I just received a letter from the lender on my primary home stating that I have an escrow shortage and that my new monthly payment is going from $1,138/month to $1,306/month (a 15% increase). I've never had an escrow shortage like this before. I refinanced with this company last July. Did the mortgage broker fudge the numbers to make it look much more attractive for me to refi, knowing full well that I'd end up with an escrow shortage?
The second issue is, I had been considering renting this house out soon but with such a drastic change in the monthly escrow cost, I'm afraid this may occur again in the future and could really affect the potential to cash flow. Do I have any recourse, can I file a complaint with any organization?
There should have been some kind of statement with it. Like it shows how much is added to the escrow from your payment each month and then shows when money is taken out to make the insurance or property tax annual payment.
Perhaps the bank you refi'ed with requires a higher escrow amount than your previous bank?
Did your insurance or property taxes change a good bit? That will also affect how much you need in your escrow account.
On the good side...if you can call it that...an "escrow shortage" will usually only affect your mortgage payment for one year. At that point, the escrow account should be "caught up" and the payment will be lowered.
For example, last year my property insurance went up a substantial amount because I was woefully under-insured and I changed my policy to have more insurance. It went from about $2K/year to $3K/year. Although I made this change in June, the bank kept my mortgage payment the same for the rest of the year.
Until they "re-balanced" my escrow accounts around the beginning of the year. My new payment is $200/month more than it was before. Some of that increase is the increase in the insurance, but about $75/month of that is to make up for the shortage in my escrow account. When my mortgager again "re-balances" my escrow account at the beginning of next year, about $75/mo. of that increase should drop back off because my escrow account will then be back current.
Look into what they believe your tax bill would be also. Had that happen on my primary residence once because the mortgage company overestimated my tax bill by ignoring the reduction allowed by the homestead exemption, which would apply because this is your primary home. It all got readjusted once I gave them documentation of what my prior tax bill was.
This has been the story of my life with my personal home for about 6 of the 9 years I have lived here. Sometimes you can send in the shortage amount right away (or even a portion amount) directly to your escrow account and them ask them to re analyze your account (Lowering your payment). Some mortgage companies does this right away and some only do it annually.
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