Woman loses house to foreclosure because her lender underestimated her escrow. [South Florida Sun Sentinel]

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  1. FatLynn says:

    Hold up, here…Doesn’t she know how much her taxes and insurance are each year? Couldn’t she see that she was underpaying?

    The first year of my mortgage, I could see that my escrow account was going negative because it was underestimated. I therefore set the additional money aside, and when they hit me with a higher payment, I was prepared.

    In fact, it was kinda nice to get an interest-free loan from my mortgage broker.

  2. namenomore says:

    Finally, we can blame someone else for the subprime mess: the Title Company.

    I can’t find it my heart to have sympathy for her, and generally I’m all for blaming the mortgage brokers who make these delas. This one’s about as bogus a reason as they come.

  3. namenomore says:

    *deals

  4. JustAGuy2 says:

    You might mention that part about her refi-ing into an ARM, BTW.

  5. Aladdyn says:

    @JustAGuy2: True, but her mortgage payment went up 800 a month due to the escrow issue and she left the house before the arm actually kicked in. Sounds like her main problem is medical problems.

  6. Vicky says:

    There’s little to no way to see that you’re underpaying, at least where I live. It has to do with the round-about accounting of these accounts. Allow me to explain as best I can, speaking only to my experience and to the rules as they exist in my county. Of my two mortgages, one had a coupon book and one sent statements so in one of those two cases I personally would never have seen a document that indicated how far negative my escrow account had gone before things became very serious – which is why I now handle my own escrow.

    It starts when you buy or refinance a new-construction home or one which has been greatly improved. For this example let’s assume new construction and speak only to taxes, not insurance. First let’s consider the tax situation of this property on January 1 of the year of purchase: the property is unimproved and possibly is not serviced by any municipal utilities. There are no water or sewage hookups and in some cases no roads. The property is owned by a corporate entity and is taxed as an asset without exemptions – no breaks for homestead, over 65, disabled, retired veteran, whatever sundry goodies your county and school commissioners have handed down. The builder may be enjoying certain benefits that were offered to attract them to your city or school district. Your property may not even be an individual tract.

    Six months later when you purchase the house the tax landscape is very, very different: you now owe a municipal utility district for road, bridge, and utility bonds, your property has possibly gone up in value by 10 fold or more, it is individually owned and homesteaded. These changes trickle in at various times per year – I did have a long paragraph explaining this, but suffice to say that not even the taxing authorities can reliably estimate what you will owe for about 12 months.

    But obviously that escrow number came from somewhere, and different companies, different policies, yadda yadda, but bear with me as I use only one example. At closing you receive a credit for year-to-date accumulated property taxes – the time when the property was held by the builder and not by you. It’s reasonable and technically accurate to base the figure on what their estimated tax document from the county says – this document of course being based on the aforementioned disposition at January 1. The closing document may indicate something like “$600 to buyer – pro rated property tax, $100/mo 6 mos.” and there is a very good chance that this $100/mo rate will be pulled further down the closing document into the escrow set-up. It balances out on the closing document and it makes it hard to spot – there’s nowhere on the document that says “property tax based on valuation x and exemptions y” and you’d have to be pretty savvy to realize this could be a problem, especially if you’ve never bought new construction.

    So, come November 1 the first tax bill is sent to you and to your mortgage company. You knew, and the mortgage company knew, that after a non-full year of payments you may not have enough to cover the tax bill at receipt, especially if your credit at closing went to closing costs instead of to your escrow account. It’s expected that, as in old-construction cases, this would pretty much balance itself out in 12 months or so. So come year 2 and you’re still in the hole – in fact, way, way further in the hole – you get first wind that you’ve been underpaying. Not only were you underpaying your taxes to the tune of $200 per month, you have been underpaying for 24 months now. To get back in the black your mortgage payment will go up by $600 per month for months 1-12, dropping to a $200 increase for months 13 and onward. YMMV.

  7. chiieddy says:

    I always pay the same amount to the mortgage company each month. I put in about $100 in cushion on my payment. The extra goes to principal pay down and increases my equity in my home, assuring I will not owe more than my home’s value to the mortgage company and allowing me to essentially invest in equity towards a future home purchase. I have a 30 year fixed rate mortgage. I wasn’t about to let them talk me into an ARM. I’m glad because guess what would be kicking in this year if I had let them have their way?

  8. Rusted says:

    @JustAGuy2: Agreed, that was what started the slide toward foreclosure. Going from a fixed to ARM wasn’t the best move.

    Once you get rid of the mortgage, it’s an eyeopener to see who’s out there emptying your pockets. $260.00 per month on average next year since Wake County jacked our assessments up to the market level, and that also includes insurance and HOA fees.

  9. FatLynn says:

    @Vicky: Okay, it definitely makes sense that your taxes could go up and/or be sorely mis-estimated. I am just saying that you should be able to see from your first or second tax bill (6 months to one year) that you are not paying enough.

    In addition, she admits to decorating and such, which tells me that she had money she could have been using to build an emergency account.