Refund Of Money Held In Escrow

Added May 16, 2006 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: Many homeowners pay money into escrow for their taxes and home owner's insurance. When the borrower pays off the loan in full, the borrower is entitled to a refund of all money held by the lender for both the real estate taxes and insurance premiums. Generally, Federal regulations require lenders to return the funds within a month or two.

Q: How long can a lender take to return funds held in escrow for the payment of real estate taxes and insurance once the loan is paid off?

Does the lender have to pay interest on the money if they take too long to pay the money back?

A: Good question. Most borrowers escrow the cash to pay real estate taxes and homeowners' insurance premiums. Each month, one-twelfth of these payments are added to the mortgage payment that is due.

While some lenders don't require any deposits, and others may only escrow for real estate taxes, when the borrower pays off the loan in full, the borrower is entitled to a refund of all money held by the lender for both the real estate taxes and insurance premiums.

In some cases, lenders will apply the refund for real estate tax and insurance escrows towards the money needed to payoff the loan. But in other cases, the lenders wait to receive the final payment and then release the money.

Generally, Federal regulations require lenders to return the funds within a month or two. If they fail to return the funds within that period, you can file a complaint with the Department of Housing and Urban Development against the lender.

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