Excessive Impounding and Escrow Analysis

In California, my loan servicer has historically over-impounded tremendously. The impound account affects the monthly payment on a mortgage. My lender has been waaaaaaaaay over impounding. I notified, and received only 1/3 of the over impounding back. The lender admits that over $22,000 is currently above the required amount, in impound. 1. Is there a limit to the amount (percentage-wise) that the lender can maintain in impound? 2. Does the lender have a time limit, once notified of over-impounding, to return the surplus? 3. Is there a penalty re. this activity?

1 Answer

You might have to research state laws, but there was a very famous case involving a very prominent lender in the 1990s that was collecting excessive escrow reserves.  An enormous refunding was required along with a stiff fine.  One of the results of the action taken against this lender was a limit on the cushion allowed to be taken by a lender as a protection against tax & insurance increases.  The escrow analysis that is provided each year should show the projected low balance in the escrow to be equal to the maximum cushion.  In most cases, this is two months. 

So, by example, if the escrow for taxes & insurance totals $250 per month, the low balance in the account over a 12 month period should not exceed $500.  Any overage of more than $50 is to be refunded.  Shortages are to be collected.  Most shortages are collected over time rather than all at once.

A lender has to have escrow analysis done annually and settlement should occur with the notice sent to the mortgagors.  If this is not happening with your account and a refund of overages is not occurring in a timely manner coinciding with the analysis statements, then you may want to consult with an attorney or the state banking department to discover what California law prescribes for the handling of mortgage escrow accounts.  The analysis is a Federal form and the verbiage is not easy to decipher.  Having a copy of your initial disclosure from closing may be helpful in making the comparison to subsequent notices.

In your case, if there is an admission of a surplus greater than what is required, you may want to notify the lender of your findings from your research.  If there is not a resolution, then you may want to write a letter with a copy to the State Banking Dept.  Send it certified.  Resolution is likely.