What is escrow?

Question

We just got our new payment book for he year for our house pmnts. It says that we have an upaid escrow amt. which will be added monthly to the pmnt. We paid each pmnt so far on time with the exact amt of pmnt. What has happened?

Answer 1

Escrow is money held by the lender to pay for real estate taxes and/or home insurance. They add the amount of your monthly real estate taxes and insurance to your monthly mortgage amount and when your taxes and/or insurance come due they pay for it keeping you from getting a whopping tax bill every year! Definitely the way to go. When there is a change in you mortgage payment, it is not because the lender raised your interest rate, it is because your property taxes and/or home insurance rate have gone up.

Answer 2

Escrow accounts, the ones for your taxes and insurance, are always collected based on the prior year's billing.

So, they collected in 2006 what your bills were in 2005. Even though the banks keep a 2 month cushion, when taxes and insurance go up every year, they'll end up short.

This kinda sucks, but no one would want the banks estimating how much higher next year's taxes would be and charging that, so this is still the only good way to do it.

If you happened to buy new construction in the past 1-2 years, you could have had a large bump in property taxes, so that could also account for any big jump.

They should have sent you an "annual escrow disclosure statement", which will itemize how much is collected, and what gets paid out to whom and when. If you didn't get one with your new book, call your lender and ask for one. You'll see where it's all going.

Answer 3

An escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a specific condition or event. It is an independent neutral account by which the interests of all parties to the transaction are protected.

When opening an escrow, the buyer and seller of a piece of property establish terms and conditions for the transfer of ownership of that property. These terms and conditions are given to a third, impartial party known as the escrow holder. The escrow holder has the responsibility of seeing that the terms are carried out.

The escrow is a "storehouse" for all monies, instructions and documents necessary for the sale of your home. This includes the buyer providing funds for a down payment, and the seller depositing the deed and any other necessary papers.

An escrow will provide you with a guarantee that no funds or property will change hands until ALL of the terms and conditions have been followed. The escrow holder has the responsibility to watch over the funds and/or documents and then pay out the funds and/or transfer the title only when all requirements of the escrow have been completed.

How does the Escrow Process Work?
The buyer, seller, lender and/or borrower cause escrow instructions to be created, signed and delivered to the escrow officer. The escrow officer will then process the escrow, in accordance with the escrow instructions. When all conditions required in the escrow are met, the escrow is "closed".

Prior to close of escrow, the buyer deposits the funds required with the escrow holder. The buyer instructs the escrow holder to release the money to the seller when:
The deed records
A policy of title insurance will be prepared and delivered to the buyer
The escrow holder acts for both parties and protects the interests of each within the power of the escrow instructions. Escrow cannot be completed until the instructions have been fully satisfied and all parties have signed escrow documents. The escrow holder takes instructions based on the terms of the purchase agreement and the lender's requirements.

Answer 4

Your escrow is the money put aside to pay your property taxes and things. Likely what happened is your property taxes went up and your monthly payment needs to go up to compensate. IE if the taxes are $1200 more per year, you'll need to pay and extra $100 per month to make it up.