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Home Escrow Be Careful Not to Lose Your Home Due to Escrow Mistakes


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Like all good things in life and business escrow has many pluses, but there are a few negative aspects to escrow as well. For first time homeowners, who may be confused or burdened by having to pay insurance and taxes themselves escrow can be a big help. Without escrow protection, missing a monthly payment for either the insurance or taxes on a home can be damaging financially, and owners could ultimately lose their home too.

What is Escrow?

Within the context of real estate and home ownership escrow is money and documents deposited in a trust account to be held by one party for another; often used by brokers to hold deposit money prior to closing; also used by lenders to hold money for taxes and insurance on a home. For our purposes today we will be discussing escrow as it pertains to the later, holding money for taxes and insurance on a home for the purpose of making payments.

Why Do I Need an Escrow?

Mortgage escrow accounts are unique accounts arranged for by lenders in which money is held to pay for property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items. Escrow accounts also guarantee that all of the above are paid in a timely fashion to avoid serious problems that can arise if any of these payments are late or forgotten. Escrow guarantees that there is always enough money to cover these expenses and pay them on time so that the property owner avoids the risk of lapsed insurance coverage or delinquent taxes.

Escrow Guarantees That Bills are Paid on Time.

Without escrow homeowners have to worry about coming up with several large, lump sum payments, each with different due dates, throughout the year, and there is a chance that a payment could be missed. Escrow intention is to insure that will not happen.

If there are sudden or unexpected increases in any payments for property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items homeowners do not have to worry about this because it is the responsibility of the lender to allow for potential increases in tax or insurance premiums.

Typically the lender will cover shortfalls when tax or insurance payments go up and it is also common practice for lenders to pay taxes and insurance premiums when they are due even though all the money for these bills have not yet been paid in by a property owner.

Escrow Allows for Lower Interest Rates and Facilitates Government Administration.

Mortgages that are associated with escrow accounts most often have less interest applied to them because there less risk incurred by investors of home mortgage loans, thus making them more attractive and secure as investments. Escrow accounts also benefit local governments by providing a more proficient and cost effective means of tax collection.

Who Chooses the Escrow?

The rules and regulations governing escrow vary from state to state and investors need to consult with a local professional to find out what is required within the jurisdiction of any particular sale. That said the selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is a party to the transaction, the broker may suggest a particular escrow holder they have previous experience with. However, it is the right of the principals to use an escrow holder who is capable and who is qualified in managing the type of escrow at hand.

By law referral fees are not allowed, this protects consumers; this provides consumers with the best possible escrow services without any conflict of interest created by someone who could have been benefiting from a referral fee.

Don't Lose Your Home to an Escrow Mistake!

As we all know people can make mistakes, and systems can be flawed, and all of this can result in unexpected problems, expenses, stress, and in the case of escrow, possibly losing your home and your investment because of delinquent or forgotten payments.

The following is a scenario that revolves around a first time home owner, whose bank had to adjust his monthly payments including his tax escrow, because of an error that occurred on the closing documents.

 
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