Escrow Shortage
- Every year, the county tax assessor values properties and will place
the appropriate tax value on your property. Since most properties
appreciate in value, this will cause your county taxes to increase.
Unfortunately, this can sometimes create an escrow shortage, which
will cause your monthly payment to increase.
Mortgage loan servicers will complete an escrow analysis once a
year to determine if the escrow account has a shortgage or overage
and make adjustments to the monthly payments accordingly.
As a homeowner you should be aware that your taxes and or homeowners
insurance can increase and make allowances for this.
If the amount of Escrow payment estimated at the beginning of the
year is less than the actual amount paid for your insurance at the
end of the year, then a shortage occurs.
The term can also refer to a transaction when additional funds
must be placed into escrow in order for the transaction to close.
This happens sometimes when an inexperienced or incompetent loan
officer handles a refinance transaction. In such cases the borrowers
want to finance the costs and fees involved in the refinance but
the loan officer did not make the new loan amount high enough to
cover all of them. The borrowers must then place money into escrow
to cover the "escrow shortage" or "short to close".
Many homeowners express that their house payment has gone up when
the lender requires that they pay more each month to make up an
escrow shortage. While this seems to be true the fact is the homeowner
is simply reimbursing the lender for taxes or insurance that homeowner
owed and the lender paid on their behalf.
