An escrow shortage is when your mortgage servicer doesn’t have enough escrow to cover the money you need for your insurance payments and taxes. This can result in financial strain.
Homeowners might have to pay more monthly because of increased premiums, which could cause them to be less affordable. Escrow shortages can also result in confusion and frustration, but there are ways to deal with the hikes.
Read the rest of this article to explore why escrow shortages tend to happen, what you can do to deal with an escrow shortage, and how a lawyer can help you.
Why Do Escrow Shortages Happen?
An escrow shortage usually occurs because one or more of the following are present.
- Property taxes have increased.
- Homeowner insurance premiums have increased.
- Adjustments to insurance policies have occurred, without refunds submitted to your mortgage servicer.
- Changes in escrow requirements. Lenders might need a two-month security in escrow to cover increases in the future.
To deal with these issues, lenders will offer lump sum options or let homeowners distribute the cost over a year.
How Should You Deal with an Escrow Shortage?
If you’re affected by an escrow shortage, you’ll receive a notice. You will have to deal with it by taking one of the following payment options:
- You’ll pay the full amount upfront, which will remove the shortage and help you return to more regular, stable monthly payments.
- You’ll choose to distribute the payment over a timeframe of 12 months. Although this could make the cost more manageable every month, it might still be unaffordable because of the monthly additions to your payments.
- Your third option is to split the difference. What this means is that you’ll pay a portion of the payment immediately and distribute the rest over time. This is a balanced option that serves to decrease your monthly costs and lump-sum amount.
Note: When paying your escrow shortage, you’re usually not allowed to pay for it with a credit card.
What Else Should You Do When Faced with an Escrow Shortage?
Payment for escrow shortages aside, there are other strategies to consider to put you in good financial standing.
- Shop around for better insurance rates. You should consider bundling your insurance policies, as this can help you to lower your overall costs. If you change your insurance plan, make sure you contact your lender to inform them.
- Send your loan servicer a letter of your complaint. If you have queries or concerns about your escrow account, you should send a letter to your loan servicer so that they can deal with and resolve the issue.
- Consider lowering your escrow payments. First check that your property taxes and homeowners insurance expenses have lowered. If you’ve got a strong payment history that enables you to cover payments for insurance and tax, it can be useful to lower your escrow payments.
What Mistakes Should You Avoid During Escrow Shortages?
If you’re dealing with an escrow shortage, you know it can be stressful and financially concerning. There are some mistakes to avoid so that you can prevent escrow shortages in the future.
Don’t Ignore Escrow Statements
As a way to stay updated on escrow shortages, check your escrow statements regularly so that you’re informed of any changes. This will alert you to possible payments, instead of being taken by surprise.
You Don’t Have a Fund for Surprise Costs
Since your insurance and tax expenses can change at any time, you should have an account with extra money to cover these surprise costs. Doing this over time will make it easier for you to deal with escrow shortages.
You Don’t Speak to Your Lender
If you’re worried about an escrow shortage, or you think it could be affecting you, communicate with your lender right away. They will be able to explain the situation in more detail and work with you to find a solution.
You Don’t Get Tax and Insurance Updates
You should stay informed about changes affecting your taxes and insurance premiums, so that you’re not blindsided by an escrow shortage.
You Don’t Review Your Annual Escrow Account
By checking your escrow account annually, you will be prepared for any shortages. Keep a balance in your escrow account so that if a shortage occurs, you’ll be covered for it. This will go a long way to reduce your stress and help you avoid severe financial strain.
Do You Need a Lawyer for Escrow Shortages?
If you’re dealing with a stressful escrow shortage, you might be able to handle it yourself with the above tips we’ve outlined. However, there are times when you should consult with an experienced lawyer.
Here are some examples of when you need to hire a lawyer to help you with an escrow shortage.
- Your lender is calculating an escrow shortage, but it doesn’t seem accurate.
- You think there are service errors or your account is being mismanaged.
- You’re dealing with serious issues concerning your home, such as foreclosure.
- You’ve tried to speak to your lender about the inaccuracy, but they’re not providing information.
A lawyer can help you in various ways:
- They’ll investigate your mortgage and other accounts, and check that your lender is valid in demanding the shortage.
- They can identify any violations and servicing errors.
- They can alert you to refunds on your account.
- They can assist you in choosing the best repayment methods, based on your financial situation. They’ll outline pros and cons of all methods.
- They’ll also negotiate repayment terms on your behalf.
Do you need to hire an escrow shortage lawyer?
If you need to work with a lawyer for an escrow shortage concern or dispute, help is available. Contact an experienced, vetted lawyer on ContractsCounsel, an online legal network that connects clients with reputable and professional lawyers. All lawyers are vetted on the platform, and can provide you with expertise and escrow knowledge to help you find the best outcome for dealing with a shortage.