JSMedia – Bankruptcy lawyers in the New York and Los Angeles area have been warning consumers about mortgage escrow double-billing, and federal investigators are now looking into the matter. While the exact amount of phony profits is unknown, analysis of 2011 bankruptcy cases suggests that the mortgage escrow fees were topped up by up to $150 million. The scandal also prompted the US Trustee’s office to launch a review of bank practices related to alleged fraudulent practices.
Escrow double-dipping by mortgage lenders is an incredibly common scam. It is a practice wherein a mortgage lender charges a debtor twice for the same escrow arrears. Although this practice is common, it can have devastating consequences for homeowners and their credit scores. If you have an escrow account, you should ensure that it’s properly funded. The lender should be able to collect the funds each month, but not double-dipping.
Some mortgage lenders also charge homeowners insurance and property taxes out of the escrow account. As a result, troubled borrowers may get double-charged for escrow funds. On average, a borrower can expect to pay up to $2,000 in fees due to this practice. Jay Patterson, a forensic accountant in Manhattan, says this is a widespread scam resulting in millions of dollars in unnecessary expenses.
Beware of Escrow Double Dipping by Mortgage Lenders
A lender’s escrow account can contain over-the-limit money. Federal regulations require a minimum of $6,137 in escrow each year. If the lender collects more than that, it must refund the money it collects. However, the lender can force the borrower to pay the difference, which means he’ll make a lot of mistakes. In some cases, escrow funds are used to cover the shortfall.
While mortgage escrow double-dips are a common issue, the process is complicated and highly regulated. While the federal law provides guidelines, states may differ from one another. Those who are interested in learning more about the escrow process should consult their state’s homeownership advisor. As a result, the borrower should be cautious when dealing with a mortgage encumbrance.
The mortgage lender is required to make escrow accounts for homeowners who have an 80% loan-to-value ratio or higher. This is a practice that can result in foreclosure. Even though the lenders are not legally obliged to pick the best coverage, they do not have to. Therefore, borrowers should be careful when dealing with escrow agreements. There are several risks associated with double-dipping, which is why it is important to understand them.
It is critical for homeowners to be aware of the risks involved. For example, property taxes can be as high as six-hundred dollars a year. If the homeowner is unable to make the payments, the lender may force the homeowner to buy a replacement policy. In such cases, the lender may not be able to protect the borrower’s interests. If forced insurance is the preferred option, the lender is not required to choose a better policy for its customer.
It is important for homeowners to know that the lender will use their escrow account to double-dip property taxes. The amount paid is a percentage of the total purchase price. This is a significant amount and could have significant ramifications. In some cases, the escrow account is used to cover the entire cost of a mortgage. It is important for home buyers to understand what is entailed.
In order to avoid this practice, homeowners should avoid paying too much escrow. If the monthly escrow payments are too large, the lender may double dip. Depending on the lender, the monies deposited into the escrow account are not enough to meet the mortgage repayments. A borrower should always shop around to find the best mortgage deal. You will never regret it.
Most states do not require mortgage lenders to pay escrow interest. The money you deposit into your escrow account is not required to be credited to the lender. The interest earned on a prepaid account is not enough to buy a decent dinner for two. This escrow method also affects the bank’s reputation. Hence, if you’re borrowing money from the bank, you should consider avoiding double-dipping by mortgage lenders.