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Watching Your Escrow Account

Though cash purchasers and some borrowers are able to pay their own taxes and home insurance, most of those with mortgages have a set amount put away out of each payment into escrow to pay those important expenses.  Lenders have required this system in order to protect their interests by making sure that tax liens wouldn't be filed or homes destroyed without adequate insurance to pay off the mortgage.  By and large, it's been an effective and non-abusive process that is fair to all parties involved.

In today's mortgage and housing climate, there are more lenders in trouble, and it's not unheard of for there to be complaints of excessive escrow demands.  After all, the more of your cash they can hold before payment of annual taxes and insurance, the more cash available to bolster the bank or lender's asset base.  The Real Estate Settlement Procedures Act (RESPA) sets out limits on the amount of escrow that can be collected in advance of these payments.  Generally, it's no more than the actual amounts that will be owed, plus one-sixth, equaling about two months portion of the annual payments required.

In the recent round of selling of mortgages, there have been some complaints of new lenders increasing escrow amounts considerably.  If they're outside legal limits, there could be valid reason to complain.  You should be receiving periodic statements of the amount of your escrow balance, and there could be valid increases required if taxes and insurance costs go up.  Just be aware, and check your escrow balances and the amounts of your tax and insurance requirements regularly.

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