track of what the proper amounts of escrows are required. It is also required by law that the mortgage servicer send you an annual statement of your escrow account history for the previous year, and estimated expenditures for the following year. For the majority of homeowners, this will only include your property taxes and homeowners insurance. If your property taxes or homeowners insurance rise significantly during the course of the year, prepare yourself for the adjustment to your escrow account.

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