Tag: escrow

Escrow: The Forbearance Gotcha

Millions of people have applied for and received mortgage forbearances during the pandemic. It’s been a huge lifeline that has saved hundreds of thousands of homes from foreclosure.  There’s only one problem.  Once you stop making your mortgage payment, money stops going into your escrow account.  That leaves deficiencies in the account that pays your property taxes and your homeowners insurance.  

What’s an escrow

Most mortgage lenders require that you pay a portion of your monthly payment into what’s known as an escrow account.  Escrow accounts usually pay out for things like homeowners insurance premiums and property taxes.  Because those are things that have to be paid, the lender takes the money and sets it aside to make sure that it actually gets paid each year.  

Escrowed taxes after forbearance

At the end of your forbearance, whenever that may be, you will still be responsible for the payments you missed.  Some lenders are asking that the payments be made up in a lump sum while others are allowing the amount to be divided up over a period of months.  There’s simply no single way that says how something has to be handled.  There is no firm and solid rule yet. 

While the principal may not be due in one lump sum and could ultimately be spread out over years, one thing is certain. Skipped escrow payments will be due long before anything else is.  This could potentially add hundreds of dollars to payments each month when they do resume because lenders are allowed to recoup the escrow shortage over 12 months.  

Example: Your escrow is short $4,500 for the year.  If you make that up over the course of a year, that’s an extra $375 a month on top of your normal payment, not including any principal payments that must be added in.

Keep escrow in mind

The Covid emergency, coupled with numerous different terms laid out in mortgages, make the answer about what’s going to happen very complicated.  What makes it even worse is that the goal posts keep moving.  We don’t know what kind of legislative remedies are going to pop up in the future.  

The long and short of it is, be mindful of what’s happening to the escrow balance of your mortgage and ask questions now so you aren’t blindsided later.  

Finally, if uncertainty still exists and you’re financially able, set aside the escrow portion of your mortgage just in case you need to make up the balance quickly and if for some reason you don’t, at least you have a little bit of savings on hand for another emergency.  If you’re in trouble with your mortgage and need help, contact the attorneys at Harmon and Gorove.