What Is an Escrow Surplus Refund and How Do You Get It?

An escrow surplus refund represents money returned to a homeowner from their mortgage escrow account. This refund occurs when the funds collected in the account exceed the amount needed to cover property taxes, homeowners insurance, and other designated expenses.

Understanding Escrow Surplus

A mortgage escrow account holds funds collected by a mortgage servicer to pay property-related expenses, primarily property taxes and homeowners insurance. Each month, a portion of the homeowner’s mortgage payment is allocated to this account. The servicer then uses these accumulated funds to pay the respective bills when they become due.

An escrow surplus arises when the account balance exceeds the amount required for anticipated expenses. A common reason for a surplus is an initial overestimation by the mortgage servicer of future tax or insurance costs. Property taxes may decrease due to reassessments, or homeowners might secure lower insurance premiums, leading to more funds being collected than disbursed.

The Escrow Account Analysis

Mortgage servicers conduct an annual escrow analysis to determine the appropriate balance for the upcoming year. This analysis is a regulatory requirement under the Real Estate Settlement Procedures Act, ensuring accounts are balanced. During this process, the servicer compares the actual amounts paid for taxes and insurance over the past year against the amounts collected through monthly contributions.

The analysis projects future costs for the next 12 months, taking into account any known changes in tax rates or insurance premiums. Based on this review, the servicer identifies whether a surplus, shortage, or exact balance exists in the account. Homeowners receive an annual escrow statement detailing the findings of this analysis, including any surplus amount and how it will be handled.

Receiving Your Escrow Surplus Refund

If the annual escrow analysis reveals a surplus, the mortgage servicer is required to refund the excess to the homeowner. For surpluses of $50 or more, servicers are mandated to issue a refund within 30 days of completing the analysis. If the surplus is less than $50, the servicer may either refund the amount or apply it as a credit towards the next year’s escrow payments.

Refunds are issued via a check mailed to the homeowner. Direct deposit may be an option. Smaller surplus amounts might be applied as a credit to future mortgage payments.

Addressing Escrow Shortages

An escrow shortage indicates the account holds less money than needed to cover upcoming property taxes and insurance premiums. This can occur if tax assessments or insurance rates increase unexpectedly.

When a shortage is identified, servicers offer homeowners options to resolve the deficit. Homeowners may pay the shortage as a lump sum to bring the account balance to the required level. Alternatively, the servicer might spread the repayment of the shortage over a period by increasing the monthly escrow portion of the mortgage payment.