Escrow funds are an important part of many St. Paul home owners monthly mortgage payment. Escrow is similar to a savings plan in which the home owner sends 1/12 of their real estate taxes and 1/12 of their homeowner's insurance for the next year to the lender. The lender then puts those funds into an escrow account until the taxes or insurance bill comes due. The owner is putting money in the bank in preparation for the next year's bills.
Escrow accounts can be set up with lenders, with people who sell using a contract for deed, or with a designated party like a trustee. When my funds went into escrow with a lender, it never occurred to me that the lender could abscond with MY money and NOT pay my real estate taxes and insurance!
The troublesome real estate market is changing my expectations of lender escrow accounts. Inman News reported today that American Home Mortgage Investment Corp. which has filed bankruptcy, is accused of collecting the money for taxes and insurance, but NOT paying the tax and insurance bills when they come due. If this allegation is true, thousands of home owners who have been faithfully pre-paying their taxes and insurance are going to be bilked out of their funds.
Some might consider this to be "no big deal". However, unpaid insurance which has lapsed has to be replaced. Many times the mortgage company places insurance on the property which has high premiums without consulting with the owner. In American Home's case, they wouldn't bother placing new coverage. Their tune might be "just let it go. Nothing will happen."
If the real estate taxes remain unpaid, the home owner can lose their home to foreclosure. THAT is a BIG deal! Let's hope not too many big companies follow American Home Mortgages' example because many, many homeowners would be in dire straights when the lack of escrow pay-outs is discovered.
Yes, Jay, it is scary beyond belief. Image the amount of money that has been pilfered away!
Posted by: Bonnie Erickson | September 21, 2007 at 09:12 PM
Bonnie: That is really a scary subject! Unbelievable.
Jay
Posted by: Jay Merton | September 13, 2007 at 04:31 AM