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Escrow Shortage Spread issues.

Hi
My mortgage went way up because of my Escrow.
recently my loan was sold to a different bank.
my Mortgage was $917.77 and Escrow $184.89, Total= [b:18ffaae508]$1,102.66 [/b:18ffaae508]
I just got a Annual Escrow Account Disclosure Statement saying
that my principal is $917.77 and my Escrow is $247.40 and also
a SHORTAGE SPREAD of $93.77 for the total of [b:18ffaae508]1,258.94 [/b:18ffaae508]
Can I Please get a Explanation on this matter.

Thank You.
Oscar. :(

executivemortgageadvisor's picture
executivemortga... | Joined: March 16, 2008 11:00 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Your payment amount may have increased due to property tax and/or insurance premium increases. Each year you will be provided with an Annual Escrow Account Disclosure Statement which shows projected escrow activity and can be used to compare your bills from one year to the next. An increase in one or more of your bills will result in an escrow shortage and consequently increase your monthly escrow payment to make up that shortage by the time the bills are owed.

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Oelvis,

Welcome to the forum.

I have to agree with the above poster that your monthly payments have increased because taxes and the insurance premiums have increased. You can only avoid it if you can make a lump some payment at a time but I think there is no meaning to make a lump some amount and delaying the inevitable.

Best of luck,
Larry

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

oelvis, you can certainly check in with your town's tax department to determine just what has happened with your real estate taxes - the likey culprit here. hazard insurance may change upward at times, but to cause such a shortage as you noted would be quite surprising.

you should be able to get further clarification from the servicing department of your lender as well.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my taxes and insurance are paid up to date my escrow is short 90.00 monthly because according to my mortgage company I have to maintain one year of taxes and insurance in advance in my escrow account even though the payment there taking out equals the principal,interest, taxes and insurance i refered them to the RESPA act. I thought there allowed a cushion in the amount of 1/6th your yearly payment, which in my case would be 1,800 yearly for taxes,insurance and principal that would equal a cushion of 300.00 there allowed to have over and above the 1,800 for escrow with 250.00 being refunded back to me at years end am I right! please hep.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I, have rental properties and i allowed my insurance to lapse. The mortgage company saw this and purchased insurance for me at a cost of triple the value of the home they said they could do this per the mortgage agreement is this legal. I have a 60 thousand dollar home and I have insurance worth 180,000.00 on the property, that they have placed on it and now they have rolled that insurance policy of 2,400.00 yearly cost into my monthly payment is this legal.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi darlene montgomery!

The mortgage company can definitely roll the insurance payments into your monthly payments and this is absolutely legal. However, whether they can buy you an insurance which is 3 times of the cost of the house will be better answered by a mortgage attorney. You can take help of an attorney in this case.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Darlene,

The worst part of this predatory practice is that if you have an insurance claim on your $60.000 property, you would be be paying your deductible based on that price. This is usually 1% of $180.000.
This is an unfair practice, you could be saving a few hundred dollars a year by getting a 3% deductible in your $60.000 property and your coverage and deductible would be exactly the same. The insurance won't pay a penny over replacement value of your property anyways!
These vultures are always looking for creative ways to prey on the consumer.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I jsut got my escrow statement and they tell me that we are in shortage of about 1200.00. I say bite me! No increases on taxes, no increases on the home insurance. Scam artists and getting away with this shit. Not on this loan you aren't. I can pay my own taxes and keep my own interest thank you.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Are you sure that your taxes and home insurance haven't increased? Unless the payments on your taxes and home insurance gets increased, the lender will not be able to increase your escrow payments. Check out with your lender as to why they've increased your payments.

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jveenstra's picture
jveenstra | Joined: November 10, 2008 09:03 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Normally, when there is a large increase in escrow payments due to an escrow shortgage, the shortgage was caused by incorrect escrowing at the closing of the loan.

Increases can occur simply because tax and home insurance typically rise each year in costs, but, the largest escrow shortfalls are usually caused by the lender at closing not escrowing properly. Sometimes occurs due to new construction and no one got the taxes right because they were not final at the time of closing. Usually occurs because simply not escrowed properly in the first place.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

you're correct, of course, john. but of course, taxes do change and insurance premiums also do change, so an escrow shortage isn't quite surprising.

should it be as large as the one that jules sees? i'd have to say no, and that's probably a bank error. but it's not exactly a scam, though. jules, you may as well bite the bullet and pay the new escrow amount and wait for your refund check next year.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The lady we purchased this home from was over 65 and entitled to huge benefit by paying no school taxes (estimated to be 84% of county tax bill).
Our mortagage was calculated based on what she paid. We now owe over 2000 for this past year and have a 400/month increase in our monthly payment. We can reduce our monthly payment some by paying 2000 to the mortgage company now. What is the best thing to do?? Pay now or spread it all out. Neither of us will be 65 for a few more years.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

you know your financial situation as it is now. if you can swing the $2000 now and feel that's better than the higher payment, then you can do that. if the payment is reasonably within your budget, you can do that. frankly, i don't feel i have any business advising you on this, as you would have a much clearer picture of where you are than anyone else does.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi prichy,

If it's possible for you to pay off the tax difference altogether, then it would be a better idea pay it off now. If you won't be able to afford to pay it off now, then spread it. This will help you clear the dues.

Thanks

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christinehynes's picture
christinehynes | Joined: September 5, 2009 11:56 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Your bank will need to tell you exactly but in general your initial escrow account could have been short, your property taxes could have gone up or your homeowner insurance went up.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have been reading all the post and was concerned as well due to an escrow shortage of $3650. This amount made my morgage loan go up by $500 a month. That's a big difference in a short time frame. I called my homeower's insurance to confirm the amount that I was paying. That had minimally increased (due to the increase in property value), understandable. So, my next call was to my county treasurer's office to check on my real estate taxes. Due to my home being new construction, they did not get my escrow amount correct initially...they were guessing. While they were guessing, my property was being assessed as a lot only. After living there for a few yrs they finially assessed my home at the correct value, not the lot only. So in essence, my escrow account had a significant shortage. Now I'm paying for it....yikes! :shock:

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

that's a tough situation to find yourself in, caramel, but you should have been alerted a long time ago. if your loan officer didn't suggest this would happen, then the realtor and/or builder you dealt with should have mentioned it. if they all didn't say anything, then the lawyer who closed your loan ought to have brought it up.

anyone buying new construction will often have this happen, though i didn't. my house was completed in august of 2005; we moved in, and an assessor showed up at our front door about 5 minutes later (it seemed). actually, it was within a few weeks, but that's unusual. usually towns, cities, etc. don't reassess that quickly, and that's why your initial escrow was set up so low. [b:f7c6920a89]but they should have known better![/b:f7c6920a89]

you have no recourse, either, i'm afraid. i hope you're not overly strapped with this new monthly payment.

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howard.nugent's picture
howard.nugent | Joined: November 17, 2009 12:42 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Exactly, a good loan officer will make a reasonable attempt to calculate what your taxes SHOULD be. But this is one of those items that's occasionally overlooked. The other thing that can happen with new construction is that it does get addressed, but the borrower elects to purposely pay their escrow based on the current assessment and then conveniently forgets that conversation.

In regards to whether or not it's better to pay the shortage now or pay it in the payment, from a purely mathematical standpoint, you typically will save money by leaving the shortage in place. The servicer effectively winds up giving you an interest free loan for the shortage, and you keep that money in the bank, earning a whopping 2% (if you're lucky).

While servicers don't pay you interest on your escrow balance or any overfunding, they also don't charge you interest on escrow shortages.

This is part of the reason that you're typically charged an escrow waiver fee if you don't want to have escrows. The servicer makes a marginal profit on the float of the amount of money in your escrow amount, so they charge you to make up for that loss.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

wow! 2% on deposits?? can i move my money to your bank, howard? oh wait...i don't have any money anymore...DRAT!

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello,

I ended up with a HUGE escrow shortage last year. I was aware that my payments would increase on my new construction home once it was assessed., so I was expecting a $550 increase to my mortgage.

However, and unfortunately for me, with taxes paid in arrears here (IL), my builder went out of business and stuck me with a prior years' tax bill (HUGE amt) since my home had been vacant the previous year.

I then ended up with a total of $1,600 increase to my mortgage monthly! I was able to get the bank to spread the amount over 3 years which helped significantly - payment then was only increased by about $1,000 (still WOW).

Now it's not quite a year later and they've redone my escrow again. It's like they've completely forgotten about the 3 year spread I requested. They've readjusted everything again based on me paying off the shortage in a year. My payments have increase another $200.

My question is this: If I were to just suck it up and pay off the shortage (somewhere between $5,000-$7,100), will the banks be able to readjust my payments right away? Or would I still have to wait till year end when they do the recalculations?

I may just go ahead and make the extra payments this year and be done with it. It really sucks though.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

quite an ordeal, lani. i don't get why you were stuck with the builder's taxes, but that's probably another whole ordeal in itself.

did the lender give you the option of paying the shortage in one fell swoop? that's not a bad idea, given that you undoubtedly have the wherewithal to do so.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I got stuck with the builder's taxes b/c they went bankrupt or out of business. The taxes are billed in arrears so I was billed for 2007 taxes even though I didn't move into the home until 2008. (The home was built in 2007 but was vacant until I moved in.) The builder had in the contract that they'd pay the taxes when they came due but since they went out of business, I never got the money (not for a lack of trying).

I'm thinking of just dealing with the super high payment for the year.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

unreal...that builder should have had the taxes paid upon conveyance to you. have you had any discussions with your lawyer in this regard? that might be helpful - i hope so anyway.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yep, I talked to the lawyer who helped close my home and also a new lawyer who was helping other buyers in the same situation. The taxes were not included in the sale contract b/c since it was a new build - taxes had not yet been assessed. Yes, it pretty much sucks. Not like anyone has an extra $8,000 lying around. Taxes are expensive in my area.

Thanks for your replies. :)

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

okay...but the $8000 was how the municipality taxed the property once it was complete; that means that the taxes are truly yours, and not the builder's responsibility. it's not really the builder's taxes you are paying; they are yours.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Actually, no, they weren't my taxes.

The tax bill was for 2007. I did not purchase the home until April 2008. They bill taxes in arrears. So, they put in the contract that the builder would pay the taxes when they came due in 2008. In October 2008, the tax bill came - the land was finally assessed and the tax bill was for the year 2007. I did not live in the home. It was owed by the builder. The home had been built but sitting vacantly. Typically, they put a credit for the taxes in the sales contract for what they expect the taxes to be - on non-new home. But since it was a new construction, I did not have a credit for the prior years' taxes. Instead, I had an addendum that the builder would pay the taxes once they came due and knew the amount owed.

Does that make sense now? It was never a question of whether the builder owed or not. They fully accepted that they did owe it (as it was part of the contract) but they suffered financially and did not pay - unfortunate for me. My lesson is to never buy a new construction home that's been sitting for a year in a town that assesses taxes a year later. Too much of a risk.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

the lightbulb just went off. your last line told me the real story. so the home was actually complete a year earlier than you bought it, eh? that's why the tax bill due was so high...i get it now.

and i also get why you got stuck - because your builder went belly-up and you either absorb the taxes or lose the deal on the house.

i'm glad you included that last line.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We just refinanced in Oct 2009. It looks like they collected 2 months of taxes at closing which puts us with an escrow shortagage of almost $2,000. Who's responsibilty is it to collect the right amount so this doesn't happen? Is there any legal action?

This is one of the reasons many people can't pay their mortgage and the foreclosure problems are what they are!!! Either the mortgage broker or the lawyer at the title company should be responsbile for letting the buyer know this will happen. All the paper work included to close on your loan confuses anyone that doesn't work in this field.

Is there anything I can do?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi LAvery,

The lender will let you know the the right amount that you need to pay towards your escrow account. You may take legal actions but you'll have to contact an attorney and take his opinion in this regard. He would be the right person to let you know whether or not you would be able to file a lawsuit against the lender.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

it's unfortunate that you've got a shortage in your escrow account, but i don't see any possibility of legal action being effective. did you get a refund of your prior escrow account from the previous lender? did they net that amount against what you owed on the mortgage when you paid it off, or did they send you a check separately. that's probably where the discrepancy came into play.

i agree that your new lender should have been aware of the need to retain sufficient funds so that you'd not be short, but there was, apparently, some confusion on that end.

unfortunately, again, i don't see a lawsuit as a remedy.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Im scared to no end. Just got a letter saying I have a total escrow shortage of $5800. My payment for nxt month just jumped by $800 plus. I am in no way prepared to pay this. Do I have ANY options at all? Please help.

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Javier!

Welcome to forums!

You will have to make the updated escrow payments or else there would be a shortage in your escrow account. Thus, your property taxes and insurance will not be paid on time. You can contact the lender and check out if he can help you in this regard.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thank you so much for your response. $800 is just too much of an increase for me to pay. Basically, its pay it in full or pay it all at once is that right? No other recourse? Thats the part that is hard to swallow.

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Javier,

As suggested by Sussane, you should speak to your lender in this regard. As far as I know you will have to pay it in full or put an extra amount towards your escrow payments every months. I don't think there is any other recourse in this regard.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thank you both again for the your responses. Yea, it looks pretty bleak. Going to have to look at my finances and see where and how I can make up for that amount. Great site, with really nice folks! Thanks, and I'll keep you posted.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

So, do you think it is good that you should pay the escrow shortage? or just let it roll and pay the new mortgage payment? Someone please answer to my post

[size=9:d7d4d676da][color=Red:d7d4d676da][Email address deleted as per forum rules. Thanks.][/color:d7d4d676da][/size:d7d4d676da]

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi RUN!

Welcome to forums!

As far as I know, you should pay your escrow shortage or else the lender will not be able to pay your home insurance premiums and your property taxes.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We bought a new contruction house june 2009. We just recieved a letter regarding escrow stating that it is short by $10,500!! WTF?? I don't understand this. We called the bank that same day and they couldn't give us a straight answer. The only thing i can think of is the builder didn't pay his taxes but would the bank allow the house to be sold under this condition? please help!

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Debbs,

Your query has been replied to in the given page:
http://www.mortgagefit.com/problems/shortage-escrowaccount.html

Just take a look at it. I hope it'll help you.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I just got a a notice that my escrow acct is over $4,000 short!!! Please help! Is this customary?

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danielhenry31's picture
danielhenry31 | Joined: July 7, 2010 11:45 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Increases can occur simply because the taxes and insurance in general, which is held every year in fees, but larger deficits are usually caused escrow by the lender at closing escrowing correctly.

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

There may be a shortage in your escrow account but I don't think this is customary. May be, the property taxes have increased and thus, there has been a shortage in your escrow. You will have to pay off the deficient amount and bring the escrow account current.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If i have an escrow shortage and I missed the due date to mail it in. Is it still wise to mail it in even if its late or will it not even make a difference now? I forgot about it but i usually mail the shortages in so my payment dont increase.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi tee,

You should inform the lender about the error and send him the mail with the required amount that you need to pay. If you do not do so, the lender will add late fees to it and amount will increase.

Thanks,

Jerry

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kwk's picture
kwk | Joined: July 30, 2010 10:14 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Darlene's rental property insurance showing a replacement value of $180,000.00 when the value of the property is only $60,000.00 is very questionable.

I am interested to know if the first year's premium was the cause of the shortage...if so, I think it is unlawful because escrow accounts are for paying projected future Escrow Items.

Usually, the mortgage has a special provision for protective advances and the terms for repayment of the "additional debt" that results. Those repayment terms do not include charging the amounts to an escrow account.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I received my shortage increase of 680.00 and had a question about sending more then that amount say about 800.00. Would that bring my mortgage payment down with the added amount in escrow?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I got hit with the same escrow shortage scam. In my opinion this is nothing more then a scam for banks to have more assets in there banks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Beverly, it's better to pay the exact amount rather than paying anything extra. There is no guarantee that you mortgage payments will come down if you pay extra.

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rachard1583's picture
rachard1583 | Joined: October 18, 2010 12:14 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Most times an individual has little or no property they will have to turn over so this chapter is the most desirable and common.

[color=Red:b260cddbcf][Url Deleted as per forum rules. Thanks][/color:b260cddbcf]

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I dont totally agree with Mark J. It is always good to make a extra payment in your loan. this would save you a lot of money in interest. Just always make sure that you inform your mortgage company, that the extra money would go towards your principal balance and not on your escrow account/payment.

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