Why Did My Mortgage Company Send Me a Check?

Receiving an unexpected check from your mortgage company can raise questions about its purpose. These disbursements are usually legitimate and result from financial adjustments or transactions related to your mortgage account. Understanding the common scenarios that lead to these checks can help clarify their origin and allow you to manage the funds appropriately.

Escrow Account Overages

One common reason for receiving a check from your mortgage company relates to your escrow account. An escrow account is a dedicated account managed by your mortgage servicer that holds funds for specific property-related expenses, primarily property taxes and homeowners’ insurance premiums. Each month, a portion of your mortgage payment is deposited into this account to accumulate the necessary funds to cover these larger, less frequent bills when they become due.

Overages in an escrow account can occur for several reasons, such as a decrease in your property tax assessment or a reduction in your homeowners’ insurance premium. Initial estimations when the account was set up might also have been higher than actual costs, leading to a surplus.

Federal regulations, specifically the Real Estate Settlement Procedures Act (RESPA), require mortgage servicers to conduct an annual analysis of your escrow account. If this analysis reveals a surplus of $50 or more, the servicer must refund that amount within 30 days. If the overage is less than $50, the servicer has the option to either refund it or apply it as a credit towards your next year’s escrow payments, provided your account is current.

Refinancing and Loan Payoffs

Checks from your mortgage company can also arise from refinancing your home loan or fully paying off your mortgage. When you undertake a cash-out refinance, you secure a new mortgage for an amount greater than your existing loan balance. The difference between the new loan amount and the amount needed to pay off your old mortgage is then returned to you as cash.

This cash-out portion is disbursed by the title company after closing, as a check or wire transfer. Alternatively, a check might represent an overpayment made when your mortgage loan is completely paid off. This can happen through the sale of the property, a refinance, or through accelerated extra payments.

Final payoff calculations can result in a slight surplus due to miscalculated interest or unapplied fees. In such instances, the mortgage company must refund any remaining balance in your escrow account or any overpaid principal within a specific timeframe after the loan is paid in full.

Insurance Claim Disbursements

Another scenario where a mortgage company might send you a check involves property damage insurance claims. If your home sustains damage from a covered event, such as a fire or natural disaster, and you file an insurance claim, the check is often made out to both you and your mortgage lender.

This is because the mortgage company holds a financial interest in your property as the lienholder and wants to ensure that the funds are used for necessary repairs to protect the home’s value. Upon receiving the insurance check, you must endorse it and send it to your mortgage company.

The lender may then hold these funds in an escrow or loss draft account, releasing them in stages as repairs are completed and verified. This process involves the mortgage company requiring inspections or proof of completed work before disbursing subsequent portions of the funds. These disbursements are specifically intended for restoring the property to its pre-loss condition.

Verifying the Check and Next Steps

Upon receiving a check from your mortgage company, it is prudent to verify its legitimacy and purpose before taking any action. Begin by carefully examining any accompanying letter, statement, or documentation that explains why the check was issued. This information should provide clarity regarding the source of the funds.

If the reason for the check remains unclear or if you have any suspicions, contact your mortgage company directly. Always use official contact information found on their website or a recent mortgage statement, rather than any phone numbers or websites printed solely on the check itself, to avoid potential fraud. It is advisable to avoid cashing or depositing the check until you have a complete understanding and verification of its purpose.

Regarding potential tax implications, funds from a cash-out refinance are considered loan proceeds and are not taxable income. However, if an escrow refund is related to property taxes that you previously deducted, you might need to adjust your tax deductions or include a portion of the refund as income. Maintaining thorough records of the check and all related communications is also a good practice for your financial documentation.