mortgage escrow account closure

July 30, 2017 11:03 AM

I have a mortgage on a property in California. The loan initially had no requirement for an escrow account to handle property tax and insurance, but we opted to open one. The lender sold the loan (and again; we're on our third mortgagee). Can the current mortgage holder require us to keep the escrow account, or can we just close it and handle the taxes and insurance ourselves, even if the mortgagee wants to keep it open?

We have never made a payment late, and our tax and insurance are current, but my credit rating has gone down significantly since we took the loan (from ~730 to ~650). The escrow account at present has a negative balance, so I realize that of course we must pay the mortgagee the balance.

posted by windsock to Work & Money (3 answers total)

I'm confused - I think it is unusual for an escrow account to have a negative balance - that means the bank paid your insurance or taxes for you and now you need to pay them back??? In that case, wouldn't it make more sense to leave things as they are and gradually pay it back in instead of having to come up with a lump sum? Or are you somehow behind on your payments?

Anyway, if you are going to argue that it is reasonable, then you would want to make sure your Loan to Value ratio is less than 80% based on the last appraisal on file with the bank and a track record of on time payments, which you have. They might agree if that is in accordance with their own policies.

If you want to argue that they should do it based on the terms of the original mortgage, you would need to find where exactly in the mortgage it was specified - pretty sure they won't go and look up the original loan, if they even have a copy of it. So you would need to show it wasn't required and be prepared to argue (and might still lose).
posted by metahawk at 11:59 AM on July 30, 2017

Response by poster: Clarifications: It's an investment property. The escrow balance is negative because property taxes doubled due to reassessment after the escrow account was set up. We can manage the escrow increase due to taxes, but our cash flow doesn't cover the monthly escrow reserve buildup the mortgagee wants. So we want to know if we have the right to close the escrow account.
[no more threadsitting]
posted by windsock at 12:58 PM on July 30, 2017

Best answer: When the Escrow Account was instituted, you signed some documents. You will need to read those.

I don't believe that California law would require it, but your contract might. Read the documents from closing, specifically whatever discusses the escrow account, and also review the Deed of Trust.

If the documents say it is permissive so long as {conditions}, then you will have to demonstrate those conditions. If you demonstrate those conditions and the mortgage holder does not relent, you may need to see an attorney.

When talking with your mortgage holder, try to only use writings -- emails, fax, or snail mail. If they insist on phone calls, get their contact information to follow up immediately in writing (Agent 2387490: To summarize our conversation, ...... please let me know if anything above is incorrect, missing or misleading. Thank you.)

(IAAL, IANYL, TINLA)
posted by China Grover at 1:38 PM on July 30, 2017