Escrow Account

In depth

Servicing escrow accounts collect monthly amounts for property taxes, hazard insurance, and sometimes mortgage insurance, paying these bills when due. Higher-Priced Mortgage Loan rules require five-year escrow accounts on first-lien consumer mortgages. Misconception: an escrow account is not the same as a closing escrow; servicing escrow is ongoing, while closing escrow is one-time. Practically, in seller-financed deals, sellers benefit from requiring an escrow account because it ensures taxes and insurance are paid, protecting the collateral. Note servicers handle escrow collections and disbursements professionally. RESPA limits the escrow cushion to two months of payments and requires annual analysis with refunds of excess. Buyers paying their own taxes and insurance must self-discipline to avoid lapses.