Escrow account funds disbursement

I have recently refinanced, only to discover that the lender applied my existing escrow account balance to the new loan without my knowledge or authorization, nor is it detailed on the settlement sheet. Do I have any recourse and if so, how do I proceed? Thanks. Asked about 23 hours ago Anonymous 1
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Assume you refinanced with your existing servicer, as escrow accounts are not transferred from servicer to servicer during a refinance. Sounds like you wanted to escrow on your new loan, since you were on the old loan. It is typically very much to borrowers' benefit to use existing escrow account money for the new escrows whenever possible, as it lowers the new loan size and reduces the cash due at closing. There is no downside to transferring escrows, assuming the old account has adequate funds in it.

You sound like you are upset about this, and I don’t understand why. The choice is a higher loan size and payment to borrow the money for the new escrow, or bringing money to closing for escrow, then waiting 30 days for an escrow refund check from the old account, versus funding the new escrow account from the one already in place. It’s far to your benefit to use the existing account, as you indicate your lender did.

I asked the above question yesterday and received the answer shown; however, let me expand on my question. First, the new lender used (without any authorization from me or knowledge of same) my existing escrow account to lower my mortgage principal balance owed, then used that reduced figure to provide a new mortgage and payment more likely to be accepted by me. The new mortgage and payment was in fact to my liking however I was unaware that my escrow account had been used to accomplish same and thus was expecting return of those funds to me. Had those escrow funds not been used without my knowledge, the mortgage and payment would in fact have been higher, but that likely would have caused me to not refinance. What are the legale ramifications for that new lender directing the use of my escrow account and what recourse do I have? Anticipating the return of those escrow funds, I had already committed their use - now I am in a serious bind. Thanks for any assistance you can provide.

1 Answer

OK, makes more sense now. I agree that it appears you were not fully informed on the specific structure of the transaction. In most cases, lenders have to get a letter signed by the customer in order to have the escrow balance subtracted from the payoff old lender provides. If you signed one of those, it would have been your consent for the escrow to be handled as it was.

Not sure what recourse you have, other than to first take your concerns to the management of the lender you used. Assuming you get no satisfaction there, you can contact the BBB or state banking commission, or file a small claims court suit.

Bottom line, easiest way to see the details of your transaction is to look at the payoff on your loan documents (which in this case would have been lower than expected), your new loan size (again, lower than would have been), and your cash to close.