I've been notified by my mortgage company that I have an escrow shortage and owe money. How does this happen?
An Escrow shortage occurs when debits are more than the credits. Understand the costs and see which estimate is less than the actual cost.
It is hard to estimate the actual pay off amount to the old lender. Most of the lenders give the estimate based on the estimated payoff date. If the close of escrow happens after the estimated date in pay off statement, then you owe the bank more interest for these days. This is one good reason where you owe more than originally estimated.
Prepaid interest is also calculated based on the close of escrow. If the close of escrow is estimated later than it is actually closed, you pay less prepaid interest (is paid to the new lender from the date of close of escrow to the end of that month) to the lender, otherwise you pay more.
So, there are more ways your estimates could have missed the actual numbers. Depending on under / over estimation you may owe/get the money.