What are my options when my escrow shortage causes higher payment

Question

I just got an escrow analysis from a new lender (transferred about a month ago) and there is an escrow shortage. The property is in South Carolina. (Columbia, Richland County) The increase would case the payment to go up $900. Last year I got money back because of a shortage now there’s a massive overage.

What options would I have as an exit strategy to get out of paying this high amount? I understand it has the possibility to change yearly but I didn’t expect it to almost double what the mortgage is on the property. First payment of the new amount is due the 1st of next month as well. I cannot absorb that kind of loss continuously for the next year. Any suggestions wil be helpful.

JD Martin · Answer

Easiest way to avoid this issue in the future, if your lender will allow it, is to pay your own insurance and property taxes. I started doing that on my properties years ago when I had an incident when a mortgage company did not pay my property taxes, even though I was paying through escrow, and I had to make the payment myself and fight to get it back to me later to avoid a tax lien on a property. After that incident I never let the mortgage company pay my taxes and insurance again. If you take the TI out of PITI, you're going to have a fixed payment from now on.

Will Gaston · Answer

Brandon, it sounds like your property got reassessed. Where in Columbia SC is it? My portfolio is there so I can connect you with an assessor.

Bill B. · Answer

“Usually” the assesment is for shortages last year and anticipated shortages for the next 12 months. So you’re really only seeing a $450 increase.

“Sometimes” you can pay the amount you’re behind from last year and then the payment would only go up half as much. It definately wasn’t to  the bank’s advantage to let you get behind. They don’t make money on these payments, they’re simply forwarding the money. If you bought the property in the last couple years the property taxes were probably artificially low for a long term owner occupant?

The paperwork you got should show you how much they paid out for you and how much they collected from you. You need to figure out what went up and who either didn’t get paid before or got double paid now. (Make sure there’s only 1 insurance payment and the correct number of property tax payments per year depending on your area.)

You can take the projected next 12 months outflows divided by 12 and add them to the loan dox you got at closing and that’s what your payments should be after you catch up. Good luck.

Brandon Curry · Answer

I spoke with the lender and they found the problem. The previous lender undercharged me and the new lender even mentioned they dropped the ball and this is not my fault. I told them I’ll pay the regular amount I’ve been paying on the next payment. They will give me a call within the next week to extend the payment to either 24 or 36 months. So the good news is they are willing to work with me after they saw that the previous lender dropped the ball.

Troy Gandee · Answer

@Brandon Curry The first thing I would do is check the tax rate. $900 is a pretty big jump. It's possible that the tax rate is being incorrectly administered between the 4 and 6% rates. Or it was previously incorrectly administered, but is now properly assessed according to the usage of the home.

If the escrow items (taxes and insurance) are being correctly, there's really nothing you can do. The tax rate is pretty static. You could try to shop for cheaper insurance, but there's not much of that out there right now.

If the charges are correct, there's no way around it. You'll have to eat the fees or sell the home.

What are my options when my escrow shortage causes higher payment

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