Can You Request an Escrow Analysis at Any Time?
Understand your rights to request an escrow analysis for your mortgage, ensuring proper management of your property tax and insurance funds.
An escrow account, in the context of a mortgage, is a dedicated holding account managed by your mortgage servicer. This account collects a portion of your monthly mortgage payment to cover anticipated property taxes and homeowner’s insurance premiums. The primary purpose of an escrow account is to ensure that these significant property-related expenses are paid on time, protecting both the homeowner and the lender. An escrow analysis is a periodic review of this account by your mortgage servicer to determine if the amount collected is appropriate for covering these future disbursements.
When Escrow Analyses Occur
Mortgage servicers are generally required to conduct an escrow account analysis at least once a year. This annual review, mandated by federal law under the Real Estate Settlement Procedures Act (RESPA), helps ensure the account has sufficient funds to cover upcoming obligations. The servicer must provide an annual escrow account statement within 30 days of the completion of the computation year, detailing the account’s history and projecting future activity.
Homeowners can also request an additional escrow analysis outside of this annual review. While not legally obligated to perform an unscheduled analysis, most servicers will conduct one if there’s a reasonable basis, such as a significant change in property expenses. If you request an analysis, it is advisable to follow up to ensure it is completed in a timely manner.
Why You Might Need an Escrow Analysis
Several situations might prompt a homeowner to consider requesting an escrow analysis. A common reason is a substantial change in property tax assessments, whether an increase or decrease. Similarly, changes in homeowner’s insurance premiums can impact the required escrow balance.
Property reassessments or re-evaluations by local authorities can also lead to changes in tax obligations, necessitating an escrow adjustment. Unexpected increases in your monthly mortgage payment, especially those unrelated to interest rate adjustments, often signal an underlying adjustment in your escrow portion. If you suspect an error in how your escrow account is being managed or if you believe the projections for future expenses are inaccurate, requesting an analysis can help clarify the situation.
How an Escrow Analysis Works
During an escrow analysis, the mortgage servicer reviews the past 12 months of activity within your escrow account. This includes examining the funds you paid into the account and all disbursements made from it for property taxes and insurance premiums. The servicer then projects the anticipated expenses for the next 12 months based on these historical figures and any known changes in tax rates or insurance costs.
Based on these projections, the servicer calculates the monthly payment needed for the upcoming year to cover these expenses. Federal regulations allow servicers to maintain a “cushion” or reserve amount in the escrow account, typically up to two months of estimated escrow disbursements. This cushion helps cover unexpected increases or timing differences in payments, ensuring funds are always available when taxes and insurance are due.
Understanding the Outcome and Your Options
The outcome of an escrow analysis can result in a surplus, shortage, or deficiency. An “escrow surplus” occurs when there is more money in the account than needed to cover projected expenses and the allowed cushion. If the surplus is $50 or more, federal law requires the servicer to refund this amount to you within 30 days of the analysis, provided your mortgage payments are current. For surpluses less than $50, the servicer may choose to refund it or apply it as a credit towards your next year’s escrow payments.
Conversely, an “escrow shortage” means the account has a positive balance but is insufficient to meet the estimated future tax and insurance payments and maintain the required cushion. An “escrow deficiency” indicates a negative balance in the account, meaning the servicer advanced funds to cover past disbursements. To address a shortage or deficiency, servicers typically offer options such as increasing your monthly payments over at least a 12-month period, or allowing a lump-sum payment to cover the amount. Carefully reviewing the annual escrow statement and contacting your servicer with any questions or concerns is advisable.