At closing, you will be required to deposit real estate taxes and insurance premiums into an escrow account (sometimes called an impound account). An escrow account ensures that the taxes and insurance will be paid, and on time. This protects the lender from tax liens and uninsured losses that the borrower can't repay. The federal Real Estate Settlement Act limits the amount lenders can require in escrow to a maximum of two months' payments. Escrow assessments and adjustments are generally made annually.

Understanding Escrow:

  • What is escrow?
    Very simply defined, Escrow is a separate amount collected along with your scheduled mortgage payment. The funds are collected to pay your future annual insurance premium and/or taxes. The funds accumulated in the escrow account may not be used for any other purpose. The California Escrow Law – Section 17003 of the Financial Code – provides the legal definition.
  • What are the benefits of having an escrow account?
    An Escrow Account allows you to set aside funds for your annual insurance premiums as well as taxes (if applicable) without the burden of providing the total balance upon policy renewal and/or notice of taxes due.
  • What is an escrow agreement?
    An escrow written agreement usually made between buyer, seller, and escrow agent to collect funds to pay insurance and/or taxe, but sometimes only between one person and the escrow agent. It sets forth the conditions to be performed incident to the object deposited in escrow, and gives the escrow agent instructions with respect to the disposition of the object so deposited. This agreement is signed at loan closing and is binding for the life of the loan.
  • Why Do I Need an Escrow?
    Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
  • Escrow – How Does it Work?
    The principals to the escrow – buyer, seller, lender, borrower – cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.
    The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.
    The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms and funds in accordance with instructions have been completed and provide an accounting for same – the Closing or Settlement Statement.
  • What is an initial escrow deposit?
    An initial escrow deposit is the amount that you will pay at settlement to start your escrow account, if required by your lender. This initial amount may be different from what you will pay monthly to maintain the escrow account. This initial amount will be listed in Block 9 of your Good Faith Estimate (GFE) (and Line 1001 of your settlement statement) and may change between your GFE and closing.
  • Is an Escrow Account required?
    Yes. Escrow company assumes responsibility for maintaining your insurance and/or taxes. Because the Escrow Agreement is valid for the life of the loan, the escrow payment may not be discontinued.
  • Escrow and Your New Loan
    If you are obtaining a new loan, your escrow officer will be in touch with the lender who will need copies of the escrow instructions, the preliminary title report and any other documents escrow could supply. In the processing and the closing of the escrow, the escrow holder is obligated to comply with the lender’s instructions.
    It has become a practice of some lenders to forward their loan documents to escrow for signing. You should be aware that these papers are lender’s documents and cannot be explained or interpreted by the escrow officer. You have the option of requesting a representative from the lender’s office to be present for explanation, or arrange to meet with your lender to sign the documents in their office.
  • Why do I need homeowner's insurance?
    Insurance coverage is required to protect you, as well as the Lender, against physical damage and/or loss of value to the home.
  • How is my initial escrow payment calculated?
    Your initial escrow payment will be equal to 1/12 of the total disbursements payable throughout the year. If you are on a bi-weekly payment plan, your escrow payment will be 1/26 of the total disbursements payable throughout the year.
  • Will I be escrowed for taxes?
    The state of California requires lenders to escrow taxes for loans with contract dates after June 18, 2003. If you entered into a Tax Escrow Agreement in another state, you will have an escrow payment for taxes.
  • What is an Escrow Account Analysis?
    This is an annual review of your escrow account performed by Vanderbilt to determine if your current escrow payment is sufficient to pay your insurance premium(s) and/or taxes. The Escrow Analysis is conducted approximately 45 days prior to the anniversary date of your loan. Adjustment(s) to your escrow payment as well as any refund amount due to you will be determined at this time.
  • What is an Escrow Account Disclosure Statement?
    This is an annual report distributed in accordance with the requirements of the Real Estate Settlement Procedures Act (RESPA). The Disclosure Statement will provide you with a detailed summary of your escrow account.
  • Could my escrow payment change more than once annually?
    Yes. Because your escrow payment is determined by your insurance policy premium, it may adjust with any changes to your coverage and/or insurance company. An increase in your insurance premium requires an increase in the escrow payment. Likewise, a decrease in your insurance premium requires a decrease in the escrow payment.
  • What is an Advance?
    An “advance” is a separate amount that is collected along with your scheduled mortgage payment for any expenditure that Vanderbilt paid on your behalf for items not described in your Escrow Agreement such as delinquent property taxes, Lender Placed Insurance Policies, etc.
  • Can my account have both an Escrow and an Advance payment?
    Yes. For example, you may have a total monthly escrow payment based on both insurance coverage and delinquent taxes paid by Vanderbilt on your behalf. The payment for insurance would be considered your Escrow Payment, and the additional payment for delinquent taxes paid on your behalf would be considered an Advance.
  • What happens to the money in my escrow account when I pay off my loan?
    Any surplus balance in your escrow account will be refunded to you.
  • What should I do when I receive the renewal notice from my insurance company?
    Review the notice to confirm that Vanderbilt Mortgage is listed as the Mortgagee. Please note that your Vanderbilt loan number must appear on the policy Declaration page to ensure both efficient customer service and accurate coverage information. If Vanderbilt Mortgage and Finance, Inc. ISAOA/ATIMA is listed as the Mortgagee, your insurance company will automatically provide a copy of the renewal notice to our office. Should you determine that Vanderbilt is not the established Mortgagee, please contact your insurance company immediately.