Federal law imposes maximum limits on financial cushion
DEAR BENNY: I own a house worth approximately $400,000. The current mortgage is $25,000. A company in Florida took over the mortgage about six months ago. The mortgage company handles the tax and insurance payments through an escrow account. Given the current schedule of payments, the account has had a positive balance during all of 2012 and will average at least a $1,000 balance during the 12 months. The mortgage company wants to double the escrow payments so that the minimum balance is $1,000, the maximum is $3,000 and the average account balance is $2,000.
What, short of paying off the mortgage, are my options? Can the mortgage company legally demand such payments? I have owned a number of homes, vacation homes and rental homes over the years and never experienced anything this outrageous. –John
DEAR JOHN. The great majority of residential mortgage loans in the United States are “federally related.” This means that they are either insured by or purchased by a federal agency or an organization such as Fannie Mae or Freddie Mac. And all such federally related mortgages are covered under the Real Estate Settlement Procedures Act (RESPA).
Section 10 of RESPA controls the amount of money a lender may require to be held in escrow for the payment of real estate taxes and hazard insurance. And contrary to what lenders may tell you, federal law does not require lenders to escrow.