When you obtain a mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home., your lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate. will likely require a real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. tax escrow and an insurance escrow to protect the lender’s interests.
Q: Is it true once a tax escrow has been created as part of a mortgage loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds.. applicationYour Application is a series of documents you must fill out when you apply for a home loan, or insurance policies. or refinancing and the loan has closed, and if the loan is with Fannie Mae, the property taxProperty Tax is a tax levied by a county or local authority on the value of real estate. escrow can’t be removed again?
I had initially applied for a loan modification which did not happen. But now, I am able to make the payments and I requested for the loan servicer to remove the escrow. I was told by law it cannot be removed. Is that correct?
A: While technically the loan servicer gave you correct information, it is not the law that the escrow can’t be removed, but rather the loan rules and guidelines for most loans that are held by Fannie Mae and Freddie Mac.
Once you have a real estate tax escrow in place, the rules allow for the tax escrow to be removed but in limited circumstances. Over time, you will be able to remove the tax escrow once you have made payments on the loan to reduce the loan balance to sixty five percent of the original loan amount.
Very generally, you can also request that the tax escrow be removed if you have had the loan for at least two years, have made all of your payments on time and have either paid down your loan to 65 percent of its original loan amount or you obtain an appraisalAn Appraisal is the opinion of an appraiser, who estimates the value of a home at a specific pointA Point is one percent of a loan amount. in time for the purpose of financing or refinancing a home. showing that the property has increased in value by a substantial amount and the home’s value now results in the loan balance being sixty five percent of the home’s appraised value.
For specific information on removing your real estate tax escrow, you should take a look at your loan documents. In your loan documents, you should have a disclosure from your lender relating to the tax escrow and the manner in which the money will be taken in and paid out. You should have also received a document that outlines the process and the timeline for getting rid of the tax escrow.
Given where the housing market is these days, it’s unlikely that you will find a lender willing to remove the tax escrow from your loan at this time. Lenders will probably take a hard line on tax escrows. If property values fall or a borrower decides that he or she won’t pay on a mortgage any longer, the lender wants to have as much money as possible in reserveThe Reserve is the amount of money set aside by a condo, co-op, or homeowners' association for future capital improvements. to pay real estate taxes.
If real estate taxes aren’t paid, the local governmental body in many states has the right to sell the unpaid taxes off. This tax sale process can lead to the property being sold and not only the homeowner but the lender could be out of luck and lose the equityYour share of ownership in a company. Stockholders are often referred to as equity investors, because they invest in the equity of a company. in the home and the lienA Lien is an encumbrance against the property, which may be voluntary or involuntary. There are many different kinds of liens, including a tax lien (for unpaid federal, state, or real estate taxes), a judgment lien (for monetary judgments by a court of law), a mortgage lien (when you take out a mortgage), and a mechanic's lien (for work done by a contractor on the property that has not been paid for). For a lien to be attached to the property's title, it must usually be filed or recorded with a local county government office. security the lender has in that home as well.
For this reason, lenders tread carefully to make sure that real estate taxes are always paid and with any loan given to a homeowner, if the loan balance is seventy or more percent of the home’s value (depending on the lender), the lender will generally require a tax escrow.
Recently, more and more lenders have been requiring insurance escrows not only on single family homes but on condominium buildings as well. On condominiums, the lender would require an insurance escrow not on the insurance carried by the condominium association but on the coverage for the contents in the home which, in a condominium policy, also includes the betterments contained in the condominium.