Dear Consumer Ed:
I told my mortgage lender that I would prefer to pay my property taxes in full each year instead of having a portion rolled into my monthly mortgage payments and held in escrow. Are they allowed to charge me a fee if I do that?
Consumer Ed says:
For conventional mortgage contracts, an escrow account is generally required unless the lender waives this obligation in writing. If your down payment is at least 20% of the value of the property, the lender might agree to waive the escrow requirement if you request it, but they are allowed to charge an escrow waiver fee for doing so.
It should also be noted that with certain types of loans, escrow cannot be waived:
- Federal Housing Administration (FHA) loans require that you have an escrow account for the entire term of the mortgage.
- While Veterans Administration (VA) loans do not require lenders to maintain escrow accounts, the VA does require that lenders ensure that the property is covered by adequate hazard insurance at all times and that property taxes are paid. For these reasons, most lenders use escrow accounts.
- A “higher-priced mortgage loan,” as defined by the Consumer Financial Protection Bureau, may require you to have an escrow account for at least the first five years of the mortgage.
Remember that if you are no longer paying your property taxes through an escrow account, you must pay the taxes to the city and county tax commissioners by the due date. If you fail to do so, you may be in default under the terms of your mortgage and be required to pay certain fees to the lender to avoid risking foreclosure. Your mortgage loan documents should contain an explanation of any applicable fees.
Submit your own question to Consumer Ed. Remember…we do not give legal advice. Always consult a lawyer about legal issues.