Canceling Mortgage Escrow Account

A couple years ago, I wrote about how my mortgage company consistently mis-calculated my monthly escrow payment, arriving at figures that were either too high or too low, depending on the time of year the escrow analysis was done.   Well, this past summer, the mortgage company ran another analysis and again came up with a figure that would have had me paying too much into escrow.  When this has happened in the past, we’ve called them and had them correct it, a process which typically involves sending a fax and spending about an hour on the phone.  This year, though, we decided to ask them what it would take to waive the escrow requirement on the account.  I figured that I’m responsible enough to set aside money for insurance and taxes on my own, and I stay on top of our local property tax rates, so I can do a better job anticipating these expenses than the mortgage company can.

Canceling the escrow account was easier than I had anticipated.  There were, however, a bunch of prerequisites.  Going from memory, they were:

  • A 12-month history of no late or missed payments
  • A 75% loan-to-value ratio (in other words, you need at least 25% of the property’s appraised value in equity)
  • No escrow disbursements due in the next 60 days

When we initially called, they checked to ensure that we met these requirements, then they mailed us a waiver which we needed to sign.  This arrived after about a week.  We signed it and faxed it back to them (along with a brief cover letter).  Within 24 hours of sending the fax, they had canceled the escrow account.  After another week, we received a check for the balance of the account.  All in all, it was straightforward and painless, and now they just bill us for principal and interest each month.  For taxes and insurance, we set money aside separately each month, which we can now do accurately, setting aside only what’s needed.

We were happy that our mortgage company was willing to waive the escrow account without too much fuss.  If you’re in a similar situation, you might consider checking with yours and see if they’ll work with you.  If not, there’s always the option of refinancing into a mortgage with no escrow account.  At today’s interest rates, that may make sense for a lot of people; in our case, the interest savings would only barely outweigh the closing costs, so for now, it was easier to waive the escrow account and stick with our current mortgage.

Mortgage Escrow Follies

A year or so back, the mortgage on our primary house was sold to CitiMortgage.  Prior to this happening, I was aware of quite a number of horror stories about CitiMortgage, so when the sale was announced, I was a little apprehensive.  However, one thing I’ve learned over the years is to always look at the big picture.  The nature of these things is that people who have problems tend to complain the loudest, so for every one person complaining about CitiMortgage on the Internet, there are probably hundreds who are not having problems.  Still, there are disproportionately more horror stories floating around about CitiMortgage than about other mortgage companies, which is a little troubling.  All the same, I gave them the benefit of the doubt.

After a year, the verdict on CitiMortgage is neutral.  The loan transfer went off without a hitch, with no mistakes on the principal, interest, and amortization side of things (kind of hard to screw up a simple 15 year fixed-rate loan, I would think).  They also made two interest credits to the escrow account, which was a pleasant surprise, although I’m assuming they were one-time credits as there have been none since (Maryland does not require lenders to pay interest on escrow balances, so I’m wondering if this was one of the terms of the loan sale or something — haven’t bothered to investigate).  To date, all of our escrow transactions (property tax and hazard insurance bills) have been processed correctly and on time.

There’s been one little hiccup to the whole CitiMortgage experience, related to the annual escrow analysis process.  First, some background.  Our property taxes come due semiannually, as is the case in many municipalities.  However, they’re not billed in equal installments — the first installment (due in July) is always several hundred dollars more than the second (due in December).  I’m not sure how common this practice is.  But in any case, most mortgage companies I’ve dealt with take a full year’s worth of past tax payments into account when running an escrow analysis.  CitiMortgage, however, assumes that the tax is billed in equal installments, and only looks at the most recent tax payment during the escrow analysis.  They then use this amount to project both semiannual tax payments for the coming 12 months, and as a result, their numbers are always wrong.

Depending on what time of year they run the escrow analysis, this can be good or bad.  CitiMortgage ran our first escrow analysis in January 2008, right after they paid the (lower) December property tax installment out of escrow.  They then used the lower December amount to project both the July 2008 and December 2008 payments.  The result was a lower-than-expected monthly escrow payment, which is great (as long as there’s still enough in the escrow account to cover the bills — you never, ever want your escrow balance to go negative).  However, CitiMortgage caught onto this in July, when the tax payment was much higher than they had projected.  This triggered another escrow analysis in July.  This time, they used the July amount to project payments in December 2008 and July 2009, which resulted in a monthly escrow payment that was too high.

Now, it’s nothing personal, but if CitiMortgage underestimates my monthly escrow payment, and there’s still enough in the account to pay the bills, I’m certainly not going to call it to their attention.  In the opposite situation, though, I’m always going to call them on it, because I don’t want to pay more than necessary into a non-interest-bearing escrow account.  So, when we got the second escrow analysis statement, we got on the phone with them.  They told us to fax them a copy of our property tax bill, showing the correct amount due for December, which we did.  This didn’t produce any action for two weeks, though, so my wife called them again.  This time she reached a supervisor who acknowledged receipt of the fax, re-computed the escrow, and adjusted our monthly payment on the spot.  So the two weeks of inaction was a little questionable, but the followup call produced an immediate resolution.

I was recently reading some of the FAQs on CitiMortgage’s web site (I’d provide a link, but it appears you need to be signed in to get at the FAQs) and it turns out this process is documented there.  Here’s an excerpt, with the relevant bit in bold:

We automatically adjust your escrow payment one time a year to reflect changes in your escrow related items. If you would like us to complete an interim adjustment, please send official documentation of the new tax amount to our Tax Department at:

CitiMortgage, Inc.
Attn: Tax Dept.
PO Box 23689
Rochester, NY 14692
Please write your account number on the documentation.

If this happens again (and I’m assuming it will) I may try sending my request to them via certified mail, with the thinking that it’ll be more effective than a fax.  Either way, though, it seems we should be able to get it rectified with a letter/fax and possibly a single follow-up phone call.  Time will tell.

If this little snafu unfolds the same way every year, it will result in a lower average escrow balance over time, because our escrow payment will be lower than it should be for the first half of the year.  The price of this is the hassle of getting the payment corrected after it’s overestimated in July.  Yet another reason to try and pay off the mortgage early, I guess 🙂

And finally, some parting advice:

  • Stay on top of things.  Monitor your escrow balance and activity at least monthly.  Make sure there is always enough in it to cover the bills.  Ensure that the mortgage company is paying the bills in a timely fashion.
  • Understand how mortgage companies compute escrow payments.  It’s a simple formula, and every mortgage company uses it. If you know it, you can double-check the mortgage company’s numbers and call them on any errors.