Is Your Lender Paying the Escrow Bills?

Nothing's worse than getting a delinquency notice on your property tax or homeowners insurance. Yet that is exactly what happens when your lender fails to make payments on time. Although most lenders faithfully pay the bills, it doesn't pay to assume anything when your home's at stake. Don't let a mistake by your lender make you a deadbeat homeowner.

In addition to your monthly principal and interest payment on your loan, your lender collects an additional sum to cover hazard insurance and property taxes. That money goes into an escrow account where it is kept until the insurance and tax bills come due. In theory, every month your lender should collect 1/12th of the amount due on those items on an annual basis. And your lender pays your bills periodically, whenever they're due.

Unfortunately, what works in theory doesn't always jive with the real world according to Murphy's Law (if anything can go wrong, it will). Sometimes the system breaks down and a lender fails to pay a tax or insurance bill. In the worst case, the bill never gets paid and your insurance policy gets canceled, or your local tax authority charges you late fees. Even though it isn't your fault, you suffer the consequences. What if something happens to your uninsured home? In states where hazard insurance can be expensive and hard to obtain, Florida and California, for example, an insurance cancellation notice is just the beginning of your troubles. It could take months to find another policy.

Certain warning signs should tip you to potential lapses by your lender. First of all, don't ignore the most obvious signal--a delinquency notice. Contact your lender immediately and demand payment. Be especially vigilant if your home loan is transferred to a different loan servicer. By law, you should get a notice when the transfer happens. That's when you should watch like a hawk. Your old lender has to send payment information to the new lender, including the name and address of your insurance company or local tax collector. If they send inaccurate information, or don't send it at all, your new lender could miss payments.

Contact your insurance company and make sure the premium was paid, well before the due date. Do your own escrow audit. Federal law requires your lender to send you an annual statement revealing ongoing balances in your account and when the bills were paid. Check those payment dates against the due dates in your insurance policy or tax bill. Is your lender a good customer or a scofflaw?

If you still have a problem after contacting your lender, the Department of Housing and Urban Development (HUD) may be able to help you get satisfaction. Go to www.hud.gov

Sources used to create this article include writer Teresa Burney and the St. Petersburg Times.