Whenever buyers put down less than 20 percent on a home purchase, chances are good the lender will require a mortgage escrow account. A mortgage escrow account is designed to hold a homeowner’s periodic payments for real estate taxes, mortgage insurance and possibly homeowners insurance. Mortgage escrow accounts normally build up large balances at times because of the timing of payments made from them. Any excess mortgage escrow account balances must be properly accounted for and then refunded after homeowners sell their homes.
Excess Account Balances
Mortgage escrow accounts accumulate money over several months, usually from borrowers’ prorated payments for their real estate taxes. In most parts of the country, counties require property tax payments on a semi-annual or annual basis, meaning escrow accounts tend to build up until taxes are paid. Of course, the money in your escrow account belongs to you because it’s money paid by you. When you sell your home, your lender generally must refund to you any money left in your escrow account.
Escrow Account Refunds
If you sell your home before your tax and insurance payments are made, you’ll probably have funds left in your escrow account. Lenders are required to return borrowers’ escrow account funds to them once their loan accounts are closed. A sale of your home, for example, will result in your mortgage loan being paid off and then closed. Generally, lenders closing out their borrowers’ mortgage loans must refund any escrow account balances within 20 business days, but refunds don’t always occur.
Loan Account Standing
To receive your mortgage escrow account’s excess balance, your mortgage loan must be in good standing when it’s closed. Sales of homes will usually result in their owners’ mortgage loan accounts being in good standing when they’re closed. Mortgage loan accounts closed due to foreclosure, however, aren’t in good standing, and lenders won’t make escrow account refunds. Additionally, if you short sell your home for less than its mortgage balance, you might have to waive your right to any excess escrow account refunds.
Obtaining Your Refund
Shortly after your mortgaged home’s sale you’ll hear from your old lender about your escrow account. But don’t expect an immediate refund of your old mortgage loan’s escrow account balance after the sale. Before releasing former borrowers’ escrow account funds, mortgage lenders check to see if those borrowers owe any remaining money. If your old mortgage lender tells you it owes you a refund of your escrow account’s balance and you don’t receive it within 20 business days, contact the lender immediately.