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Refund Of Money Held In Escrow

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM # LAW 697

By Ilyce R. Glink and Samuel J. Tamkin

Summary: Many homeowners pay money into escrow for their taxes and home owner's insurance. What happens when you pay off the mortgage? Sam and Ilyce help a reader decide if the bank was delinquent in paying back their unused escrow money.

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?
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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.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




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