First time homebuyer, purchased in May 2009. We are AD military and used our bank (USAA) that provided relocation services, including helping w/ our VA loan. I spent numerous hours educating myself on the whole home buying process. I don’t think we had a choice on the escrow account being a VA loan. They required 3 months prepaids of taxes and 10 months prepaid for insurance. We received an “escrow analysis” in April 2010 indicating we were $7900 short in escrow and our monthly mortgage payment would increase by $1100 in order to make up the shortage for the following year! I literally cried…how could this have gone so wrong? Where did I make a mistake? Thought I was so careful! No way we prepared for an $1100/mo increase. It was bad!

Come to find out through many, many phone calls to escrow dept, county tax departments, title company, etc, the tax certificate used at closing to estimate the taxes were from Feb 2008…remember, I closed in May 2009, so a new assessment had been done in Feb 2009…it was $200K more than previous year assessment. That’s right, the title co or bank (no one claims responsibility) used a tax assessment on unimproved property. I felt violated! And to boot, when I called my bank, I got, “yeah, I see that all the time, so sorry that happened to you”. Are you kidding me? Is there not a law that prevents a lender from using a tax assessment on unimproved property? We were able to spread the “shortage” of $7900 over 36 months. That was the first foul. Second, we recently considered refinance and I called the escrow dept to inquire about the exact amounts paid for taxes in Dec 2009 so we could use these figures in our estimates. Get this, found out, in addition to the regular taxes paid in Dec 09, the escrow dept paid a property tax bill in Sept 2009, out of our escrow, for property taxes assessed in 2007! Remember, we bought the house in May 2009. Unbelievable!! Boy, have I learned some hard lessons. The escrow dept has offered up allowing us to manage the escrow for both taxes and insurance. Thanks for the advice. Looks like I will be managing my own from from now own!

It is a nice little boost to my short-term emergency fund — I’d never want to spend my property tax money on something else, but it puts my mind at ease to know I have access to that money to handle any unexpected cash flow issues, and lets me lock up more of my “real” emergency fund in slightly less liquid savings.

One question I have is if the Bank royally f’ed up your payment to either insurance or county/municipality, is the Bank/escrow liable? Or is it still you?

If it’s still me that’s responsible even if the escrow account was negligent, then I can see how escrows are useless, and handle them myself. However, I have way too many bills. Worrying about 2 less bills is very much appreciated right now.

Banks make money by having escrow payments in the bank and while I’m sure they wouldn’t knowingly do anything illegal (ya right), if a payment gets messed up and stays in their possession, earning interest for them, I doubt they would do much to fix the situation since it’s not their house that will be in jeopardy.

That said, I still prefer to manage my own, but I made one mistake, just once paying my tax bill late (the envelope was ready to go and had the check written two months in advance, but the envelope got buried in a pile of papers). It cost me $500.

Pennywise, pound foolish.

In CA I consider escrow to be a non issue either way

To add to the matter, a relative paid off an escrowed mortgage and didn’t think about the escrow. I am not sure what happened with their property taxes,but their insurer dropped them without ever trying to contact them (non-payment). They didn’t realize until they were sued. I am quite sure most people don’t think about it when they pay off their mortgage. An extreme example, but makes a point. These are very financially savvy people who weren’t paying any attention to their insurance. You shouldn’t just turn off your brain because someone else is handling it.

Anyway, I have found lenders want you to escrow. I have bought and refied numerous times and always have to ask 10 times not to have escrow, and then cross it out when we sign. I was shocked during our last refi when a broker friend actually took the escrow out of the paperwork. Was a nice change. IT has never cost more or been an issue, otherwise. We did put over 20% down on our homes.

I’ve had an original loan of 80% with a 15% HELOC (2nd), refi’d 2 times and opened/refi’d a HELOC 2 times and have always paid my property taxes, HOA dues, and internal insurance on my own. I have heard of this before, but the mortgage brokers / Credit Union (HELOC) never offered/required it.

I typically use a SmartyPig account to fund my property taxes with.

Once for unexplained reasons the City of Boston returned a payment to GMAC. GMAC redeposited the money back to my escrow. Neither the city nor GMAC informed me of this event. However, within 6 months, the city decided to issue a lien on my property due to lack of payment.

when I received the lien notice, I immediately called GMAC and they sent the extra payment for me to get current. However, a lien is a nasty thing to have on your credit report. That took me years to get rid of. Not to mention I had to pay an attorney to help get the lien removed from my credit report, and file an article of tax title redemption with the local registrar of deeds.

Unfortunately since my refi last May to get to a 4.65% rate with BoA, I could not get such a low rate if I did my own escrow. So… I am still using BoA escrow services and hoping they do a better job.

The City of Boston never could explain why my payment from GMAC was returned. It is also infuriating that they take no ownership of the problem which was caused by them returning the damned check to begin with!